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How the Government is Helping Automakers Develop Green Technology

How the Government is Helping Automakers Develop Green Technology

By Jeff Youngs, December 31, 2010
2011 Nissan Leaf - Battery Electric VehicleHow the Government is Helping Automakers Develop Green TechnologyThe automobile industry in the United States has been mass producing vehicles and conventional internal combustion engines (ICEs) for more than a century. Over the years, hundreds of millions of vehicles have been produced, thousands of support companies (suppliers and related ancillary industries) have been created to provide tooling and parts to support vehicle manufacturing, and hundreds of thousands of employees go to work each day to build the vehicles we drive.

Given this long and expansive history, how does the U.S. government persuade automakers and their suppliers, who have been committed to ICE technology, to switch gears and focus on expanding into green technology? Increasingly stringent fuel economy and exhaust emission regulations, combined with incentives to produce more alternative technologies, have been the most common formula.

With an energy crisis gripping the world in the early 1970s, the U.S. environmental protection agency (EPA) was quick to establish fuel economy standards (launched 1972) that gave consumers a clearer picture of how their ICE-powered vehicle was performing. Besides making public which vehicles had the highest and lowest fuel economy averages, vehicle owners also quickly came to understand that car and trucks with lower fuel economy numbers were generally considered greater polluters.

By 1975, the EPA established its Corporate Average Fuel Economy (CAFE) regulations, policies designed to establish fuel economy targets and improve the average vehicle fuel efficiency of all new vehicles sold in the U.S. Today, the CAFE numbers are regulated by the National Highway Traffic Safety Administration (NHTSA) based on numbers measured by the EPA.

CAFE is a big motivator for automakers to invest in green technology. If an automaker's corporate-wide average fuel economy of all cars and trucks sold falls below the current CAFE target, the automaker is required by law to pay a penalty (it is currently $5.50 USD per 0.1 mpg under the standard, multiplied by the manufacturer's total production for the U.S. domestic market). These costs, understandably, add up very quickly. Today's CAFE standards are much more stringent than just one decade ago - and they continue to get even tougher. In 2010, the U.S. government passed a law increasing CAFE targets to 35.5 mpg by the 2012 model year (this represents an increase of 8.2 mpg between 2011 and 2016).

2011 Chevrolet Volt - Extended-Range VehicleAccording to J.D. Power, the U.S. government estimates that by 2020, the new CAF� standards will lead to a reduction of greenhouse-gas (GHG) emissions of 209 million metric tons - the equivalent of taking 31 million of today's vehicles off the roads in the United States. In addition to the federally mandated CAF� targets, individual states may also establish their own targets for vehicles sold in their jurisdiction.

California has been at the forefront of the efforts to improve air quality.. In 1990, California regulators passed the Zero Emission Vehicle (ZEV) Mandate (requiring 2% of all vehicles sold in that state in 1998 to be ZEVs, and rising to 10% by 2003). Other states, and eventually the U.S. government, followed California's lead and pushed to develop green technology.

Today, the federal government offers automakers (and consumers) subsidies and tax incentives to design, manufacture, and drive vehicles utilizing green technology:
  • Until December 31, 2010, Hybrid Electric Vehicles (HEVs) such as the Toyota Prius and Honda Insight were offered credits of $250 to $3,400 to owners. This has since expired.
  • Battery Electric Vehicles (BEVs), such as the Nissan Leaf and Tesla Roadster, come with $7,500 owner incentives (and there are incentives towards the installation of home charging stations).
  • Plug-In Hybrid Electric Vehicles (PHEVs) and Extended-Range Electric Vehicles (ER-EVs), such as the Chevrolet Volt and Toyota Prius ER-EV, are also packed with $7,500 incentives.
  • Lastly, there are even incentives on green technology alternative fuel vehicles. Today's Clean-Diesel models, such as the BMW 335d and Volkswagen Jetta TDI, are offered incentives between $900 and $2,000 depending on make and specific model.
Whether by mandate or incentive, the government has adopted a push-pull method to promote green technology. Automakers are forced to conform to increasingly more stringent regulations, while consumers are offered sizable incentives and rebates to put green technology in their driveway. Based on the success these policies have experienced in the past, we can expect to see more of the same in the future.
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