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Investors urge US to adopt California’s ‘clean cars’ policies

By Gloria Gonzalez
Environmental Finance
The US government could significantly propel investments in the clean energy and energy efficiency sector by following California’s lead in adopting stronger fuel economy and emissions standards through 2025, investment experts said.

The US government could significantly propel investments in the clean energy and energy efficiency sector by following California’s lead in adopting stronger fuel economy and emissions standards through 2025, investment experts said.

The Environmental Protection Agency (EPA) and Department of Transportation last year set the first national greenhouse gas (GHG) emissions standards, known as the 'clean cars' rules. Starting with 2012 model-year vehicles, automakers will be required to improve the fuel economy of all new passenger cars and light trucks sold in the US, and reduce fleet-wide GHG emissions by about 5% every year through 2016.

But California is already pushing for adoption of stronger Corporate Average Fuel Economy (CAFE) standards for automakers in the next eight-year phase. The state has been the leader in fighting for tougher emissions standards, famously suing the EPA during George W. Bush’s presidency for denying California the opportunity to impose requirements stricter than the federal rules.

In May 2010, President Barack Obama directed the EPA and the National Highway Transportation Safety Administration to work with California to develop the next phase of the nationwide CAFE mileage standards and GHG emissions limits, for model years 2017-2025.

The agencies are considering a range of standards,requiring an annual decrease in carbon dioxide emissions of 3-6%, which translates to a range of 47 miles per gallon (mpg) to 62 mpg in 2025. The proposals are expected to be released in September, Mary Nichols, chairwoman of the California Air Resources Board, the regulatory agency responsible for California’s vehicle standards, said during the Ceres conference in Oakland, California last week

California’s effort is supported by investors who believe that stronger standards will be a boon to the overall economy and individual companies working on innovative clean and efficient technologies.

“Efficiency, we believe, is the no-brainer,” said Rebecca Henson, a Boston-based sustainability analyst at Calvert Investment Company. “It’s an investment that has nearly infinite opportunities. They’re opportunities with a potential that stands to grow larger with clear and strong signals from government decision makers and regulators.”

“Capital does not flow in a vacuum,” added Bill Green, former managing partner of clean-tech investor VantagePoint. “One way that we eliminate the vacuum is with policy certainty. Investors will not invest into an environment that lacks policy certainty.”

US car industry faces competition as China invests in electric cars

The US auto industry is “rightfully concerned” that government officials should not add unnecessary costs and make it difficult for the sector to compete at the global level, Nichols said. But China has already pledged $15 billion in direct government investment in electric vehicles between now and the year 2020, and has a history of making good on these promises, she noted.

“This is a form of virtuous competition which we should welcome, but also make sure we’re putting the right kind of policy framework in place to make sure that it will succeed,” Nichols said.

But two reports from Citi Investment Research, Ceres and industry experts released in March concluded that US automakers will be more profitable at a fleet-wide average of 42 mpg in 2020 – and that by 2015 more than one in 20 cars sold in the US will be hybrid, plug-in or full electric vehicles.

Individual companies such as auto parts suppliers Johnson Controls and Borg Warner, and energy storage company Maxwell Technologies would be good investment bets if the standards are strengthened because they are providing auto manufacturers with cutting-edge efficiency solutions, Henson said.

“The Citi report reaffirmed our position that strong CAFE standards represent a regulatory tide that lifts all boats,” she said.

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