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TESLA IN LINE TO BENEFIT EVEN MORE FROM AUTO STANDARDS: Tesla and other emerging EV-only manufacturers are set to get richer under the Biden administration’s tighter proposed vehicle emissions regulations, especially to the extent its competitors hang on to the internal combustion engine for longer.
The rules were written to effectively compel automakers to expand their EV offerings and cut production of ICE vehicles. That means more competition for Tesla, on the one hand.
But on the other, there’s more money to be made in the compliance market as legacy automakers continue to manufacture ICE vehicles and need to purchase credits to offset the emissions from new models in their fleets.
Credit cash cow: Tesla has made more than $4.8 billion by selling automotive regulatory credits just over the past three years, according to annual regulatory filings: $1.78 billion last year, $1.46 billion 2021, and $1.58 billion in 2020.
“It’s a huge opportunity for the zero-emission only folks because you’re now supplying these vehicles, but you’re generating credits for the production of those vehicles, which then can be turned around and sold to other automakers,” one auto industry source told Jeremy.
Before the new rules for model year 2027-2032 vehicles were proposed, Tesla had pushed for stronger emissions regulations even than what the Biden EPA already had on the table for preceding years — something, as you can see, it has vested financial interest in.
The agency finalized tighter standards for MY 2023-2026 vehicles in December 2021. Tesla said in comments submitted to the agency in the months before that the proposed standards were “low in ambition and easily accomplished,” especially because EPA proposed building in more compliance flexibilities for automakers, especially legacies.
Such flexibilities, endorsed by the likes of Toyota and Ford, included an extension of the timeline for automakers to carry forward credits they generated in previous years in order to use in future years to make compliance easier on them.
Tesla opposed that, saying it “undercuts” the proposal’s stringency. Incidentally, it also undercuts the value of Tesla’s credits in any given year.
Tesla’s advantage: EPA tracks a number of metrics and publishes annual reports on emissions and fuel economy data among the manufacturers selling vehicles in the U.S.
Tesla models have had the highest real-world fuel economy of any manufacturer for five years straight, each of which had a MPG equivalent well above 100. Higher fuel economy means lower tailpipe emissions; in Tesla’s case, it means no tailpipe emissions. There is no tailpipe.
Legacy automakers can generate regulatory credits, too, although most end the year in a deficit, according to EPA’s 2021 data. Tesla generated more than 10 times as many regulatory credits that year than Ford.
The battle over the regs: The emissions regulations, as we wrote last week, are a sizeable regulatory stick meant to work alongside the enlarged carrots of tax credits for consumer electric vehicle purchases, all of which serve the administration’s goals of rapidly expanding EV sales.
Sen. Ed Markey, who chairs the Environment and Public Works air and climate subcommittee, praised the new proposed rules during a hearing Tuesday and said the suite of EV actions would help facilitate an “electricity revolution” in transportation.
“We heard from the auto industry for so many years, ‘We can’t do this. You don’t know how hard it is,” Markey said. “Now, of course, finally, the auto industry is accepting the future.”
Republicans have pledged to fight the rules, including by advancing another Congressional Review Act resolution of disapproval.
EPW ranking member Shelley Moore Capito, one of 19 Senate Republicans to vote for the bipartisan infrastructure law, said its billion-dollar charging program was a considerable “nudge” to increase the penetration of EVs but was too heavy-handed and not realistic.
“People have a great affinity for their vehicles in our state and want to have choices,” Capito told Jeremy earlier this week. “You’re eliminating choices, and I don’t think you should be doing that.”
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
MAINE HYDRO TRANSMISSION PROJECT TO ADVANCE AFTER JURY DECISION: A jury of the Maine Business and Consumer Court issued a major decision yesterday in favor of New England Clean Energy Connect, the storied transnational hydropower transmission project, effectively declaring unconstitutional the November 2021 referendum that blocked the project after it had already received requisite state approvals and commenced construction.
Avangrid, the energy company behind the project, welcomed the unanimous decision determining it had vested rights to develop the project when voters approved the ballot measure to block the project.
The NECEC has been floating around in the courts since late 2021, when voters decided to ban, retroactive to 2020, the construction of high-impact transmission lines through the state’s forested Upper Kennebec Region and to require the legislature to approve all such high-impact transmission projects throughout the state.
The transmission project was designed to channel 1,200 megawatts of Canadian hydropower through a 145-mile corridor stretching from the Maine-Canada border to a substation in Lewiston before transmitting the power further downstream through the New England power grid to Massachusetts.
Developers had already cleared much of the corridor when the referendum passed.
Ratepayers in Massachusetts, where the government set a target to cut GHG emissions in half by 2030, are slated to pay for the project.
GOP ESG BILL WOULD KEEP FINANCING FLOWING TO FOSSIL FUELS: Rep. Andy Barr introduced legislation yesterday to prevent big banks from refusing or limiting financial services to certain businesses, such as those in the fossil fuel industry, the Washington Examiner’s Zach Halaschak reports. It is the companion to legislation introduced in the Senate by Sen. Kevin Cramer of North Dakota.
The bill, which would effectively codify the Trump-era Fair Access rule, would mandate banks with more than $100 billion in total consolidated assets to provide fair access to banking services, capital, and credit to industries, with the intent being to prevent banks from choking off financial services to oil and gas companies and other politically divisive companies, such as gun manufacturers.
How it would work: If the covered banks refuse to do business with someone in violation of the legislation, they risk losing the use of the Federal Reserve’s discount window lending programs and could have their status as an insured depository institution terminated.
Barr’s bill would also require large banks to “provide written justification for why it is denying a person financial services to avoid ambiguity” in order to make sure that the firms aren’t denying service based just upon the reputational risk of doing business with a politically fraught industry.
Big banks across the country have set targets to reach net-zero emissions by 2050 in line with the Paris agreement. Some big names, such as HSBC, have started to purge their portfolios of new investments in oil and gas.
While the U.S.-based major banks and fund managers, from JPMorgan Chase to BlackRock, continue to finance oil and gas and related infrastructure, they’ve also committed to financing a transition to a greener economy.
This has subjected these and other firms to criticism and divestment in some cases from Republicans or Republican-led states, as well as criticism from Democratic jurisdictions saying the firms aren’t being aggressive enough in choking financing to fossil fuels.
The pressure to cut fossil fuel financing more quickly is mounting in the form of shareholder resolutions, too. Shareholders at Citigroup, Bank of America, and Wells Fargo will all take up resolutions next week calling on banks to adopt specific targets for phasing out financing for fossil fuel projects.
FOR YOUR RADAR: President Joe Biden will sign a new executive order focused on environmental justice and directing federal agencies to focus on communities impacted by existing policies. Meanwhile, Vice President Kamala Harris will travel to Miami, Florida, to announce a $562 million investment to help communities fight climate change, particularly in coastal areas.
Biden will sign the order at 2:15 p.m., while Harris will speak at 5:10. Watch both events live here.
MICHIGAN APPROVES $175M EV PLANT INVESTMENT FROM CHINESE COMPANY: Lawmakers on the Michigan Senate Appropriations committee voted 10-9 yesterday to approve a planned $175 million EV battery plant from a Chinese-owned manufacturing company, a proposal that has drawn controversy over the company’s foreign ties.
Gotion Inc. is an American subsidiary of Gotion High-Tech, located in China. It is expected to bring some 2,300 jobs to rural Michigan, and would be the single biggest economic development project in Northern Michigan. The vote yesterday came after a four-week investigation into Gotion led by the Committee on Foreign Investment in the United States. It ultimately concluded there was no further action required and the EV plant could continue as planned, according to Gotion Vice President of North America Operations Chuck Thelen.
But that has failed to assuage some lawmakers, who have expressed deep concerns over the company’s ties to China and national security risks. Republican Rep. John Moolenaar described the decision as a “historic mistake,” and Michigan’s GOP Chair Kristina Karamo went even further, saying in public remarks: “If you choose to give this money to Gotion, you are a traitor to this your republic, you are a traitor to your children.”
Related: Lawmakers have also pushed back on Ford’s plans to use Chinese technology in EV batteries at its plant in Michigan. House Ways and Means Chairman Jason Smith of Missouri asked Ford this week for information on the planned facility, as part of the panel’s broader investigation of how companies are using the IRA funds.
COTTON LOOKS TO TIE EV SUBSIDIES FOR EUROPEANS TO UKRAINE AID: Sen. Tom Cotton of Arkansas introduced a bill yesterday that would bar European countries from EV tax credit eligibility under the Inflation Reduction Act unless they contribute an equal percentage of GDP to help support Ukraine amid Russia’s ongoing war.
The “No EV Credits for Idle Allies Act” seeks to pressure both the Biden administration not to extend the IRA’s EV tax credits to the EU, and to pressure the two highest-grossing EU member states—Germany and France—to pay more in defense aid to Ukraine. The U.S. does not currently have a free trade agreement with the EU.
But after intense protest from the EU, the Biden administration has claimed that, since the IRA does not formally define what constitutes a “free trade agreement” in the legislative text, EV credits can still theoretically be extended to European allies.
This response has been met with criticism by Cotton and other Senate Republicans, including Sens. Bill Hagerty and Marco Rubio of Florida, who co-sponsored the legislation.
“Wealthy European nations like France and Germany are reaping the benefits of American aid to Ukraine without paying their fair share for its defense,” Cotton said in a statement. “Now, these same countries are trying to secure American subsidies for electric vehicle manufacturing. France and Germany should not receive these tax credits in the first place, but certainly not until they bear an equal share of the burdens of European defense.”
The Rundown
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