While the Detroit Big Three are deep in the post-bailout transition, Washington is debating how to encourage the U.S. car market to make more efficient vehicles. Will a gas tax help provide more market certainty? What impact would state-level vehicle emissions reduction programs have on the industry? During today's OnPoint, Kathryn Clay, director of research at the Alliance of Automobile Manufacturers, gives the industry's take on EPA's recent move to reverse the Bush administration's decision on California's waiver request for vehicle emissions regulation. She discusses the potential benefits of putting a floor on the price of gasoline. Clay also explains how the industry's ability to lobby Congress has changed on the heels of the auto bailout.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Dr. Katherine Clay, director of research at the Alliance of Automobile Manufacturers. Katherine previously served on the staff of the Senate Energy and Natural Resources Committee. Katherine, thanks for coming on the show.
Katherine Clay: It's my pleasure.
Monica Trauzzi: Katherine, EPA recently moved to take steps to reverse the Bush administration's denial of California's request for a waiver on vehicle emissions regulation. It's controversial because we could essentially be in a situation where there are several different rules across the country. How much would this complicate things for the U.S. auto industry?
Katherine Clay: Well, as you mentioned, I'm the director of research. I come from a technology background and to me the most important thing is getting the policy right to drive technology into the marketplace as quickly as possible. And I think that both the auto industry and the nation as a whole has been in its best interest to keep us on the target of getting those advanced technology vehicles into the market as quickly as possible. The best way you can do that is to have a national coherent standard that sends clear signals to the industry and it makes it as easy as possible for the industry to meet what is required of them. So I think the basic messages are a national standard, something that bridges both the state and the federal interests, so that defines the right balance between those things, but really that sets a clear and coherent message nationally for the industry.
Monica Trauzzi: So, can you take the California standard and spread it throughout the country or does EPA sort of need to get back to the drawing board and create something new and different?
Katherine Clay: I think it's probably best to start looking, with this new administration, at this as what would the Obama standard be? To change the dialogue from California versus the CAFE and think about what will the Obama standard look like? And I think there's a common goal that this industry understands that we need to deliver more in advanced technologies and we're going to engage and work together with all of the stakeholders to get there.
Monica Trauzzi: With all the price fluctuations that we've been seeing at the pump recently there's been this huge focus that's come back to implementing a gas tax. Would implementing a gas tax drive the market to purchase cleaner vehicles?
Katherine Clay: Absolutely and that goes back to this same idea of clear market signal. You know, what really helps consumers drive behavior is market signals and we saw that last summer with gas exceeding four dollars a gallon. That really changed consumer behavior very quickly. It changed the cars that people were interested in looking at in showrooms. It changed day-to-day decisions about driving habits, so we saw an instant response in vehicle miles traveled nationally. And I think the important thing is to think in a new way about how important gas taxes can be and even look beyond a traditional set gas tax towards something more like a price floor for petroleum. That would give the kind of certainty to the marketplace that would allow advanced technologies like biofuels or batteries to be able to run the numbers and really know what it would take for them to be competitive, because we'd actually get that volatility out of the market and know what the gas price that they would be competing against would be.
Monica Trauzzi: The dreaded T word, tax, it always has political troubles on the Hill. I mean does it have the legs to actually get anywhere or is this just rhetoric at this point?
Katherine Clay: Tax is a difficult word, but I think that if we talk about market signals, I think if we talk about a price floor that that might help us get beyond the psychological burden of the T word, as you say, and be able to engage in a constructive discussion about what it means to get price volatility out of the market and get some certainty so that companies can get technologies in place.
Monica Trauzzi: Beyond something like a price floor, what other certainties do you need from the government to get consumers to the dealerships buying these vehicles? I mean just because Detroit is producing a cleaner fleet doesn't necessarily mean that the market is going to be driven in that direction. What other incentives need to be there?
Katherine Clay: Well, I think the two we've mentioned already would get us awful long way down the road. I think a single nationalized standard, a nationwide standard for fuel economy. I think a price floor for petroleum. I think that it's always helpful to have tax policy that guides people towards technology choices, especially since some of these advanced technology vehicles might have a payback for the consumer over a number of years. There's still that upfront capital investment is difficult for consumers to make and so something like a tax credit in the beginning or a voucher-based system for the dealerships to be able to use to entice consumers to get over that initial slight sticker shock that's associated with things like advanced clean diesel or for plug-in hybrids, that could be extremely powerful.
Monica Trauzzi: So, hybrid electric vehicles are expected to dominate the U.S. car market by 2030. One of the challenges there is that carbon capture and storage technology doesn't exist yet. Are the greenhouse gas benefits of these vehicles essentially canceled out by the fact that the electricity you're using to charge of these cars is coming from coal plants? I mean isn't that a piece of the puzzle that really needs to be addressed before we're even talking about putting these cars on the roads in mass quantities?
Katherine Clay: Well, it's an excellent question. The projection that you cited, this is something that we discussed at a briefing on Friday at the American Chemical Society's briefing on the Hill on advanced technology vehicles. I think you bring up a very important point and it underscores the importance of thinking of vehicles and the fuel that is used to provide energy to those vehicles as a system, so whether we're talking about diesel and looking at the upstream and downstream emissions of diesel and calculating the emissions benefits of advanced diesel vehicles which are 20 to 40 percent more efficient than comparable gasoline internal combustion engines, whether we're talking about flex fuels and we're looking at the carbon embedded in the production of those fuels. And the same goes for electric vehicles, we have to look at the fuel as part of that system and in the case of plug-in hybrids we are looking at charging off the grid and it's part of a longer-term strategy where electrification of the transportation sector means we can no longer think of the transportation sector and the electrical generating sector separately. So in the long term, we need to be making investments in the Smart Grid technologies that make our energy efficiency, the transmission more efficient. We need to be looking at things like increasing renewables in our mix and you specifically mentioned carbon capture and storage. That's an incredibly important topic that we need to be getting the regulations in place now to motivate companies to feel like they have a space to invest in CCS technology, and also start getting the tax incentives in place to get electrical generation to incorporate CCS when they are making their plans for a coal-fired power.
Monica Trauzzi: Talk a bit about the domestic manufacturing of advanced batteries for electric vehicles and that's why that's a key challenge for the industry at this point.
Katherine Clay: It's absolutely critical. As you may know, domestic, there is no really solid domestic battery manufacturing industry for advanced batteries and this is something that has become dominated by Asian firms. There is a lot of concern on Capitol Hill. When I served on that energy committee there was a lot of concern about displacing our dependence on foreign oil merely with dependence on foreign batteries. And a lot of concern about national security issues and also just in making sure that we maintain a vibrant economy from the manufacturing standpoint. So I think that we need to be looking towards partnerships between the public and private sectors to look at manufacturing R&D so that we can start rebuilding -- or really building the supply base for advanced batteries that we really have lost in this country.
Monica Trauzzi: Because of all the restructuring that the Big Three are undergoing at this point are we seeing a slowdown in the development and production of cleaner vehicles?
Katherine Clay: Oh, if anything I think we're seeing an acceleration. I think there are 27 models of hybrids that are on the road today in 2009 from our automakers. Two years ago there were only two. We're seeing the launch of the Volt by GM. We're seeing other companies that are looking at plug-in hybrids and extended-range electric vehicles in 2010 and beyond. If anything, I think that this industry is at a crossroads where it realizes that its future is investing in these advanced technologies and getting them into the marketplace as soon as possible.
Monica Trauzzi: And manufacturing has been a common theme throughout our conversation so far. President Obama is reportedly leaning towards picking Steven Rattner as the car czar to oversee Detroit's transition. We've heard industry concerns that he doesn't have enough experience when it comes to manufacturing. What qualities do you think the car czar needs to have and is there anyone that you have in mind who could really fit into that role well?
Katherine Clay: Well, I really am a technology person, so I really can't speak to the larger strategic and policy issues that the car czar is going to have to be able to tackle. I think though that, from my perspective, as long as that person either has knowledge about advanced technologies and the important role that that can play or is willing to listen and engage and be educated in those issues, I think that the industry stands by to make whoever lands in that position a success and do everything that the industry can do to be supportive in that person fulfilling his or her a role.
Monica Trauzzi: Final question here. The auto industry has had a very strong lobbying arm in DC for many years now. Has that political capital sort of waned over the last few months because of all this restructuring and the bailout? I mean what is the reaction that you get when you go to the Hill to give talks like the one you gave last week?
Katherine Clay: I really have only been with the alliance for a little over nine months. I was on Capitol Hill before that. If anything, I would say that it is not a diminished role in the conversation. I can't say whether it's weakened, but I think my sense is that because the auto industry is so critical to being at the table to make these things happen that the Capitol Hill offices, federal, state governments need to be engaged in the auto industry. So no matter where the industry is at the moment in terms of financial difficulties, we all have a national interest in getting this industry as strong as possible, getting domestic manufacturing as strong as possible and getting that forward-leaning, looking towards the future and reinventing the automobile to what it can be so that we can get to those national goals of achieving energy security and addressing climate change as quickly as possible.
Monica Trauzzi: OK. We'll end it right there. Thanks for coming on the show.
Katherine Clay: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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