For many U.S. industries, uncertainty over how to address the global climate change issue is one of the largest business risks they face.
Indeed, Jack Smith, chairman of General Motors, identified climate change as the most important public policy issue facing the motor vehicle industry.
If regulators and lawmakers are to regulate the auto industry’s impact on climate, the industry, and the scores of supplier industries that serve it, are anxious that they do so prudently.
The crux of the issue is, What constitutes prudent action?
The following observations–based on the development and commercialization of advanced motor vehicle technology–may help answer that critical question.
The most basic observation is that without major policy interventions, fossil fuels–oil, gas, and coal–will remain the dominant energy sourcein the U.S., and gasoline will remain the dominant transportation fuel for many decades. Indeed, reliance on fossil fuel technologies will likely increase in the next several decades.
Alternative-fuel vehicles that run on ethanol, methanol, compressed natural gas, liquefied petroleum gas, or hydrogen have the potential to reduce carbon dioxide emissions by as much as 25 percent over gasoline. Such vehicles are in the market today in limited production, as are bifuel vehicles that run on both alternative fuels and gasoline. However, the high cost of these vehicles, limited feedstock production, and lack of delivery infrastructure are major obstacles that must be overcome before these vehicles can be widely used.
The abundance of cheap fossil fuels has important policy implications. For example, attempts to mandate conservation through traditional command-and-control policies, such as the Corporate Average Fuel Economy Standards (CAFE), drive a wedge between private demands and public goals, resulting in high costs and little conservation. In the motor vehicle industry historically low gasoline prices have resulted in little market demand for vehicles with improved fuel economy.
That the value of fuel savings to consumers is simply not sufficient to cover the added cost of new technologies to increase fuel economy or to compensate for sacrificed safety and performance is evidenced by the fact that the ten cars with the highest fuel economies in the U.S. account for less than 2 percent of car sales. Indeed, consumers have offset much of the recent gains in fuel economy by purchasing larger, more powerful vehicles with added safety, convenience, and performance features.
The second fundamental observation is that technology does not fall like manna from heaven. It comes from research and development, and it requires time, resources, and money.
The motor vehicle industry is investing over $1 billion in advanced technologies to improve fuel economy and reduce carbon dioxide emissions.
The public policy implication here is that regulators and lawmakers cannot mandate emission reductions or fuel consumption and calculate costs based on the assumption that new, cost-effective, commercially viable energy technologies will simply appear when needed. Policy decisions must take into account the technical, economic, and market obstacles to successful technological innovation, rather than assume them away.
Promising new technologies include direct injection, stratified-charge gasoline engines, direct injection compression ignition engines, continuously variable transmissions, and lighter-weight vehicle structures using aluminum and polymer composites. Vehicle weights could be reduced by nearly 40 percent, and fuel economy increased to over 40 miles per gallon.
Direct injection gasoline engines provide 15 to 20 percent gains in fuel efficiency over conventional gasoline engines, but they are more costly and have difficulty meeting nitrogen oxide (NOx) emissions standards. Compression ignition engines, which improve efficiency 30 percent over conventional gasoline engines, are particularly important for sport utility vehicles, vans, and light-duty trucks. However, compression ignition engines cannot meet more stringent standards for NOx and particulate matter in the U.S. with current transportation fuels.
Technology is advancing rapidly on hybrid vehicles that combine two energy sources (e.g., a battery and an internal combustion engine) with an electric drivetrain and motor. Hybrid vehicles are as much 25 percent more efficient than conventional gasoline engines, but they are also more complex and costly.
It is technically feasible to achieve fuel economy in the 65 to 80 miles per gallon range with a hybrid using a battery and compression ignition engine.
Hybrid vehicles are in limited production today, and additional prototypes will be ready in the U.S. as early as 2001. As with electric vehicles, the development of low-cost, high specific power batteries is critical to their commercial success.
Given these rather elementary observations on technology development and commercialization, and their rather clear implications for public policy, one must wonder why U.S. regulators and lawmakers seem so intent on mandating a costly and unproductive 30 percent reduction in emissions in the short-term, and are so unable to marshal an effective long-term research and development policy to develop the new energy technologies needed to address concerns about climate change.
The obstacles to developing effective policies for addressing climate concerns lie in the fixation on short-term politics and political agendas, rather than on long-term technology development.
The United States needs to de-politicize the current debate about climate change policy, and focus the dialogue on creating a policy environment that supports long-term investments in energy research and development, risk-taking, capital investment, innovation, and successful market commercialization of the needed technologies.
Thomas G. Marx is a manager in the Public Policy Center for the Global Climate Issue for General Motors Corp.