Four Automakers Proved States Can Move the Climate Action Needle

A new voluntary agreement between four top automakers and the state of California is a powerful illustration of the impact that business stakeholders are having on the transition to a low-carbon economy in the U.S. Rather than taking their lead from policy makers at the federal level, businesses are working with forward-thinking states to accelerate the adoption of new clean technologies.

A historic shift in climate action

For decades, auto manufacturers could count on federal policy to reflect California’s leadership role on curtailing tailpipe emissions.

Though often onerous from the perspective of automakers, a strong federal policy on emissions ensured them of access to a single, nationwide market.

That relationship has been upended in recent years. California adopted a new set of emissions rules during the Obama administration, but now federal policy makers are attempting to enforce more relaxed standards nationwide. The bottom-line benefit of a unified market is at risk of evaporating.

The situation is complicated because California is a leading auto market in its own right. In addition, 13 other states have already committed to California’s latest standards: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington.

Allowing some states to adopt lower standards would break the U.S. auto market into at least two parts, creating new headaches for an industry already beleaguered by declining sales and other economic forces.

The new California auto emissions agreement

Considering the high bottom-line stakes involved for automakers and their supply chains, it’s little wonder that the new California emissions agreement grabbed the media spotlight.

California Governor Gavin Newsom announced the new agreement on July 25. He positioned it as a means of accelerating the transition to electric vehicles, and also as a direct benefit to both the auto industry and the California economy.

By helping to maintaining a stable, reliable regulatory environment that provides certainty for auto manufacturers, the new agreement also helps to support job creation and economic growth.

Ford, Honda, BMW of North America and Volkswagen Group of America are the four auto manufacturers that formally support the agreement. It calls for California to continue its plan for emissions reduction, though allowing for an additional year for compliance. The new target is model year 2026.

The new framework applies to cars and light duty trucks. Though slightly longer than the original timeline, it will still have a significant impact on climate action in the U.S.

In adhering to the new agreement, the four automakers are aiming for a goal of reducing greenhouse gas emissions nationwide by 30 percent or more, compared to the reduction that would result from a two-tiered standard.

In contrast, the Trump administration is preparing to freeze standards at model year 2020 through 2026.

A new wrinkle climate action

The agreement is also significant because it provides a new pathway for business stakeholders to exert pressure on federal policy makers for climate action.

The Trump administration has argued that California has no authority to unilaterally impose stricter standards. By reaching a voluntary agreement, the four automakers have neutralized that argument.

Now that the agreement has been formalized, it is likely that other global auto manufacturers will follow the new standards

Last month, Reuters reported that a group of 17 leading auto manufacturers — including General Motors, Toyota, VolkswagenDaimler AG, Hyundai and Honda  — wrote to both Governor Newsom and President Trump, urging a compromise.

The EV revolution and climate action

The new framework also cements the role of electric vehicles in the auto market of the future.

It includes fleetwide incentives for manufacturers to accelerate production of electric vehicles.

The framework also removes a previous requirement that manufacturers account for greenhouse gas emissions associated with electricity generation.

Those upstream emissions were a significant concern when coal dominated the power generation sector in the U.S. However, coal has faded out of the picture in favor of natural gas, and now low-cost renewable energy is beginning to push both coal and gas aside.

Why the California agreement matters

Until now, much of the business activity in the climate action area has centered around demand for renewable energy. The new California agreement represents climate action on the supply side, in which manufacturers aggressively advocate for continued progress on climate action.

A similar dynamic has long been at work in the appliance field, where the industry has continued to support the EPA’s popular Energy Star voluntary incentive program for energy efficient products.

Also of interest is the fact that the transportation sector is now the leading source of greenhouse gas emissions in the U.S. The California agreement demonstrates that auto manufacturers are determined to pass that mantle on to another sector.

In addition, by voluntarily affirming the right of state-level policy makers to push the envelope on clean technology, electric vehicles and climate action, the auto industry is shrinking its exposure to other areas of conflict related to fossil fuels.

To cite just two recent examples, the state of Washington has come under siege from North Dakota and Montana over its new regulations that effectively prevent their oil from entering its borders by rail, and Michigan has sued the Canadian company Enbridge for removal of an oil pipeline in the Great Lakes.

Image credit: BMW USA