Grants galore for automakers in climate change bill

  • 14-Jul-2009 03:31 EDT
Escape_PluginHy04_HR - MCM size.jpg
The Ford Escape Plug-in Hybrid, which runs on gasoline or E85, is part of a demonstration fleet Ford is developing in a partnership with Southern California Edison and the Electric Power Research Institute. Ford Motor Co.

The climate change bill that the U.S. House of Representatives passed narrowly in June—and that the Senate will start considering in September—has a number of provisions that will make eye-popping auto manufacturer holiday gifts, if the legislation ends up on President Barack Obama’s desk later this year. Most manufacturing sectors have been moaning about the prospective costs of reducing greenhouse-gas (GHG) emissions starting in 2012. Auto manufacturers, too, will have to reduce their carbon-equivalent emissions below some as-yet-unspecified cap. However, not only are the costs of those reductions considered doable (even by the auto industry itself), but they also will be washed down with $2 billion to $3 billion in cash grants starting in 2012, which the industry would have to use to develop advanced-technology vehicles. The only discordant note for automakers in the House-passed bill is a provision requiring automakers to manufacture a certain percentage of flex-fuel vehicles.

Of the $2 billion or so in cash that would start raining down on the industry in 2012, three-quarters would have to be spent on advanced-technology vehicles. Generally, an advanced-technology vehicle is considered one that operates 25% more efficiently than a baseline, which is the 2009 model year. The money could be used for the same purposes as the loans which are now being, finally, dispensed by the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program (ATVMLP). But the fact that the climate change bill downloads cash, not loans, is a huge, favorable distinction.

The first distributions from the ATVMLP were issued on June 23 to Ford, Nissan, and Tesla, totaling $8 billion. Ford’s $5.9 billion portion will go to factory-floor improvements to accommodate fuel economy increases on more than a dozen models. Nissan got a $1.6 billion guarantee to build all-electric cars and battery packs at its plant in Smyrna, TN. Tesla, a six-year-old start-up in San Carlos, CA, will get $465 million. The first part of the loan will finance a plant for its $49,900 Tesla Model S sedan, an all-electric car that will be half the price of the company’s current product, a luxury electric roadster. The second part of Tesla’s loan will be used to build a facility to manufacture battery packs and electric drivetrains for Tesla and its partners, such as Daimler.

David Friedman, Research Director, Vehicles Program at the Union of Concerned Scientists, praised the Ford loan as an example of an American company doing “the boring stuff” in terms of advanced engineering—developing “better engines and better transmissions for conventional cars”—to position itself to sell more cars for what “the vast majority of the market is buying.” However, he does not discount the need to develop a U.S. electric battery manufacturing capability, as Tesla and Nissan will do with their DOE loans.

The Nissan and Tesla loans reflect the Obama administration’s desire to seed development of a homegrown U.S. electric vehicle industry. The House climate change bill would take that nurturing to the next level by establishing a financial assistance program—undefined in the legislation—for plug-in vehicles exclusively, as opposed to the current DOE program, whose umbrella covers advanced auto technologies broadly. The new plug-in program would get one-eighth from the $2 billion to $3 billion pot, compared with three-quarters for the broader advanced-technology vehicles category. The money would be used for the retooling of manufacturing plants and for “the purchase of domestically produced vehicle batteries to be used in the manufacture of vehicles.”

The final one-eighth of the auto industry’s allowance would be used for a plug-in vehicle deployment and infrastructure development program. That money could be used for offsetting the incremental cost to the federal government of purchasing new plug-in electric drive vehicles, for deployment of electric charging stations or battery exchange locations, or for facilitating the integration of smart grid equipment with plug-in vehicles.

The one dose of caster oil in the bill is the “Open Fuel Standard.” It would have the DOE promulgate regulations requiring each light-duty automobile manufacturer’s annual covered inventory to be composed of a minimum percentage of flex-fuel automobiles. The manufacturers must get sufficient lead time to reach the bogey, and the federal government has to first determine that such a requirement is “a cost-effective way to achieve the nation's energy independence and environmental objectives.”

However, those two caveats have not assuaged many in the auto manufacturing community, including the Alliance of Automobile Manufacturers (AAM). Wade Newton, AAM Director of Communications, said, “We wouldn’t support a flex-fuel mandate of any kind. We shouldn’t be picking winning or losing technologies.”

Asked whether the Senate would pass a climate change bill this year, Genevieve Cullen, Vice President of the EDTA, said, “It is not a gimme, but it is certainly not out of the question.”

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