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Auto negotiations test Biden’s vow to create a climate-friendly future

Administration seeks a way to nudge U.S. consumers to buy EVs, which account for just 2 percent of sales

A Volkswagen ID.3 electric automobile, left, and an ID.4 electric SUV on display at the automaker's facility in Wolfsburg, Germany, last week. (Liesa Johannssen-Koppitz/Bloomberg News)
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Phasing out the internal-combustion engine is critical to President Biden’s vow to retool the American economy for a low-carbon future. In a massive infrastructure plan set to be unveiled Wednesday, Biden is expected to signal just how far he is willing to go to achieve his climate goals.

Environmentalists say Biden must set an aggressive deadline — as early as 2035 — for when all new vehicles must be carbon-free. But car manufacturers are demanding generous federal incentives to speed the transition to electric engines. And union leaders are warning that the switch is virtually certain to cost their members jobs.

Serious negotiations are just beginning. Over the weekend, Rep. Debbie Dingell (D-Mich.), a former auto industry executive who represents a union stronghold southwest of Detroit, convened a discussion among the rival factions, urging them to pull together behind Biden’s vision of a robust market for electric vehicles, in part by establishing a nationwide network of charging stations.

“We’ve got to stop pitting people against each other,” Dingell said in a phone interview. “We have to protect jobs in this country, and the goal of protecting our environment and addressing climate change is critical.”

Meanwhile, many warn that the United States risks losing jobs and its share of the world auto market unless it embraces change now.

“The biggest vulnerability that we have is not moving fast enough,” said Fred Krupp, president of the Environmental Defense Fund. “Then other countries create the manufacturing facilities and then produce the vehicles that people want.”

The immediate question the Biden administration faces is what sort of mileage and greenhouse-gas standards to set for cars and SUVs between now and the 2026 model year, after the Trump administration weakened targets set under President Barack Obama. A year ago, the Environmental Protection Agency and the National Highway Traffic Safety Administration finalized a rule to improve average fuel efficiency by 1.5 percent per year, compared with a nearly 5 percent annual increase set to take effect under the Obama rules. But five automakers — Ford, Honda, Volkswagen, BMW North America and Volvo — have struck a deal with California that raises it about 3.7 percent annually.

California, the world’s fifth-largest economy, has significant leverage with industry because it was given authority under the Clean Air Act to establish its own limits on tailpipe emissions, which more than a dozen other states follow. Next month the Biden administration plans to restore that authority, which was revoked under President Donald Trump.

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The division among the automakers makes a deal with the Biden administration more complicated. The companies that struck an accord with California do not want the other companies, including General Motors, to be effectively rewarded for their embrace of the looser Trump rules.

In September, California Gov. Gavin Newsom (D) signed an order barring the sale of new gasoline and diesel-powered cars and trucks by 2035. Stanley Young, communications director for the California Air Resources Board, said in an email that the state “continues to advocate for the most rigorous vehicle standards possible,” consistent with that goal.

John Bozzella, chief executive of the Alliance for Automotive Innovation, which represents carmakers, told reporters Tuesday in a phone call that his industry is open to near-term levels at “a rough midpoint” between the Obama and Trump standards.

How to buy an electric car

While the administration has set a July deadline to resolve that issue, the more fundamental question is how it will manage the transition to a carbon-free fleet that will not materialize for years, probably after Biden leaves the White House. The last time a Democratic administration struck a deal to set greenhouse-gas emissions standards for cars and light trucks, labor unions did not play a prominent role. But now they have a major voice as the president weighs decisions that could overhaul the industry.

“Workers will disproportionately suffer if we do not get it right,” United Auto Workers President Rory L. Gamble said in a statement. “Currently, EV batteries are mostly made by suppliers in other countries, with China in the lead. And where automakers are entering battery production, they are often doing so through joint ventures with battery companies that have an unknown track record on providing quality jobs.”

The new infrastructure package calls for support for retooling auto plants and incentives for manufacturing advanced batteries in the United States, according to two individuals briefed on the matter who spoke on the condition of anonymity because it had not been released yet.

“We’re going to hear about historic investments done in a labor-friendly way and in a way that makes sure the vast majority of jobs are done in this country,” Gene Karpinski, president of the League of Conservation Voters, said in an interview, referring to a speech Biden plans to give about the infrastructure plan in Pittsburgh on Wednesday.

On Monday, the Alliance for Automotive Innovation, the UAW and the Motor and Equipment Manufacturers Association sent a letter to Biden outlining a half-dozen tax credits they are seeking, as well as several grant programs and loan guarantees to help transform the nation’s auto fleet. While they support the president’s vision, they wrote, the reality remains that electric vehicles make up just 2 percent of the U.S. market and government help is needed to expand the market.

But ambitious funding plans largely depend on Congress. Bozzella said he was optimistic Republicans could support many of them. “On both sides of the aisle, members of Congress are concerned that we maintain our competitiveness as a country and that we work on technologies that improve our economic security,” he said.

Meanwhile, automakers are concerned about the scarcity of materials and parts needed for manufacturing electric vehicles.

“It takes seven years to build a lithium mine and 2½ years to build a battery plant,” said Simon Moores, managing director of Benchmark Mineral Intelligence, a London-based analytical firm that specializes in lithium-ion batteries. After that, he warned, the companies “will hit a wall of demand” in the United States while trying to get up to speed.

A Moody’s Investors Service report last week forecast “a long road” ahead for battery electric vehicles, or BEVs. “Achieving adequate returns on this growing BEV portfolio will be a major challenge for car companies,” it said, citing “roadblocks” such as high battery costs and insufficient demand.

Still, experts said the U.S. government has to chart the path for the industry now, because motorists typically keep their vehicles on the road for 15 years or so. And environmentalists argue that the nation cannot meet its climate goals without working back from a point where carbon-emitting cars and trucks are no longer sold.

“Even if there were sentiment from consumers, it’s incredibly difficult to replace the vehicles on the road,” said David Keith, a professor at MIT. “Those cars will be on the road for the next 15 to 20 years.”

Some major U.S. automakers are already planning to phase out gasoline- and diesel-powered cars. GM has pledged to accomplish this by 2035, while Ford Motor Co. doubled its investment in electric vehicles to $22 billion by 2025, adding that the majority of its vehicles would be electric and that gasoline and diesel cars would be hybrids or plug-in hybrids. FedEx plans to electrify all its delivery vehicles by 2040, the year it plans to become carbon-neutral. On Tuesday, the German automaker Volkswagen announced it had renamed its U.S. operation Voltswagen of America, to signal its commitment to electric vehicles. Hours later, after the name change was widely reported, the company said that it was a publicity stunt to stir interest in its electric-vehicle strategy and that it would stick with Volkswagen.

Tracking environmental actions under Biden

Biden’s national climate adviser, Gina McCarthy, has not yet had extensive negotiations with the automakers about tightening carbon emissions standards or whether the government should set a timetable to phase out internal-combustion engines. But heavy lobbying by automakers at the state level suggests how they plan to deal with the Biden administration.

In Virginia, for example, the Alliance for Automotive Innovation pressed hard for the state to commit $720 million over the next five years to building charging stations and provide $2,500 cash incentives to customers who bought electric vehicles. The automakers also sought, with only modest success, to weaken legislation under which Virginia would mimic a California program that penalizes companies that fail to deliver enough electric vehicles.

This month, Virginia Gov. Ralph Northam (D) signed all but one bill in a four-bill automobile package, providing the $2,500 cash incentives, with an additional $2,000 per car for those who qualify as low-to-moderate-income.

Northam also signed a measure that would make Virginia the 15th state to seek an EPA waiver to implement a tailpipe emissions program like California’s.

The carmakers resisted the system California has in place. It requires companies to buy “zero emission credits” if they fail to deliver increasing numbers of electric vehicles, which make up 8 percent of car sales in California. Under Virginia’s new law, automakers will have to comply after two years, even though EVs account for only 2 percent of Virginia sales. However, through negotiations, the automakers’ trade group was able to double count the credits banked in California and use them to cover up to 18 percent of their obligations in Virginia.

“We object to this approach because it does nothing to achieve a strong EV market that we all want and that we all support,” Josh Fisher, director for state affairs at the Alliance for Automotive Innovation, said while the Virginia negotiations were in progress. “We firmly believe that rebates and infrastructure are the way to go. It’s been proven time and again to be effective.”