August 27, 2020 § 2 Comments

A recent story in the NY Times describes four auto makers making climate action policy. OK, so that is a bit of a stretch, but not by my much. BMW, Ford, Honda, and Volkswagen cemented a binding agreement with California to limit tailpipe emissions. Volvo has also agreed to join the other four. This deal was struck despite a Trump administration’s roll back of the Obama era regulation, which had called for fleet averages of 54 miles per gallon (mpg) by 2025. The current target is 38 mpg, and the roll back regulation calls for a mere 2 mpg increase by 2025. The new California deal is for 51 mpg by 2026. The auto makers could have settled for the low target and beaten it handily. But, instead, they chose to take the high road.

This is not the behavior one ordinarily expects from industry. But these are nor ordinary times. Recently, BP announced its intention to reduce oil production by 40% by 2030, planning to produce 50GW renewable electricity by the same date. Not much detail was given and yet the share price rose in response. Green energy resonates with investors, it seems.

Much the same happened when the Trump administration rolled back yet another Obama era environmental protection scheme, regulations ensuring the curbing of fugitive methane emissions. The roll back was opposed by Shell, ExxonMobil, and BP. Methane leakage occurs at various stages of the natural gas production and distribution system. A multi-year study led by Prof. Allen at the University of Texas, Austin, sponsored in part by EDF, has identified the sources of leakage and industry has taken steps to ameliorate. This has been aided by the fact that most of the actions are cost neutral. Natural gas that leaks is natural gas that cannot be sold, so the motivation is not just environmental. Much progress has already been made, especially by the larger oil companies. A reversal of the regulation has no benefit to them. In fact, their opposition to the roll back is in part because they want to represent natural gas as a clean fuel and allowing leakage undercuts that message.

 In inking a deal with California, those five auto companies did more than merely push back. They inserted themselves into a federal versus states’ rights dispute. And this was an “in your face” move in response to the roll back, which was intended to “produce far less expensive cars for the consumer, while at the same time making the cars substantially SAFER.” The administration’s move appears to have been designed to be a win for both the consumer and the producer. The only loser was the environment. However, the auto companies must believe that the net cost of ownership will be lower with the new targets. The modest capital cost increase would be offset by the lower cost of operating a fuel-efficient vehicle. Direct fuel injection, combined with temperature measurement and multiple injection capability, can dramatically increase the compression ratio. Increased mileage combined with more muscle; a winning combination that will sell.

I suspect, however, that the bet they are placing is not only on the type of improvement I note above. This is a vote of confidence in electric vehicles, as was BP’s in the move away from oil production to generating renewable electricity. If a substantial portion of the new fleet comprises electrical vehicles, it takes some of the pressure off on improving the current fleet. An electric family sedan can be expected to have an effective “miles per gallon” between 110 and 120. But 2026 is not that far away, and possibly too soon for a major shift to all-electric vehicles. Then again, maybe not. I found the shift of the target date from 2025 to 2026 interesting, indicating a level of granularity that presages a firm plan. Hybrid vehicles already deliver the 51 mpg target. Direct injection combined with elements such as turbocharging are proven mileage enhancers.

One of the drivers for industrial responses to the Trump administration’s roll backs on Obama era environmentally themed rules has been a desire for stability in regulation. Change potentially every four years is disruptive. Logic dictates that this desire will apply primarily to those affecting capital investment with long cycles. Certainly, automobile design changes and oil exploitation of the Alaskan National Wildlife Refuge fit that bill. Methane emissions somewhat less so, but still involving changes in equipment and procedures. Warning labels on machinery probably lie on the other end of the spectrum.

California represents a solid 30% of the automotive sales market. Thirteen other states are committed to California regulations and add to that percentage. Unless President Trump succeeds in taking away states’ rights in this regard, that pretty much means the entire country will be using these vehicles, no matter the regulations in the individual states. This has happened before. Devices such as television sets consume power while on standby. A scant 15 years ago, that could have been as much as 20 watts. Based on research conducted at the Lawrence Berkeley National Laboratories, it was concluded that the full functionality could be achieved for as little as 1 watt, at virtually no extra cost; you just had to design it more smartly. California mandated that in 2006 (I think it was 3 watts at the start) and the rest of the country followed. At that time, a full 10% of all national electricity consumption was this sort of wasteful passive use. Since then, we have taken other actions to reduce passive consumption.

It began with the 1 watt rule, unilaterally laid down by California. Perhaps that bell will get rung again in tailpipe emissions.

Vikram Rao

August 28, 2020


  • Mark Bahner says:

    I read somewhere that those three are less burdened by the methane regulations than their smaller competitors. So it’s a competitive advantage for those three for the methane regulations to stay in place.

    That’s what I read, anyway. (If I remember it correctly.)

  • rtecrtp says:

    There are many sources of the methane release. Some is leakage at valves and so forth and much of it is in the way operations are conducted on the rig. The bigger companies were already performing the cleaner operations or easily adapted. So, yes the burden is greater for the small companies. But much of the remediation has a net low cost because methane is recovered and sold. So, I don’t see it as a competitive position, possibly more an optics issue. But also, increasingly, as seen in the reaction to the BP announcement, their investors want them to be more green.

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