What Has California’s Air Board Been Doing? Dan Sperling Connects the Actions Together

I am taking on the task to explain to you what we’re actually doing in California. You’ve heard various presentations about how we’re doing this, we’re doing that, there’s a zero-emission vehicle mandate, various other low carbon fuels, and so on. I’m going to try to fit this all together and to convince you that it is a coherent and compelling approach to dealing with transportation, climate change, and energy, governed by what is practical. 

I am an academic, but I am also a regulator—a policy maker on the California Air Resources Board. I hold the transportation seat on the board, and therefore I’m the point person on a lot of these regulations dealing with vehicles and fuels that are being adopted. I’m going to present this to you less as an academic and more so as a regulator and policy maker because many of these policies may not necessarily be what an economist or even an engineer might say are the most efficient ways of doing this. It is, however, the best way to do it in terms of what is practical. 

When we talk about vehicles and fuels there are essentially four sets of linked policies that we have in California, and I’m going to go through each one of them. What’s very interesting is that we’ve either updated or adopted each of these in the past few months. The implementation process is just starting or is about to start. These standards can be categorized into two groups, or they have two attributes to them. First, some of them are intended to overcome initial barriers, overcome market conditions, market failures, and just to get things going in terms of new fuels and new vehicles. 

Second, there is the other set of policies—performance-based standards that are intended to be the durable, permanent regulatory framework and policy framework for the foreseeable future. The other ones, by contrast, are just dealing with start up phase and are going to disappear. At least that’s the philosophy. I know there are skeptics out there who think that once the government adopts something it’s on the books, creates constituencies, and never disappears, but in California we are better than that. (That was only half a joke). 

The overall vision that we’re looking for in California is really motivated by the goal of an 80 percent reduction in greenhouse gases by 2050. At the California Air Resources Board (CARB) we’ve developed scenarios to say, “OK, to get to 2050, what does it have to look like in 2050?” We then back cast to the present to discern what pathways exist to get there. This is one of the scenarios, you might have seen others, but all of them end up with having ZEVs (zero-emissions vehicles), battery electric vehicles, plug in hybrids (we call plug in hybrids ZEVs, which is bending the definition a little bit or a lot). In almost all of these scenarios they comprise around 80-85 percent of the vehicles on the road in 2050. All of these policies and rules are really being put together to get us to that goal. California is taking a chance here; the seas are parting. Let’s see if we can make it to the Promise Land. 

The first set of policies that I want to talk about are these vehicle performance standards—what are known in Washington as the CAFE standards (Corporate Average Fuel Economy standards). In the US now we have greenhouse gas standards for vehicles and fuel economy; they’re developed in conjunction, and they’re aligned to essentially result in the same outcome with the vehicles. As I said, this is the durable policy framework that is meant to guide the transition to these very low carbon, very efficient vehicles of the future. It’s probably the most important policy, certainly on the vehicle side. 

The US and every major country in the world have either fuel economy or greenhouse gas standards. The US has the biggest vehicles—the biggest gas guzzlers, as we call them—but we are now on a trajectory to dramatically improve the efficiency of the carbon footprint. The movement in the US to improve fuel efficiency and to reduce greenhouse gas emissions started in California in 2002 when we passed a law requiring a 30-40 percent reduction in greenhouse gases by 2016. That had a very long, tortured path. There were many lawsuits—the car companies sued; California sued the Federal Government because the Bush administration wouldn’t comply. It was kind of messy, but there’s a happy ending. 

When President Obama came into office he adopted the California Rule. He thought it was such a good idea he wanted the whole country to use it. Since then, the Federal Government has worked together with California to adopt these new standards for 2025, and a few months ago our board, the California Air Resources Board, adopted these new aggressive standards through 2025. The EPA and the US Department of Transportation will be adopting them nationally sometime later this year. They’ll be aligned, and we hope they will be identical. 

I do not want to get into the details too much. I don’t know if we’re catching up with Europe, but we’re closing the gap, certainly, from where we were before. Essentially, what we’re going to be doing is cutting fuel consumption and cutting greenhouse gases per vehicle mile in half between 2010 and 2025. That’s pretty dramatic. For those of you who remember the last 25-30 years, especially in the US where nothing happened with the fuel economy standards, this is really a revolutionary step.  

What we’re seeing now, not just in the US but really world wide, is a revolution in the automotive industry. There has been a real turnabout in a technology sense, in an investment sense, in an innovation sense, and in a policy sense. We are now seeing that the auto industry is fully on board with these very dramatic reductions. 

We just adopted it a couple months ago in California, and I’ve met with all the senior executives from all the car companies. Every one of them said, “We’re on board; we’re committed to it; it’s hard, but we’re committed to making it; we’re putting our resources into it.” They didn’t argue with this rule at all—they quibbled with some little details, but they didn’t question the goal and the rule itself for 2025. This is really dramatic. This is a dramatic shift for the industry and for the whole public-private atmosphere from what it was a few years ago. 

This policy and regulation doubles the fuel economy, improving efficiency by 50 percent. But what does that mean for electric drive vehicles? How are consumers and manufacturers going to comply with it? Analyses done from a cost perspective and from an automotive perspective show that from a pure economic logic—a rational automaker behavior perspective—people will be phasing out conventional internal combustion but still sticking with internal combustion engines through 2025. This will be advanced combustion. They’ll be making lightweight materials, and there will be better transmissions, and so on. But we’ll still really be sticking with the basic internal combustion engine technology. Electric vehicles will form only a small portion of the entire market.

So if this really is the case, and if we go back to that earlier point where we say we really need to get to this 80 percent reduction, then this doesn’t work because it is a slow process. If you start with a slow investment in electric drive technology, if you don’t get started soon in a major way, you’re not going to get to those reductions by 2030, 2040, or even 2050. So that’s the motivation of the zero emission vehicle mandate—to kick start thing and to get them going faster than what’s indicated here. 

The second part is the zero-emission vehicle program, which I just told you about. A lot of people have heard about it; it’s been around since 1990. It’s also lead a tortured life, with lawsuits, changes, and so on, but we just adopted new rules a few months ago that make it much stronger. Again, the auto industry came to us and they said, “We’re not arguing with you; we’re committed to this; we’re going to try to do it; there are only a few little details that we want to quibble with.” But basically they said that they are committed to this goal. This goal holds that by 2025 about 15 percent of the new vehicles sold will be what we’re calling zero-emissions: plug-in hybrids, battery electric vehicles, and fuel cell electric vehicles. About half the vehicles would be plug-in hybrid actually out of that 15 percent of new sales. 

Just like all regulations and policies, it’s never as simple as it seems from first glance. So there are some complicated calculations about how much a PHEV is worth compared to an all-electric fuel cell vehicle. We have formulas for equating that. Until now, this has only affected six companies. It’s going to go up to twelve companies—basically all the major car companies in the world. 

The other part is that the rule doesn’t apply just to California, and that is why this is so important. In the US other states are allowed to adopt either what California does or what the Federal Government does. Ten states are adopting what California does, so in effect about 30 percent of the US market will be adopted by this ZEV rule. 

A third major part is following the same idea as the ZEV mandate, which is kick starting the technology and accelerating it faster than it would using a normal market-based approach or even a performance-based approach. It is something we call a Clean Fuel Outlet requirement. It is a hydrogen fueling station requirement. We just adopted a rule that requires oil companies to build hydrogen stations depending on when the vehicles are available and when the car companies say they are going to sell them. It’s expected to start around 2015 or 2016, but, again, this depends on when the car companies actually make firm commitments to getting those vehicles out there on the road. 

The last one is the low carbon fuel standard, which is probably a little more secondary from an electric vehicle perspective, but still plays a very important role. This is the idea of somehow making the transition from oil to low carbon fuels, electricity, hydrogen, and biofuels. There is this fuel-du-jour phenomenon where we keep trying new fuels, we hype them up, and then the hype becomes so great that, of course, they can’t meet the hype. So they fail. Everyone gives up, and then we shift to another fuel. 

The risk is we’ll do the same thing with electric vehicles. I think we’re not at risk of that here. I think we’ve got it high enough up, but it certainly can stagnate. The question is then: what happens next? 

Without policy we would just go right back to the top and start all over again. We need aggressive policy that makes sure we internalize energy security and carbon emissions into the decision-making processes. The economists and businessmen in the crowd would love to have carbon taxes. Carbon cap-and-trade is the second choice. I’m all for it too, but we’re not going to see taxes so the approach that we’re talking about is probably the one that’s going to be the most effective. In any case, because of all these market failures and market conditions, you do need aggressive policies, regulations, and ZEV mandates to really get things going. 

You put all this together—the future we see in terms of carbon reduction and oil reduction—and you see that most of the reductions in the next 10-15 years are going to come from the vehicle side. It’s about making them more efficient and gradually introducing the electric drive vehicles. The question then becomes: is California showing the way to the Promised Land? Or are we going to be swept away and never hold another one of these conferences in California again?