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Forbes.com: Strong Fuel Economy Standards Will Fuel America’s Economy

This spring, California’s Air Resources Board (ARB) is working jointly with federal officials on one of this year’s biggest energy and environmental decisions – stronger nationwide fuel economy standards.
by Mindy S. LubberForbes Sustainable Capitalism Blog Posted on Jun 08, 2011

Capital doesn’t flow in a vacuum. And big investors are telling us that’s exactly what we have right now with uncertain U.S. energy policies.

This spring, California’s Air Resources Board (ARB) is working jointly with federal officials on one of this year’s biggest energy and environmental decisions – stronger nationwide automobile fuel economy and emissions standards starting in 2017.

It shouldn’t need saying that those standards have huge economic implications. Setting the mileage standards bar as high as possible is what $4-a-gallon-weary consumers want. It’s also the best answer to tackle climate change and ensure that domestic carmakers and their workers can compete globally in a world of rising fuel prices.

But automakers are balking at strong standards, even as Ford and General Motors are posting stellar profits from skyrocketing sales of fuel-efficient cars. Maybe they should listen to investors and officials who spoke at a recent media briefing on strong transportation policies and how they can spur innovation and drive investment to make our automakers and their suppliers more competitive.

Matthew Fitzmaurice, whose fund of hedge fund group AWJ Capital Partners manages a leading sustainable-focused fund, already has money on the table in those auto industry companies that are leading the way toward higher fuel efficiency and lower emissions. Fitzmaurice told the teleconference that hedge funds “are already voting with their feet … We are in a global environment, and therefore if we don’t stake out a regulatory system that has a (mileage) standard that’s sufficiently high, capital will not stay with the Big (Detroit) Three and component suppliers supplying the Big Three.”

Bill Green, a clean tech investing pioneer, said “capital doesn’t flow in a vacuum. One way we can eliminate the vacuum is policy certainty – investors will not invest in an environment that lacks certainty … Long-term policy certainty creates financial certainty, which unlocks investment and creates jobs, allowing us to thrive economically and be competitive.”

ARB Chairman Mary Nichols, who’ll have a big say in the new mileage standards, has carefully steered clear of specific standards she might back – the improvements being considered for 2017-25 range from 3 to 6 percent a year, and there’s a huge difference between those numbers.

She echoes investors concerns about U.S. competitiveness, noting,  “Our major economic competitor (China) is going to provide $15 billion for electric vehicles and plug-ins between now and 2020.”

And she says her state’s experience in clean air regulation since the 1970’s “is clear: Investing in clean air leads to greater productivity … There are trillions in benefits, from avoided hospitalizations to new industries and technologies.”

California’s domestic lead in clean energy technologies clearly reflects that.

Citi Investment Research and my organization Ceres recently issued a report finding that, under the strictest mileage standard being considered, carmakers in general would increase their variable profits and the Detroit Three would get a bigger profit boost than others. Citi writes these reports primarily as advice to investor clients, who pay good money for sound guidance.

And data from a new polling by The Mellman Group on behalf of Ceres of likely voters in two key auto/industrial states, Michigan and Ohio, finds clarity in their preferences:

  • Overwhelming support for both increasing fuel economy standards the maximum – 60 miles per gallon in 2025 – and reducing carbon emissions;
  • Strong support for that standard extends to UAW, auto and manufacturing households;
  • Large margins say requiring increased efficiency will create jobs;
  • Voters in both states believe that 60 mpg is affordable; the federal agencies, in fact, report that it will yield large overall cost-of-ownership savings at any reasonable future gas price.

The message for U.S. carmakers? Update your paradigms and embrace the golden competitive opportunity of strong mileage standards, or risk the kind of marketplace drubbing that’s cost you dearly in the past.

Quite simply, strong fuel economy will fuel America’s economy.

Read the post at Forbes Sustainable Capitalism Blog

Meet the Expert

Mindy S. Lubber JD, MBA

Mindy S. Lubber is the president of Ceres and a founding board member of the organization. She also directs Ceres’ Investor Network on Climate Risk (INCR), a group of 100 institutional investors managing nearly $10 trillion in assets focused on the business risks and opportunities of climate change. Mindy regularly speaks about corporate and investor sustainability issues to high-level leaders at the New York Stock Exchange, United Nations, World Economic Forum, Clinton Global Initiative, American Accounting Association, American Bar Association and more than 100 Fortune 500 firms. She has led negotiating teams of investors, NGOs and Fortune 500 company CEOs who have taken far-reaching positions on corporate practices to minimize carbon emissions, water use and other environmental impacts. She has briefed powerful corporate boards, from Nike to American Electric Power, on how climate change affects shareholder value.

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