MPA - UTEP

WORKING PAPER SERIES

Government Promotion of the Electric Car: Risk Management

or Industrial Policy?

Bradley W. Lane, Natalie Messer-Betts, Devin Hartmann, Sanya Carley, and

John D. Graham

WP 10-2012

Accepted for Publication in the European Journal of Risk and Regulation

Master in Public Administration – University of Texas at El Paso

500 W. University, Kelly Hall 216 | El Paso, Texas 79968 | (915) 747-5879

http://academics.utep.edu/Default.aspx?alias=academics.utep.edu/mpa

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Government Promotion of the Electric Car: Risk Management or Industrial Policy?

ABSTRACT

There are two prominent motivations for why governments seek to promote the electric car: risk

management and industrial policy. This article provides operational definitions of these two

motivations and uses them to characterize the public policies of six political jurisdictions:

California, China, the European Union, France, Germany, and the United States. The article

finds that while the European Union is focused primarily on risk management, China, Germany

and the United States are primarily engaged in industrial policy. California and France are

intermediate cases with a substantial blend of industrial policy and risk management. Future

research into the ramifications of industrial policy for liberalized international trade is

recommended.

Keywords: Electric vehicle, public policy, comparative policy analysis, risk management,

industrial policy.

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INTRODUCTION

Policy makers around the world are using the power of government to accelerate the

development of the electric vehicle (EV). The boost from government extends beyond the

traditional support for research and development of science and technology. Billions of dollars

are being invested from public and private sources to develop a supply chain for electric

vehicles, a network of recharging infrastructure, and a system to help consumers understand the

energy requirements of EVs. All of this public and private support is occurring despite

significant doubt as to the viability of electricity as a propulsion system for vehicles due to a host

of issues including limited vehicle range, high vehicle cost, long recharging times, and the

emergence of promising alternative propulsion systems (e.g., greener gasoline engines and

natural gas vehicles).

Two prominent motivations may explain why to promote the electric car. The risk management

explanation suggests electric vehicles present an opportunity to reduce the environmental and

security risks of oil dependence. Pure risk management approaches (e.g., emissions taxes, cap-

and-trade schemes, or performance standards that mandate lower carbon emissions) are best

designed as technology-neutral.1 Electric vehicles may become more attractive to producers and

consumers if the market reveals this technology as a cost-effective and efficient opportunity to

reduce oil dependence.

An alternative explanation for government motivation is the advancement of industrial policy.

While definitions of the term vary, it generally entails overcoming market barriers to the

development of innovative manufacturing industries,2 and it may mean the selective promotion

by government of one or more industrial sectors of the economy.3 Governmental efforts are

aimed at boosting the fortunes of a particular technology, cluster of companies or organizations,

or an entire industrial sector, with an objective to establish a significant position – or even

dominance – in the global marketplace.4

A third explanation of government motivation is that policy makers may be blending industrial

policy and risk management. For example, the design of risk-management policies needs to be

examined to determine whether they contain any explicit or implicit forms of industrial policy

(e.g., special compliance credits for vehicle manufacturers that choose to control carbon

emissions through electric propulsion). Alternatively, targeted investments in the EV supply

chain, though motivated by job-creating goals, may also be seen as contributions to a greener

transport system.

1 Nathaniel Keohane, Richard Revesz, and Robert Stavins, “The Choice of Regulatory Instruments in Environmental

Policy,” 22 Harvard Environmental Law Review (1998), pp. 313 et sqq.

2 Oliver Budzinski and Claudia Schmidt, “European Industrial Policy: Economic Foundations, Concepts and

Consequences” (working paper, Philipps University of Marburg, 2006), available on the Internet at

<http://ssrn.com/abstract=920060> (last accessed on 20 March 2012).

3 Irfan Ul-Hague, “Rethinking Industrial Policy” (UNCTAD Discussion Paper No. 183, Geneva, United Nations

Conference on Trade and Development, 2007).

4 Howard Pack, “Industrial Policy: Growth Elixir or Poison?” 15 World Bank Research Observer (2000), pp. 47et

sqq.

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In this article, we compare public policies toward the EV in six political jurisdictions around the

world. We then assess the motivation for investment in policies incentivizing the electric vehicle

as risk management of negative environmental externalities of continued automobile use,

industrial policy to improve domestic economies through electric vehicle development, or a

substantial blend of the two approaches. We then evaluate the policies in regard to their

classification and discuss reasons for the variability in classifications across the case studies. The

empirical results are discussed in light of their implications for scholars and practitioners of

alternative transportation, economic development, environmental policy, international trade,

regulation, and sustainability.

RESEARCH APPROACH

Our work focuses on six large political jurisdictions with significant automotive industries and

home markets for vehicles: California, China, the European Union, France, Germany, and the

United States. For policy information on each country, we begin by drawing on the survey of EV

policies reported in Plug-in Electric Vehicles: A Practical Plan for Progress, Report of an

Expert Panel, School of Public and Environmental Affairs, Indiana University, February 2011.5

For some countries, we supplemented the data in the IU-SPEA report with additional information

obtained from public sources.

We do not cover Japan and South Korea because it is well known that they have used national

industrial policies to establish a dominant global position in battery technology, conventional

hybrid engines and, to a lesser extent, EVs.6 For space reasons only, we exclude consideration of

Brazil, India, Italy, Spain, and the United Kingdom. Each of these countries is significant in the

emerging electric vehicle industry and should be examined in future work.

The empirical data are presented as short descriptive case studies, since contextual information

about the industrial structure and recent politics of each country is necessary for evaluation and

comparison. At the end of each case study, we offer our assessment by assigning each

jurisdiction's suite of policies to one of three categories: primarily risk management, primarily

industrial policy, or a substantial blend of the two. We evaluate the policies of the different case

studies in the context of their classification, and discuss the reasons behind the approach taken by

each of the political jurisdictions.

INDUSTRIAL POLICY VERSUS RISK MANAGEMENT

We assume that industrial policy is revealed by policy measures that specifically target

consumers or producers in the EV industry. Examples of industrial policy include a consumer tax

credit for the purchase of an EV, government financing of a new plant to produce automotive-

5 Transport Electrification Panel Member, Faculty, and Staff, “Plug-In Electric Vehicles:

A Practical Plan for Progress” (discussion paper, School of Public and Environmental Affairs, Indiana

University, 2011), available on the Internet at <http://www.indiana.edu/~spea/pubs/

TEP_combined.pdf> (last accessed 20 March 2012).

6 Pandit Patil, “Developments in Lithium-Ion Battery Technology in the Peoples Republic of China” (white paper,

Energy Systems Division, Argonne National Laboratory, 2008), available on the Internet at <

http://www.ipd.anl.gov/anlpubs/2008/02/60978.pdf> (accessed 20 March 2012).

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grade lithium ion batteries, government procurement of EVs, public subsidies for recharging

stations, non-economic incentives to purchase or use plug-in vehicles (e.g., access to

uncongested high-occupancy vehicle (HOV) lanes or free inner-city parking), and federal

research and development (R&D) subsidies aimed at advancing battery technology. An R&D

policy may leave the commercialization challenge to entrepreneurs or, as is typical of many

Asian economies, governments may offer financial assistance to producers in the early stages of

commercialization.7

Industrial policy implies a desire for home-grown companies to produce plug-in vehicles (and

components) for export as well as for domestic use. Those home-grown companies must have

access to engineering expertise, modern manufacturing methods, and the intellectual property

that is required to be competitive in the global automotive industry.8 “Clusters” of multiple

companies and universities may be stimulated by government to expand a new manufacturing

industry.9 Ideally, industrial policy makers look for a significant position in the entire supply

chain of electric vehicle production.

Although industrial policies are seen as inefficient by some economists, they are popular among

some politicians.10

Such policies are perceived as generating greater economic competitiveness

and increasing exports, domestic employment and income levels. Through enhanced economic

power, the country engaged in industrial policy may also seek to acquire greater political power

or influence in a specific region of the world or globally. In the aftermath of the Great Recession

of 2007-2009, policy makers are targeting the EV industry as a promising new source of

sustainable economic development and global competitiveness.11

Risk management is aimed at curbing societal risks such as those related to emissions of

greenhouse gases and dependence on an insecure petroleum sector. Those aims may be achieved

by displacement of conventional fuel vehicles with EVs. Risk management may be revealed by

public policies that are technology-neutral in their design but have the practical effect of boosting

the commercial prospects of the EV. Classic examples include carbon price policies from a tax or

cap-and-trade system, an oil import fee, a gasoline or diesel fuel tax, a minimum performance

standard for vehicle fuel economy or carbon emissions, or a feebate system linked to vehicle

7 Jon Gertner, “Does America Need Manufacturing?” New York Times, 24 August 2011, available on the Internet at

< http://www.nytimes.com/2011/08/28/magazine/does-america-need-manufacturing.html?pagewanted=all> (20

March 2012).

8 Thomas Lyon and Russell Baruffi, Jr., “Creating a Plug-In Electric Vehicle Industry Cluster in Michigan,” supra

note 6.

9 Gary Pisano and Willy Shih, “Restoring American Competitiveness,” Harvard Business Review, July/August

(2009), pp. 2 et sqq.

10 Christina Romer, “Do Manufacturers Need Special Treatment?” New York Times, 4 February 2012, available on

the Internet at <http://www.nytimes.com/2012/02/05/business/do-manufacturers-need-special-treatment-economic-

view.html> (last accessed on 20 March 2012).

11

Thomas Lyon and Russell Baruffi, Jr., “Creating a Plug-In Electric Vehicle Industry Cluster in Michigan,” 18

Telecommunications Technology Law Review (2011), pp. 303 et sqq.

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mileage ratings or vehicle carbon emissions.12

Risk management policies may allow for EVs to

be a technological option for achieving environmental goals or curbing other risks posed to

society, but risk managers may not show an overt preference for a certain type of technology or

industry to meet the goals of the policy. Risk management policies likewise do not feature the

overt preference for domestic industrial entities to meet their demands, although it by no means

forbids them either.

A third option is a substantial blend of the two for policy motivation. Politicians often make a

“green jobs” argument in favor of policies that promote the EV, suggesting that politicians seek

both the enhanced economic prosperity and improved environmental quality. And there is a

global search for public policies that can simultaneously serve both industrial development and

risk management objectives.

Some skepticism about the compatibility of the two explanations is warranted. EVs are not

necessarily the most effective or cost-effective technology for achieving environmental or

economic goals. Even when sales of EVs rise, there may not be any significant environmental

improvement. For example, if a vehicle manufacturer is constrained by a performance standard

defined by fleet-wide carbon emissions or fuel economy, more sales of EVs may allow the

vehicle manufacturer to produce and sell more high-polluting luxury cars or sport-utility

vehicles.13

Thus, it should not be assumed that policies aimed at boosting EV sales will play a

constructive role in risk management. Nor should it be assumed that the aims of industrial policy

can be accomplished by risk management policies that are neutral to both choice of technology

and geographic location of the vehicle supply chain. An industrial policy maker in China may be

determined to locate advanced battery plants in China rather than foster importation of batteries

from Japan or South Korea. Consequently, the neutrality of risk management may not satisfy the

goals of the industrial policy maker, whose assignment is to nurture the development of a

domestic EV industry until it becomes a significant or dominant player in the global industry.

Thus, it is quite challenging to achieve operational compatibility between risk management and

industrial policies.14

12

W. Morrow, Henry Lee, Kelly Gallagher et al., “Reducing the U.S. Transportation Sector’s Oil Consumption and

Greenhouse Gas Emissions,” (policy brief, Belfer Center, John F. Kennedy School of Government, 2010), available

on the Internet at < http://belfercenter.ksg.harvard.edu/files/Reducing-the-US-Transportation-Sectors-Oil-

Consumption-and-Greenhouse-Gas-Emissions.pdf> (last accessed 20 March 2012).

13

International Council on Clean Transportation, “U.S. EPA/DOT Supplemental Notice of Intent

Regarding Light-Duty Vehicle Standards for the

2017–2025 Model Years” (policy brief, 2011), available on the Internet at

<http://theicct.org/sites/default/files/publications/ICCTpolicyupdate13_USLDV_final.pdf> (last accessed on 20

March 2012).

14

Wim Naudé, “Climate Change and Industrial Policy” (working paper, Maastricht School of Management,

University of Maastricht, 2011), available on the Internet at < http://www.wider.unu.edu/publications/working-

papers/2011/en_GB/wp2011-077/_files/86686196823294037/default/wp2011-077.pdf> (last accessed 20 March

2012).

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CASE STUDIES OF POLITICAL JURISDICTIONS

1. California

California’s nearly 40 million residents, who live primarily in sprawling urban areas with limited

mass transit, are the largest market for motor vehicles in North America. Though California’s

fuel prices of $3.50-$4.00 per gallon in 2011 hover about $0.50 per gallon higher than the U.S.

average due to higher state taxes and stricter fuel regulations, they are low by international

standards and still encourage widespread ownership and use of motor vehicles.

Smog became a major problem in southern California due to unfavorable environmental

geography and a rapid increase in automobile use in the 20th

century. The U.S. Congress

responded by allowing regulators in California to be the only state in the U.S. to issue unique

emissions standards for new motor vehicles that are more stringent than those issued by the

Environmental Protection Agency (EPA). The other 49 states are permitted to choose whether

they will follow EPA or one or more of California’s standards. Vehicle manufacturers must

either design one fleet of "California vehicles" and a different fleet of "non-California" vehicles,

or simply sell "California" vehicles in all fifty states. In 2002 California required all major

vehicle manufacturers to meet stringent carbon emission standards. The state won litigation

against the Bush administration, which sought to limit their powers of risk management by

invoking the legal doctrine of federal preemption. More recently, the initiation of a similar U.S.

federal government program and the provision of a voice to California regulators in determining

the stringency of national standards have encouraged California to simply conform to the current

national program.

The concept of a zero emission vehicle (ZEV) originated in California. Spurred by General

Motors Corporation, the California Air Resources Board (CARB) issued in 1990 the first formal

ZEV mandate, requiring any major manufacturer, domestic or foreign, to sell at least 2% ZEVs

by 1998 and 10% by 2003. The ZEV program was considered a "de facto mandate…for battery-

electric vehicles"15

and “rent seeking”16

by a single company. GM’s management perceived a

competitive edge in the electric car business, in part because of the expertise of two GM

subsidiaries based in California: Hughes (electronics) and Rockwell (light-weight

materials). GM and the other major automakers offered electric cars in California in the 1990s;

however, the vehicles had insufficient range to be commercially viable. The focus of the ZEV

program shifted to hybrid electric vehicles and hydrogen fuel cells and, by the late 1990s, the

major automakers had abandoned electric vehicle development. Recent advances in the

application of lithium ion chemistry have prompted CARB to revitalize the ZEV program. By

model year 2016, vehicle manufacturers will be required to offer some form of a ZEV, while

compliance credits for conventional hybrids are being phased out in 2018. The most recent ZEV

mandate is aimed at causing 15.4% of all cars sold – about 1.4 million vehicles – to have

15

Louise Bedsworth and Margaret Taylor, “Learning from California’s Zero-Emission Vehicle Program,” 3

California Economic Policy (2007), at p. 1.

16 Thomas Roediger-Schluga, The Porter Hypothesis and the Economic Consequences of Environmental Regulation:

A Neo-Schumpeterian Approach (Cheltenham, UK and Northampton, MA: Edward Elgar 2004), at p. 289.

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advanced technologies by 2025.17

This regulatory change effectively resets a mandate for plug-in

electric vehicles.

Industrial development also drives California’s interest in electric vehicles. On a global basis,

only Japan and South Korea exceed California in the number of EV-related patents.18

In 2010

California accounted for about 80% ($840 million) of the total venture capital invested in the EV

industry, and the first six months of 2011 saw another $467 million invested in EV-related

enterprises.19

California does not have any factories that produce gasoline-powered vehicles20

but

there are large number of start-up, small, and medium-sized businesses in California that have a

commercial stake in the future electrification of the transport sector through batteries, vehicle

assembly, recharging equipment, or software and hardware development. The new ZEV mandate

contains a stimulus for large vehicle manufacturers to purchase ZEV compliance credits from

small-volume vehicle producers that are not covered by the requirements. Several of these

companies, including Coda and Tesla, are based in California and generate ZEV credits as part

of their business model.21

California’s policy preference for electrification goes far beyond the ZEV program. Drivers in

the state experience some of the most congested freeways and longest commuting times in the

U.S. California features HOV and high-occupancy toll lanes to help alleviate congestion. Access

to these lanes is typically restricted to car poolers, but California previously granted HOV lane

access to owners of a conventional hybrid car, even when the driver was traveling alone. A

conventional hybrid Toyota Prius with an HOV sticker once carried a $4,000 price premium in

California’s used-car market. California regulators recently terminated HOV lane access for

conventional hybrids and granted access only to ZEVs.

In March 2010 the State of California introduced a new consumer rebate under the Clean Vehicle

Rebate Project (CVRP): $5,000 for a purely battery-operated vehicle; up to $3,000 for a plug-in

hybrid vehicle; and $1,500 for electric motorcycles and neighborhood electric vehicles.22

The 17

Carolyn Whetzel, “California Adopts Strict New Car Standards, Updates Zero-Emissions Vehicle Mandate,”

Bloomberg BNA Daily Environment Report, 30 January 2012, available on the Internet at <

http://www.bna.com/california-adopts-strict-n12884907528/> (last accessed on 20 March 2012).

18 Noel Perry, Sarah Henry, and Marcia Perry, “Powering Innovation: California is Leading the Shift to Electric

Vehicles from R&D to Early Adoption” (white paper, Next 10, 2011), available on the Internet at

<http://www.coecon.com/Reports/GREEN/EVReport_2011_final.pdf> (last accessed on 20 March 2012).

19

Ibid.

20

Los Angeles County Economic Development Corporation, “The Automotive Industries in Southern California,”

(white paper, 2006), available on the Internet at <http://laedc.org/reports/Auto-2006.pdf> (last accessed on 20

March 2012).

21

Alysha Webb, “California’s Zero-Emission Credits Give Startup EV Makers a Boost,” Automotive News, 2

August 2010, available on the Internet at

<http://www.autonews.com/apps/pbcs.dll/article?AID=/20100802/OEM01/308029992> (last accessed on 20 March

2012).

22 HybridCARS, “Hybrid and Plug-in Incentives and Rebates: Region by Region,” hybridCARS.com, 8 March 2010,

available on the Internet at <http://www.hybridcars.com/local-incentives/region-by-region.html (last accessed 20

March 2012).

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program lasts through 2015 with a budget cap of $200 million. Combined with the U.S. federal

tax credit, purchasing a plug-in vehicle is significantly more affordable in California than

elsewhere in the U.S. While the Nissan Leaf, a fully-battery operated vehicle, has a list price

of $34,800 (though this is being lowered to $28,800 for the 2013 model year)23

, the net price for

a California resident is around $20,000, which is also significantly less than a conventional

Toyota Prius.

California is leading the U.S. in recharging investments for plug-in vehicles. Older recharging

stations are being upgraded and new ones are being installed. In total, the state is financing 5,000

new charging stations by the end of 2012,24

while municipal and city governments are adding

their own subsidies for infrastructure, as well as modifying local codes to support recharging

stations. A Department of Energy program provides Leaf and Volt owners in Los Angeles, San

Diego, and San Francisco eligibility to receive a free Level 2 “fast” charger and $2,250 toward

charger installation. Some employers, such as Google, Adobe Systems and other firms in Silicon

Valley, are making charging stations available for their employees.25

California (along with

Washington and Oregon) is implementing the West Coast Green Highway Project, which will

install a network of recharging stations along 1,350 miles of Interstate 5 from the Canadian to the

Mexican border.26,27

This is one of the few systematic efforts in the United States to facilitate

intercity electric vehicle travel.

Summary of California Case Study

California appears to be implementing a substantial blend of risk management and industrial

policies. Air quality regulations and carbon emission standards, while targeted at vehicles, are

clearly designed to mitigate the negative effects of smog and soot that have long troubled Los

Angeles and other population centers in the state. Fuel prices in California, though low by

international standards, are among the highest in the United States and therefore provide an

economic climate that is relatively favorable to vehicle technologies that use less gasoline. And

while the ZEV mandate was initially suggested to be a mandate for battery-electric vehicles and

policy support for investments in production made in the region by General Motors, the change

in technological preference from battery-electric vehicles hybrid electrics to hydrogen and fuel

23

Tom Krisher, “2013 Nissan Leaf Electric Vehicles Lowered in Price By Automaker,” 14 January 2013, available

at http://www.huffingtonpost.com/2013/01/15/nissan-leaf-japanese-auto_n_2478185.html (Last accessed 15 Jan

2013)

24

Rebecca Smith, “California’s Costly Electric Car Push,” Wall Street Journal, 17 June 2010, available on the

Internet at < http://online.wsj.com/article/SB20001424052748703513604575310702985839306.html> (last accessed

on 20 March 2012).

25 Todd Woody and Clifford Kraus, “Early-Adopter Cities Rewire Themselves for the Electric Car,” International

Herald Tribune, 16 February 2010, at p. 18.

26 Alysha Webb, “Range Anxiety? Not on This Highway,” Automotive News, 6 December 2010, available on the

Internet at < http://www.autonews.com/article/20101206/OEM05/101209892> (last accessed on 20 March 2012).

27 John Horsley, “Electric Cars and the Role of State DOTs,” National Journal, 21 June 2010, available on the

Internet at <http://wsdotfederalfunding.blogspot.com/2010/06/dots-electric-vehicle-policy.html> (last accessed 20

March 2012).

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cells and now back toward battery-electrics is indicative of technological flexibility under risk

management.

Yet California also sees itself as a home for the emerging electric vehicle industry in the United

States, and its policies are clearly designed to nurture the industry. Some of the most innovative

EV start-ups (e.g., Tesla) and recharging companies, and their investors, are based in California.

California’s ZEV mandate is designed in ways that boost the fortunes of the California start-ups

while also boosting the prospects of the entire EV industry. The California policies for HOV

roadway use and consumer rebates for green cars are designed to stimulate consumer interest in

EVs. The ZEV mandate is also designed to nurture the nascent battery supply chain industry that

has somewhat of a foothold in California, and the state has made infrastructure investments in

electric vehicle recharging that are unsurpassed elsewhere in the case studies. Thus, while

California is seeking risk management of smog-forming pollution and greenhouse gases from the

automobile, the state is also developing an electric vehicle sector as industrial policy.

2. China

In 2009 China surpassed the U.S. as the world’s largest auto market, with sales of more than 14

million new cars and trucks.28

The rapidly growing size of the Chinese middle class is spurring

growth in private automobile ownership, as households shift away from bicycles, scooters, and

public transport.29

By 2030 China is predicted to have 390 million private vehicles on the road,

about 20 times more than in 2002.30

The burst in urban vehicle miles of travel has contributed to

severe congestion and pollution in Chinese cities, which account for 16 of the 20 dirtiest cities in

the world.31

Fuel price controls by the Chinese government have helped boost automotive travel by insulating

consumers from fluctuating world oil prices.32

A new pricing system to better parallel global oil

prices was instituted in the fall of 2009, but Chinese consumers continue to pay fuel prices lower

than the marginal social costs of gasoline consumption. Chinese fuel prices have only recently

surpassed the low levels seen in the US.

China has some natural comparative advantages that suggest there is some promise in a national

industrial policy based on EVs. China is one of the world’s leading producers of lithium33

and

has a dominant position in the world market for several rare-earth metals that are important

28

Brian Dumaine, “China Charges into Electric Cars,” CNN.com, 19 October 2010, available on the Internet at <

http://tech.fortune.cnn.com/2010/10/19/china-charges-into-electric-cars/> (last accessed on 20 March 2012).

29 PRTM Management Consultants, Inc., “The China New Energy Vehicles Program: Challenges and

Opportunities” (industry report prepared for World Bank, 2011), available on the Internet at

http://siteresources.worldbank.org/EXTNEWSCHINESE/Resources/3196537-1202098669693/EV_Report_en.pdf

(accessed 20 March 2012).

30 Joyce Dargay, Dermot Gately, and Martin Sommer, “Vehicle Ownership and Income Growth, Worldwide: 1960-

2030,” 28 Energy Journal (2007).

31 World Bank, The Little Green Data Book (Washington, D.C.: World Bank Publications, 2007).

32 Andrew. Batson, “China is in a Bind to Raise Energy Prices,” Wall Street Journal, 21 September 2007, at p. A9.

33 Pandit Patil, “Developments in Lithium-Ion Battery Technology in the Peoples Republic of China”, supra note 15.

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inputs to automotive batteries and electric drivetrains. In recent years, China has flexed its

muscle in the global market for these inputs by restricting supplies and driving up global prices

by a factor of five or more for limited time periods.34

About 120 Chinese companies already

produce more than half of the world’s supply of lithium ion batteries for use in such products as

laptop computers and smartphones.35

Though still behind Japan and South Korea, China has

been capturing market share in advanced batteries since 2009.36

China has both low-cost labor and pockets of strong engineering expertise. Despite rising

Chinese wages, total unit labor costs remain far below their counterparts in Japan, Western

Europe and the U.S.37

Several Chinese universities feature strong engineering research programs

on advanced batteries for automotive applications that have earned multiple patents and

partnered with domestic and foreign automakers to advance automotive batteries.38,39

The

123,000 member China Electrotechnical Society serves as a clearinghouse for technical and

economic information about the future of electric vehicles.

At the 2010 Beijing auto show, virtually all of the 100+ foreign and domestic automakers doing

business in China showcased some new or concept-stage electric or hybrid vehicle. Since

Chinese automakers lag behind other Asian, European and American producers of gasoline

engines, Chinese central planners are striving to “leap-frog” the rest of the world by being the

first country to mass produce, use, and export plug-in vehicles. Their vision is to become a

dominant global player in the auto industry. 40,41,42

Over 100 vehicle manufacturers in China are currently in business, but most are small with

limited volumes and uneven access to modern technological and production systems.

34

Jean-Francois Tremblay, “China Tightens Rare-Earth Controls” 89 Chemical and Engineering News (2011), pp.

20 et sqq.

35 Pandit Patil, “Developments in Lithium-Ion Battery Technology in the Peoples Republic of China”, supra note 15,

at p. 1.

36

GBI Research, “Future of Global Advanced Batteries Market Outlook to 2020: Opportunity Analysis in

Electronics and Transportation” (industry report, 2010), available on the Internet at <

http://www.gbiresearch.com/report.aspx?ID=Future-of-Global-Advanced-Batteries-Market-Outlook-to-2020-

Opportunity-Analysis-in-Electronics-and-Transportation> (last accessed on 20 March 2012).

37 Pandit Patil, “Developments in Lithium-Ion Battery Technology in the Peoples Republic of China”, supra note 15,

at p. 5.

38

Ibid., at p. 22.

39

PRTM Management Consultants, Inc., “The China New Energy Vehicles Program: Challenges and

Opportunities”, supra note 29, at p. 21.

40

Greg Anderson, Designated Drivers: How China Plans to Dominate the Global Auto Industry (Hoboken, New

Jersey: Wiley and Sons, forthcoming).

41 Brian Dumaine, “China Charges into Electric Cars”, supra note 28.

42

PRTM Management Consultants, Inc., “The China New Energy Vehicles Program: Challenges and

Opportunities”, supra note 29, at p. 12.

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Historically, the foreign brands sold through partnerships with Chinese firms have dominated the

Chinese market, but in recent years home-grown Chinese manufacturers have captured an

increasing share of the new vehicle market, particularly the low-margin market for inexpensive

small cars.43

Most Chinese vehicle exports are to Russia and Vietnam, as Chinese automakers

have not yet significantly penetrated the lucrative markets of North America and Europe.44,45

The

central government is encouraging consolidation of the industry but there is resistance from

municipal and city governments with strong ties to small local automakers.46

In the long-run, the

Chinese Ministry of Industry and Information Technology seeks to establish at least three to five

Chinese vehicle manufacturers and two to three suppliers of key components, including

advanced batteries and electric drive systems, as global leaders in the electric vehicle industry.

The government is planning to invest $15 billion in public research and development, purchase

subsidies, and recharging infrastructure.47

The central government believes it is critical to

provide public subsidies to firms engaged in the early commercialization of new battery

applications. Chinese owned or operated companies can obtain grants of up to 85% of both

operating and capital costs of producing lithium ion batteries for vehicle applications. Special

incentives have been offered to encourage partnerships or joint ventures with foreign companies

and large incentives are provided to companies that produce batteries for export.48

Chinese auto companies are owned by the state, operate under close state supervision, or operate

in formal partnerships with major international companies such as Volkswagen, General Motors,

Hyundai, and Honda. Disappointed with the transfer of knowledge from the previous 25 years of

foreign partnership with automakers, the Chinese government now seeks to curtail the influence

of foreign partners.49

Foreign partners will be expected to share “voluntarily” more of their

43

Tom Orlik and Liam Denning, “The Roadblock in GM’s Route Through China,” Wall Street Journal, 20 April

2011, available on the Internet at <

http://online.wsj.com/article/SB10001424052748703922504576272991755225206.html> (last accessed 20 March

2012).

44 Yang Jian, “U.S. Sales Remain a Distant Dream for Chinese,” Automotive News, 11 January 2010, available on

the Internet at < http://www.autonews.com/article/20100111/GLOBAL03/301119964> (last accessed on 20 March

2012).

45 David Sedgwick, “What’s Coming from China?” Automotive News, 23 August 2010, p. 15.

46 Norihiko Shirouzu, “China’s Auto Industry to Consolidate,” Wall Street Journal, 5 February 2009, available on

the Internet at < http://digg.com/newsbar/topnews/China_s_Auto_Industry_to_Consolidate> (last accessed 20

March 2012).

47 David Barboza, “China to Invest Billions in Electric and and Hybrid Vehicles,” New York Times, 20 August

2010, at p. B2.

48 Pandit Patil, “Developments in Lithium-Ion Battery Technology in the Peoples Republic of China”, supra note 15,

at p. 2.

49

Norihiko Shirouzu, “China Spooks Auto Makers,” Wall Street Journal, 17 September 2010, available on the

Internet at < http://online.wsj.com/article/SB40001424052748704394704575495480368918268.html> (last accessed

20 March 2012).

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intellectual property and to offer more plug-in vehicles as part of any partnership with a Chinese

company.50,51

China is using a demonstration approach to promote the electric vehicle. In 2004 a small

demonstration program began in eight Chinese cities, followed by a demonstration of 600

electric vehicles at the 2008 Beijing Olympic Games.52

That same year the Ministry of Finance

launched plug-in vehicle demonstration programs in 13 of China’s largest cities. Taxi fleets and

local government agencies were offered up to $8,800 for each electric or hybrid vehicle

purchased. The large state-owned electricity companies were also required to set up public

charging stations in Beijing, Shanghai and Tianjin.53

The 2009 “Ten Cities, Thousand Vehicles

Program” challenged the cities of Beijing, Shenzhen, Shanghai, Jinan, Chongqing, Wuhan,

Changchun, Hefei, Dalian, and Hangzhou to launch and monitor a test program of at least 1,000

electric vehicles. The initial focus was taxis, garbage trucks and buses because of their

predictable driving patterns. The program was later expanded twice to include Changsha,

Kunming, Nanchang, Tianjin, Haikou, Zhengzhou, Xiamen, Suzhou, Tangshan, and

Guangzhou.54

In June 2010 a consumer demonstration program was launched in Shanghai,

Changchun, Shenzhen, Hangzhou and Hefei. Purchase subsidies of $8,000 and $9,600,

respectively, are provided for consumer purchases of plug-in hybrids and plug-in electric

vehicles.55

Some cities such as Shenzhen offered supplemental subsidies that double the

purchase incentive. Additionally, each year government agencies in China spend $15 billion on

the purchase of new vehicles; and in 2011 the central government placed plug-in hybrids and all-

electric vehicles on the list of officially approved government purchases.56

Non-financial incentives are also used in China to encourage the purchase and use of plug-in

vehicles. Many large cities attempt to curb congestion and pollution by allowing vehicle owners

to use their vehicles only six days a week and by using odd-even license-plate numbers as a basis

for banning vehicles from the streets on alternate days. These restrictions are waived for plug-in

50

Ibid.

51

Chris Woodyard and Aaron Kessler, “Toyota Bestows a Premium Price Tag on Plug-in Vehicles,” USA Today, 9

September 2011, at p. 4B.

52 Wan Gang, “Turning Point,” in Geoffrey Lean (ed.), Our Planet (Malta: Progress Press, 2009), p. 6.

53 Keith Bradsher, “China Outlines Plans for Making Electric Cars,” New York Times, 10 April 2009, available on

the Internet at < http://www.nytimes.com/2009/04/11/business/energy-environment/11electric.html> (last accessed

on 20 March 2012).

54 PRTM Management Consultants, Inc., “The China New Energy Vehicles Program: Challenges and

Opportunities”, supra note 29, at p. 13.

55

Leslie Guevarra, “China Pushes Electric Car Market with Hefty Subsidies and More,” GreenBiz.com, 1

November 2011, available on the Internet at < http://www.greenbiz.com/blog/2011/11/01/china-pushes-electric-car-

market-hefty-subsidies-and-more> (last accessed 20 March 2012).

56 Zhang Xiang, “China Gives New Energy Vehicles Official Nod,” 25 November 2011, available on the Internet at

<http://news.xinhuanet.com/english2010/china/2011-11/25/c_131269594.htm> (last accessed on 20 March 2012).

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vehicles.57

Beijing and Shanghai limit vehicle ownership through license plate auctions or

lotteries, but new rules exempt plug-in vehicle purchases.58

Several state goals are driving these demonstration and incentive programs. The Ministry of

Science and Technology set a goal of 10% of new vehicles being powered by alternative fuels,

primarily electricity, by 2012.59

The central government set a 2008 goal of at least 500,000

hybrid, all-electric cars, and buses on the road by 2012.60

Despite these ambitious goals and state

support of the industry, many of the benchmarks have not been met. The government estimates

that less than 5,000 of the half-million electric vehicles planned for 2011 have made it to the

road.61

In response, the central government has established new goals of 500,000 by 2015 and 5

million by 2020.62,63,64

The low rate of growth of the electric vehicle industry in China has been attributed to a variety of

factors. First, relatively low fuel prices undercut the electric car’s fuel-saving benefit. Only

vehicles that are used intensively, such as a taxi, offer enough fuel savings to pay for the high

costs of batteries.65

Second, Chinese fuel economy standards are increasing over time, but the

strength and enforcement of these standards is lax.66,67

Some provisions are aimed at imposing

57

Ibid.

58

Fang Yan and Alison Leung, “China’s Electric Car Push Causes Green Car Maker BYD’s Shares to Soar,”

Huffington Post, 14 November 2011, available on the Internet at <

http://www.huffingtonpost.com/2011/11/14/china-electric-car-byd-shares_n_1092276.html> (last accessed 20

March 2012).

59

Ryan Rutkowski, “China’s Electric Car Revolution,” Asia Times, 9 October 2009, available on the Internet at <

http://www.atimes.com/atimes/China_Business/KJ09Cb01.html> (last accessed on 20 March 2012).

60 Keith Bradsher, “In China, Power in the Nascent Electric Car Industry,” New York Times, 26 December 2011,

available at < http://www.nytimes.com/2011/12/27/business/global/chinas-push-for-electric-cars-flows-through-

grid-operators.html?pagewanted=all> (last accessed on 20 March 2012).

61 Ibid.

62

Alysha Webb, “China Pushes to be EV Leader,” Automotive News, 6 December 2010, available on the Internet at

<http://www.automotivenewseurope.com/apps/pbcs.dll/article?AID=/20101206/OEM05/312069997/1131&template

=printart> (last accessed 20 March 2012).

63 Matthew Dolan, “U.S. Battery Firm in China Venture,” Wall Street Journal, 18 January 2011, available on the

Internet at < http://online.wsj.com/article/SB10001424052748703396604576088342084594876.html> (last accessed

on 20 March 2012).

64 Brian Dumaine, “China Charges into Electric Cars”, supra note 28.

65

Ibid.

66

Amanda Sauer and Fred Wellington, “Taking the High (Fuel Economy) Road: What Do the New Chinese Fuel

Economy Standards Mean for Foreign Automakers?” (policy brief, World Resources Institute, 2004), available on

the Internet at < http://pdf.wri.org/china_the_high_road.pdf> (last accessed 20 March 2012).

67 Feng An, Robert Earley, and Lucia Green-Weiskel (The Innovation Center for Energy and Transportation),

“Global Overview of Fuel Efficiency and Motor Vehicle Emissions Standards: Policy Options and Perspectives for

International Cooperation” (background paper no. 3, CSD19/2011/BP3, prepared for the Commission on Sustainable

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greater compliance costs on foreign versus domestic auto makers,68

though whether all of these

standards apply to foreign partnerships is somewhat unclear.69

Several Chinese automakers are

planning to offer hybrid or plug-in electric vehicles in China over the next few years.70

They may

be too small or priced too high for mass commercialization, however, and quality is a persistent

challenge as the industry in China is still relatively immature.71

Chinese firms have recognized

these weaknesses by reaching out to foreign expertise.72,73,74

Finally, recharging infrastructure is

a major issue. Most urban residents in China have apartments without garages, and connecting

this layout to recharging infrastructure is problematic. Public subsidies for community

recharging stations have not been sufficient to create the high density of stations that would be

required for convenient, regular urban use75

and a battery-swapping alternative is only at the

early demonstration phase in China. Until China addresses the lack of recharging infrastructure,

growth of the electric vehicle industry will be confined primarily to specialized fleet vehicles

such as taxis, buses and urban delivery vehicles. The slow pace of commercialization has led to

speculation that Chinese officials are taking another look at a portfolio approach that would

include a larger role for greener gasoline engines and the conventional hybrid technologies

pioneered by Honda and Toyota.76

Summary of Chinese Case Study

The Chinese government is engaged in what appears to be almost exclusively industrial policy.

Unlike the other developed nations covered in this paper, China is not already heavily motorized,

and it seeks to produce a large market share of its own future vehicle population. Recognizing

Development, Department of Economic and Social Affair, United Nations, 2011), available at

http://www.un.org/esa/dsd/resources/res_pdfs/csd-19/Background-paper3-transport.pdf (last accessed 20 March

2012).

68 Keith Bradsher, “China is Said to Plan Strict Gas Mileage Rules,” New York Times, 27 May 2009, available on

the Internet at http://www.nytimes.com/2009/05/28/business/energy-environment/28fuel.html (last accessed on 20

March 2012).

69 An Feng, Robert Earley, and Lucia Green-Weiskel (The Innovation Center for Energy and Transportation),

“Global Overview of Fuel Efficiency and Motor Vehicle Emissions Standards: Policy Options and Perspectives for

International Cooperation”, supra note 68.

70

Elaine Kurtenbach, “China’s Automakers Ride Hybrid, Electric Roads,” USA Today, 23 April 2009, at p. 4B.

71 Patti Waldmier, “China Debates Electric Car Policy,” Financial Times, 22 August 2011, available on the Internet

at < http://www.ft.com/intl/cms/s/0/b213d66e-ccaf-11e0-b923-00144feabdc0.html#axzz1pimOI4Kw> (last accessed

20 March 2012).

72 Norihiko Shirouzu, “China’s SAIC Using U.S. Parts on Hybrid,” Wall Street Journal, 2 April 2009, available on

the Internet at < http://online.wsj.com/article/SB123861479503479353.html> (last accessed 20 March 2012).

73 Matthew Dolan, “BYD Showcases Electric Car for US,” Wall Street Journal, 13 January 2010.

74 Patti Waldmeir, “Foreign Talent Sought for Chinese Detroit,” Financial Times, 5 July 2011, at p. 21.

75 Shai Oster, “China Mulls Battery Sites for Vehicles,” Wall Street Journal, 2 November 2009, available on the

Internet at < http://online.wsj.com/article/SB10001424052748703294004574511160931647816.html> (accessed 20

March 2012).

76 Patti Waldmier, “China Debates Electric Car Policy”, supra note 72.

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that it is unable to penetrate the existing gasoline vehicle market outside of China, central

planners see EVs as a promising path to capture both their domestic vehicle market and a

growing share of the global vehicle market. A wide range of policy tools are being deployed to

facilitate China’s EV industrial policy. Pricing and export controls on its vast natural resources

of lithium are influencing the global battery production market. Large government investments

are being made in research and development of battery and EV technology, recharging

infrastructure, and subsidies for buyers of EVs. The EV demonstration programs in Chinese

cities are additional evidence of a focus on industrial policy. To the limited extent that there is

risk management of pollution as a policy motivation, it has to do with license plate-based

restriction of vehicle use that exempts EVs. While EVs may be a pro-environment technology

(depending upon how much coal is used in the electricity sector), the Chinese industrial policy

makers are primarily interested in the economic development associated with the production of

EVs, the components, the raw materials and the entire supply chain.77

EV policy in China, if it is to have a large pro-environment impact, must ensure greener sources

of electricity. Currently, China is heavily dependent on coal use, which the Chinese have shown

little interest in curtailing. Even if use of electric vehicles grows, the ultimate impact on

environmental risk may be minimal. Wan Gang, Minister of Science and Technology since 2007,

has stated publicly that he sees China’s EV initiative as central to China’s international

competitiveness, and not simply as a tool to achieve environmental goals.78

In summary, Chinese politicians have a substantial, decade-long public commitment to a robust

EV industry. Some analysts believe that Chinese and foreign automakers will offer plug-in

vehicles in China not because consumers will buy them but because the central government

wants them to be offered.79,80

3. European Union

Until the recent recession in Europe, consumer demand for cars there had continued to increase,

and much of the profit for automakers is in vehicles that deliver high levels of performance and

premium features. The EU auto sector accounts for 2 million direct jobs and 10 million jobs in

related industries. Auto production is concentrated in Germany, France, Spain and the UK, but

several eastern European countries are experiencing rapid production growth. European plants

account for 25%-33% of global automobile production and European automobile exports are

77

Andrew Revkin, “Scant CO2 Benefit from China’s Coal-Powered Electric Cars,” New York Times, 10 October

2011, available on the Internet at < http://dotearth.blogs.nytimes.com/2011/10/10/scant-co2-benefit-from-chinas-

coal-powered-electric-cars/> (accessed 20 March 2012).

78 Keith Bradsher, “China is Said to Plan Strict Gas Mileage Rules”, supra note 69.

79

Yang Jian, “Automakers Will Launch Electric Vehicles in China Even Though No One Wants Them” AdAge

Global.com, 29 September 2011, available on the Internet at <http://adage.com/article/global-news/pressured-china-

automakers-launch-electric-cars/230123/> (last accessed 20 March 2012).

80 Chris Woodyard, “GM Deal Moves Electric Development to China – A ‘Shakedown’?” USA Today, 20

September 2011, available on the Internet at < http://content.usatoday.com/communities/driveon/post/2011/09/gm-

cuts-china-electric-car-deal----a-china-shakedown/1#.T2pL6NnCZqg> (last accessed on 20 March 2012).

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nearly three times the value of imports.81

However, European auto usage is seen as a key factor

behind energy insecurity, road congestion, and diminished quality of life from noise and local

pollution in the centers of European cities. From 1990 to 2004 the EU curtailed its total

emissions of greenhouse gases by 5% but progress was slowed by substantial growth in

emissions (26%) from the transport sector.82

Official EU policy documents are technology-neutral in posture and cautious about the future of

e-mobility. The European Commission’s (EC) 2011 white paper on a “Single European

Transport Area” makes 68 points about the future of transportation in the European Union but

electric vehicles are mentioned just three times in short phrases83

: a potential role in inner-city

freight vehicles; the need for recharging infrastructure; and a conflict between electricity and

biofuels in energy policy. A stronger theme in the White Paper is the need for urban Europeans

to rely more on transit, cycling, walking, smaller and lighter passenger vehicles, and buses, taxis

and delivery vans powered by “alternative propulsion systems and fuels.” The accompanying

“Commission Staff Working Document” gives even less attention to the EV, but makes one

additional provocative point: European vehicle manufacturers may be lagging behind the auto

industry in China, especially with respect to electric and plug-in hybrid vehicles.84

A role for

working with member states on public procurement and a gradual building of charging

infrastructure is mentioned among a few additional favorable references. However, the language

on car-free cities is much more powerful: “The necessary transition from a primarily car based

mobility in cities to a mobility based on walking and cycling, high quality public transport, and

less-used and cleaner passenger vehicles is the central strategic challenge for cities in the decades

to come.”85

EVs appear more prominently in the European Green Cars Initiative, which is part of the EU’s

recovery package in response to the 2008 economic crisis. The 5 billion Euro program includes

financial support of research and development through the European Commission (EC) scientific

research budget, loans to companies through the European Investment Bank, and encouragement

for Member States to use demand-side measures and public procurement to promote greener

engines and fuels. The program treats EVs as an explicit EU-wide priority, while also supporting

advanced internal combustion engines in lorries, hydrogen fuel cells, biofuels, and improved

81

European Commission, “Industrial Goods: Automotive. Directorate-General for Trade,” 2012, available on the

Internet at <http://ec.europa.eu/trade/creating-opportunities/economic-sectors/industrial-goods/automotive> (last

accessed 20 March 2012).

82 European Commission, “Green Cars Initiative,” 2012, available on the internet at

<http://ec.europa.eu/research/transport/road/green_cars/index_en.htm> (last accessed on 20 March 2012).

83 European Commission, “Roadmap to a Single European Transport Area – Towards a competitive and resource

efficient transport system” (white paper, 2011), available on the Internet at < http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0144:FIN:EN:PDF> (last accessed on 20 March 2012).

84 European Commission, “Accompanying the White Paper – Roadmap to a Single European Transport Area –

Towards a competitive and resource efficient transport system” (commission staff working document, 2011),

available on the Internet at < http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2011:0391:FIN:EN:PDF> (last accessed on 20 March 2012).

85 Ibid., at p. 89.

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management of traffic congestion. Electro-mobility has emerged as a priority in the EC Research

Programme through chemistry and engineering studies, and demonstration projects for public

acceptance. The EC and 42 organizational partners have committed 24.2 million Euros to

support Green eMotion, which consists of four-year demonstration projects (2011-2014) in

selected regions (Barcelona, Berlin, Bornholm, Copenhagen, Cork, Dublin, Malaga, Malmo,

Rome) to develop transport electrification and facilitate EV roll-out in Europe.86

The EC Joint

Research Center (JRC) is also working with the US Department of Energy and Argonne National

Laboratory on separate projects related to e-mobility, smart grids, and recharging.87,88

In 2009 the EU shifted to mandatory regulations after the Kyoto-era voluntary agreements with

automakers from 1990 to 2004 proved ineffective. In 2012, the fleet-wide average of CO2

emissions from new cars shall not exceed 130 grams per kilometer, and in 2020 it decreases to

95 grams per kilometer.89

Upstream emissions from electric cars are not currently counted by the

EU due to lack of a consensus test procedure90

, but upstream emissions are expected to be

assessed beginning 2014- 2016. A provision in the EU vehicle regulations encourages

manufacturers to comply by producing “supercars”, defined as vehicles that emit less than 50

grams of CO2 per kilometer. Manufacturers are permitted to count each supercar as 3.5 vehicles

in 2012-13, 2.5 vehicles in 2014 and 1.5 vehicles in 2015 when computing fleet-wide average

carbon emissions. This special treatment is applicable to EVs as well as some alternative

propulsion systems, but is scheduled to expire in 2016 before significant penetration of EVs

occurs in the European market. Thus, the EU’s vehicle carbon regulations are expected to be

largely technology-neutral in their industrial impact.

Summary of EU Case Study

The European Union appears to be engaged in primarily risk management. EVs are a small part

of official papers and plans for public investments in the years ahead. Instead, the EU appears to

directly support the concept of multimodal mobility and to support decreasing automobile usage

(e.g., through initiatives attempting to remove car use from city centers), which is counter to the

efforts and initiatives of the other political jurisdictions covered in this paper. Further

adjustments to post-Kyoto-era emissions requirements, while compatible with EV production,

also plan to assess potentially discouraging factors for EV production such as penalties for

86

European Commission, “Green eMotion Initiative to prepare the mass market for electromobility in Europe” 13

September 2011, available on the Internet at <http://www.greenemotion-project.eu/upload/pdf/stakeholder/en-

PI_Green-eMotion_IAA_final.pdf> (last accessed on 20 March 2012).

87

European Commission—Joint Research Center (JRC), “JRC and US Increase Cooperation on e-Mobility and

Smart Grids,” 30 November 2011, available on the Internet at <

http://ec.europa.eu/dgs/jrc/index.cfm?id=2820&dt_code=HLN&obj_id=702> (last accessed on 20 March 2012).

88 European Commission-JRC, “E-Mobility and Smart Grids at the JRC” (leaflet, 2011), available on the Internet at

< http://ec.europa.eu/dgs/jrc/downloads/jrc_2011_electromobility_leaflet.pdf> (last accessed 20 March 2012).

89 European Commission, “Green Cars Initiative” supra note 84.

90

An Feng, Robert Earley, and Lucia Green-Weiskel (The Innovation Center for Energy and Transportation),

“Global Overview of Fuel Efficiency and Motor Vehicle Emissions Standards: Policy Options and Perspectives for

International Cooperation”, supra note 68, at. p. 10.

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upstream emissions. Some argue that the new mandatory EC regulations have the practical effect

of biasing the market toward plug-in electric cars, but many industry and policy experts believe

that conventional hybrids, including diesel hybrids, are more cost-effective and friendly to risk-

averse consumers, given current battery technology.91

Thus, we contend that EU policies take a

largely technology-neutral stance toward the greening of the transport sector. To the extent that

there is investment in electric cars, it is one component of a suite of investments to help pull

member nations out of the lingering effects of the Great Recession of 2008.

4. France

The plug-in car might seem to be a relatively attractive proposition in France. Fuel prices,

boosted by heavy taxation, are approximately $5-6 per gallon, and much of the electricity

generated in France is from low-carbon nuclear power. The two large French automakers,

Renault (now in alliance with Nissan) and Peugeot Citroen, have significant experience with EVs

from attempts to market an EV in the 1990s.92

As a result, mass commercialization of EVs could

occur more quickly in France than elsewhere, with significant lifecycle environmental benefits.

The Renault-Nissan alliance has not followed the same path toward electrification as other

automakers. Nissan was seeking a greener technology to compete with the increasingly popular

Toyota Prius. The CEO of the alliance, Carlos Ghosn, was publicly “dismissive” of conventional

hybrid cars, considering them only a bridge technology toward electrification. He argued that

ZEVs rather than conventional hybrids would be necessary to satisfy the environmental

regulators.93

Spurred by governmental and public pressure to find alternatives to gasoline and

diesel engines, Ghosn embarked on a strategy to leapfrog hybrids by going straight to

electrification.94

At the November 2007 Tokyo Motor Show, Renault-Nissan surprised the

industry by announcing an ambitious plan to offer all-electric cars in markets around the world.

Nissan brought in the electronics giant NEC Corporation of Japan, which formed with Nissan a

joint venture, the Automotive Energy Supply Company, to make lithium ion batteries. Renault –

once 100% owned by the French government and still 15% state-owned – brought the financial

backing of the French government to the alliance plan. In 2007-8, NEC and Nissan announced

plans to invest $115 million in production of 65,000 automotive-grade lithium-ion batteries. The

two companies have proprietary ownership of battery technology that can deliver twice the

power output of similar-sized lithium ion batteries and do so with less risk of overheating.95,96

91

European Federation for Transport and Environment, “How to Avoid an Electric Shock: Electric Cars from Hype

to Reality” (white paper, 2009), available on the Internet at <

http://www.transportenvironment.org/sites/default/files/media/2009%2011%20Electric%20Shock%20Electric%20C

ars.pdf> (last accessed 20 March 2012).

92 David Gauthier-Villars, “Electric Cars Gather Speed,” Wall Street Journal, 26 February 2007, p. A8.

93 Joseph White, “Shirouzu, N. Hybrid or All-Electric: Car Makers Take Sides,” Wall Street Journal, 24 October

2007, at p. A13.

94 Jerry Garrett, “The People’s Electric, Ready to Claim Power,” New York Times, 23 January 2011, available on

the Internet at < http://www.nytimes.com/2011/01/23/automobiles/autoreviews/23WHEEL.html?pagewanted=all>

(last accessed 20 March 2012).

95 James Treece, “NissanWants to be a Global Player with Lithium Ion Batteries,” Automotive News, 23 April 2007,

p. 26.

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NEC saw itself in a race against Panasonic, which was planning to make lithium ion batteries in

Japan for Toyota.

The French government has invested significantly in the electric vehicle. Government officials

orchestrated the purchase of 100,000 plug-in vehicles for its fleet by 2015. In late 2011, Renault

was awarded a contract to sell 15,600 plug-in vehicles to state agencies, and Peugeot-Citroen

will supply 3,900 plug-in vehicles to government officials throughout France.97

The French state-

owned postal service, La Poste, initiated a five-year program to convert most of its 48,000

vehicle fleet to electric cars after a successful 2005 trial. The French government began with a

$7,500 incentive for any French citizen who buys an electric car, and public subsidies of $1.3

billion were also offered for recharging infrastructure throughout France.98,99

. In 2012, the

$7,500 incentive was enlarged to $10,000 while higher fees were applied to purchases of “gas

guzzlers”.

In November 2009 the French government announced a $600 million joint venture with Renault

to make 100,000 batteries per year at Renault’s Flins plant starting mid-2012 that included public

subsidies of $186 million. Renault-Nissan obtained financial assistance from Portugal, the UK,

and the U.S. for new plants to make batteries and assemble all-electric cars.100

The Chinese

government also organized an electric vehicle demonstration with Renault-Nissan in Wuhan.

Renault-Nissan thus appears to be seeking a global leadership position in the electric vehicle

industry.

In 2011 the French Bollore Group, which has invested $5.6 billion in battery development since

1996, was awarded a contract by the city of Paris to implement “Autolib”, an electric-car sharing

scheme. Seeking to curb congestion and local pollution, Autolib is expected to supply 3,000

electric vehicles and 1,120 stations for charging. For a subscription fee ($17/month), per-use

charges ($7 per half hour), and a refundable deposit ($125), residents of Paris are permitted to

use the cars and return them to any charging station. The cars, which will be constructed by

96

John Murphy, “Nissan, NEC Set Electric-Car Batteries for ’09,” Wall Street Journal, 20 May 2008, at p. B1.

97 Eric Loveday, “BYD, Daimler Electric Car Development ‘Making Excellent Progress,’” AutoBlogGreen.com, 4

March 2011, available on the Internet at < http://green.autoblog.com/2011/03/04/byd-daimler-electric-car-

development-jv/> (last accessed on 20 March 2012).

98

Sebastian Moffett, “Renault and France in Joint Project for Electric Car Batteries,” Wall Street Journal, 6

November 2009, available on the Internet at

http://online.wsj.com/article/SB10001424052748704013004574517352667227692.html (last accessed on 20 March

2012).

99

Laurent Mason, “Electric Car Sales: France Leads Way, Even Without Individual Buyers,” PlugInCars.com, 17

January 2012, available on the Internet at <http://www.plugincars.com/ev-sales-frances-leading-world-without-

french-people-involved-111557.html> (last accessed 20 March 2012).

100 John Reed and Chris Tighe, “Nissan Battery Plant Boosts North-East,” London Financial Times, 21 July 2009,

available on the Internet at < http://www.ft.com/cms/s/0/5c14904a-7564-11de-9ed5-

00144feabdc0.html#axzz1pimOI4Kw> (accessed 20 March 2012).

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Italy’s Cecomp SpA in Brittany and Canada,101

will have a range of 150 miles, a top speed of 80

mph, and require a warm-up period to function optimally. The scheme is modeled after a diesel

car sharing program in Ulm, Germany. The City of Paris has contributed 35 million euros to the

scheme while each suburban local authority has contributed 50,000 euros for each station.102

Summary of French Case Study:

France appears to be engaged in a substantial blend of risk management and industrial policy.

France has certainly been a strong voice in Brussels for aggressive climate change policies, and

its low-carbon electricity sector and high fuel prices are compatible with a risk management

viewpoint. The preponderance of low-emissions power plants for producing electricity in France

means that investments to transition the automotive sector to EVs will have more beneficial

effects in reducing pollution than found in other political jurisdictions. The contract of the city of

Paris to a French group to implement an electric car sharing scheme also appears to directly

address risk management concerns in Paris.

On the other hand, the French government’s investments in its auto industry are more similar to

the policies of China and the U.S. France has two major automakers with long-standing

relationships with the national government as well as favorable niches in global competition for

dominance in EV technology. The alliance of Renault with Nissan is of particular note since

Nissan appears to be investing more in the future of electric vehicles than other major

automakers. The targets set by government officials for fleet penetration, many of which involve

state-owned fleets, are additional evidence of industrial policy. In summary, France aspires to be

a global leader in EV technology and production.

5. Germany

Global interest in transport electrification presents a dilemma for the German government and

the German auto industry. The environmental and energy-security arguments for electrification

are appealing to German citizens. Currently, however, BMW, Daimler, and Volkswagen have a

dominant position in the design and manufacture of conventional vehicles powered by diesel fuel

and gasoline, vehicles that are selling well in the growing markets of China and India. Thus,

Germany has responded to public interest in the EV with caution, as it has a major stake in any

transition away from premium vehicles and conventional fuels in automotive propulsion systems.

One month prior to the September 2009 elections, Germany’s economic ministry announced a

plan to put one million electric cars on the road by 2020. The government allocated $700 million

to accelerate research and development in advanced batteries. This was followed by a May 2010

101

Max Colchester and Ruth Bender, “E-Cars Coming to Paris Streets,” Wall Street Journal, 10 May 2011, available

on the Internet at < http://online.wsj.com/article/SB10001424052748704681904576313193890414636.html> (last

accessed on 20 March 2012).

102

Tony Todd, “Paris Launches Autolib’ Electric Car-Hire Scheme,” France24.com, 10 March 2011, available on

the Internet at < http://www.france24.com/en/20110930-paris-launches-autolib-bluecar-bollore-all-electric-car-hire-

scheme-velib> (last accessed 20 March 2012).

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announcement of a “national platform for electric mobility”103

whereby a set of national expert

panels were to develop a blueprint for mass commercialization of electric vehicles.104

The

outcome in 2011 was a new Government Programme for Electric Mobility, a coordinated action

plan crafted by four German ministries: economics, transport, environment and

education/research.105

Included in this plan were dedication of one billion Euros to research and

development and conversion of the government fleet to 10% electric vehicles, both by the end of

2013. A ten-year exemption from the car sales tax is provided for cars with CO2 emissions below

50 grams per kilometer, providing savings to plug-in car owners of roughly $100 per year. Public

subsidies for recharging infrastructure are provided on a small scale in ten locales. Special public

parking areas will be made available for recharging of electric vehicles.106

Germany plans to

develop a “smart grid” in collaboration with its neighboring countries, while municipalities will

test the use of “smart meters” allowing for monitoring an individual’s electricity use and possible

incorporation of a time-of-use pricing system.107

Though the German plan aims at a global leadership position in transport electrification, what is

absent from Germany’s plan is perhaps as notable as what is included.108

No large public

subsidies or public loans are allocated to build plants in Germany to make advanced batteries,

electric drivetrains, or electric cars. Consumers are not offered the large $5,000-$10,000 cash

incentive to purchase an EV that exists in France, China and the U.S.109

The provision of public

charging infrastructure is extremely limited compared to the billion-dollar investments in China,

the U.S. and France.110

The focus of German subsidies is long-range research and development

in improved battery technology as well as alternative propulsion systems such as fuel cells.

103

German Federal Ministry of Economics and Technology, “Establishment of the National Platform for Electric

Mobility,” 3 May 2010, available on the Internet at <http://www.bmwi.de/English/Navigation/Press/press-

releases,did=346562.html> (last accessed on 20 March 2012).

104

UPI, “Germany Launches Electric Car Initiative,” UPI.com, 4 May 2010, available on the Internet at <

http://www.upi.com/Business_News/Energy-Resources/2010/05/04/Germany-launches-electric-car-initiative/UPI-

55231273005809/> (last accessed on 20 March 2012).

105 Brian Rohan, “German Cabinet Agrees on Electric Cars,” Reuters.com, 18 May 2011, available on the Internet at

< http://www.reuters.com/article/2011/05/18/uk-germany-autos-electric-idUSLNE74H05D20110518> (accessed 20

March 2012).

106 BMU, “Cabinet Adopts Government Programme for Electric Mobility,” 18 May 2011, available on the Internet

at <http://www.bmu.de/english/mobility/doc/47503.php> (last accessed on 20 March 2012).

107 Ben Block, “Germany Boosts Electric Vehicle Deployment,” Worldwatch Institute, 6 February 2012.

108

Vanessa Fuhrmans, “Germany Frets About Its Car Industry,” Wall Street Journal, 28 February 2011, available on

the Internet at <http://online.wsj.com/article/SB10001424052748704430304576170661630927704.html> (last

accessed 20 March 2012).

109 Henning Krogh, “German Auto Industry Disappointed by Berlin Electric Car Summit,” Automotive News, 17

May 2010, available on the Internet at <

http://www.autonews.com/article/20100517/GERMAN_NEWSLETTER/100519871> (last accessed on 20 March

2012).

110

Vanessa Fuhrmans, “Germany Frets About Its Car Industry” supra note 111.

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None of the German automakers have matched the early timetable for plug-in vehicle offerings

that Nissan-Renault and General Motors have accomplished with the Leaf and the Volt.111

BMW

led the German companies with pilot tests of an all-electric Mini and the Active-E, with plans to

launch a new sub-brand, BMWi, of electric cars for urban mobility starting 2013.112

Volkswagen

also plans a 2013 launch of the all-electric Up minicar, the E-Golf, and the E-Jetta.113

Daimler’s

electric version of the Smart Fortwo is now used in car-sharing programs in Amsterdam and San

Diego.114

Rather than make large commitments to electrification, German automakers are forging creative

alliances to provide flexibility if mass commercialization of plug-in cars occurs faster than they

expect. Daimler has formal electrification alliances with both Renault-Nissan and Peugeot in

Europe, BYD in China, Tesla in California, battery supplier Li-Tec (a subsidiary of Evonik

Industries), and German parts maker Bosch.115,116,117,118

BMW has electrification partnerships

with Peugeot-Citroen and SB LiMotive, a joint venture between South Korea’s Samsung SDI

and Bosch.119,120,121

111

Ibid. 112

Vanessa Fuhrmans, “BMW Sets Hybrid Pact with Peugeot,” Wall Street Journal, 3 February 2011, at p. B3.

113 Jason Stein, “Audi plans expansion of hybrids, electrics,” Auto Week, 15 March 2010, available on the Internet

at < http://www.autoweek.com/article/20100315/CARNEWS/100319927&template=mobileart> (last accessed on 20

March 2012).

114

Matt Steinglass, “Daimler in All-Electric Car-Share Launch,” Financial Times, 5 December 2011, available on

the Internet at < http://www.ft.com/intl/cms/s/0/8e5a4f40-176a-11e1-b20e-00144feabdc0.html> (last accessed on 20

March 2012).

115

Matthias Krust, “Daimler R&D Chief: We’re Ahead in Battery Tech,” Automotive News, 2 February 2009,

available on the Internet at < http://www.autonews.com/article/20090202/OEM06/302029727> (last accessed on 20

March 2012).

116 Oliver Klaus and Mirna Sleiman, “Daimler to Sell Tesla Stake,” Wall Street Journal, 14 July 2009, available on

the Internet at < http://online.wsj.com/article/SB124752089836834905.html#mod=WSJ_topics_obama> (last

accessed 20 March 2012).

117 Agence France-Presse, “Daimler, Bosch Join in Electric Car Venture,” Industry Week, 12 April 2001, available

on the Internet at <

http://www.industryweek.com/articles/daimler_bosch_join_in_electric_car_venture_24359.aspx> (accessed on 20

March 2012).

118 Eric Loveday, “BYD, Daimler Electric Car Development ‘Making Excellent Progress’”, supra note 96.

119

Alex Kaufman, “BMW Picks Bosch and Samsung JV as Project i Battery Supplier,” MotorAuthority.com, 3

August 2009, available on the Internet at < http://www.motorauthority.com/news/1032702_bmw-picks-bosch-and-

samsung-jv-as-project-i-battery-supplier> (last accessed 20 March 2012).

120 Dave Guilford, “BMW plans to cut carbon fiber cost by making its own,” Automotive News, 19 July 2010,

available on the Internet at < http://www.autonews.com/article/20100719/OEM05/307199957> (last accessed 20

March 2012).

121 Vanessa Fuhrmans, “BMW Sets Hybrid Pact with Peugeot”, supra note 115.

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German companies are moving into the supply chain for plug-in vehicles. The German chemicals

giant BASF has announced a new business line in electrochemistry aimed at making lighter-

weight advanced batteries with a driving range of 250 miles or more.122

Automotive supplier

Continental is ramping up production of electric motors at a plant in Gifhorn, Germany. And a

small Berlin start-up, DBM Energy, has developed a powerful battery pack that allowed a four-

seat Audi A2 to drive 375 miles from Munich to Berlin without a recharge of the battery. The

$385,000 project was co-funded by a German utility company and the German economic

ministry.123

Summary of German Case Study

The German government is engaged in industrial policy related to the EV, but a policy based on

a hedging strategy designed to protect country’s leadership position in the global auto industry.

National targets for market penetration of EVs have been set. Major investments in advanced

battery research and development are underway, as are small-scale community demonstrations of

electric mobility in selected German cities. However, Germany has not established large

consumer incentives for purchasing EVs or large public subsidies for supply chain development

or recharging infrastructure. German policies have been designed to protect its auto industry

from aggressive carbon-emissions standards or from regulatory designs that might favor other

European carmakers that focus on small cars over the German companies, who depend on sales

of premium cars for profitability. Much of Germany’s work on EVs is occurring in creative

alliances between German automakers and battery/component suppliers who are located outside

Germany and have access to advanced technology in this area (e.g., Tesla and Samsung). In

summary, Germany is positioned to expand EV offerings if a market develops but the industry

may be more interested in ambitious alternatives (e.g., fuel cells) than EVs.

6. The United States of America

U.S. automakers have been world leaders in the production of gasoline vehicles for most of the

automotive age. Until recently, the U.S. auto industry was not well positioned for a shift to plug-

in vehicles, particularly with its relatively small battery industry.124,125

The U.S. is determined to

sustain a leadership position in the global auto industry126,127

and U.S. policy makers are already

taking major steps to expand the electric vehicle industry.

122

Federal Ministry of Economics and Technology, “Establishment of the National Platform for Electric Mobility”,

supra note 106.

123

Stefan Nicola, “German Electric Car Sets World Record,” UPI.com, 26 October 2011, available at <

http://www.upi.com/Business_News/Energy-Resources/2010/10/26/German-electric-car-sets-world-record/UPI-

84921288102816/> (last accessed 20 March 2012).

124 Jon Gertner, “Does America Need Manufacturing?” supra note 9.

125

Yuliya Chernova, “Battery Companies in Need of a Boost,” Wall Street Journal. 5 December 2011, available on

the Internet at < http://online.wsj.com/article/SB10001424052970204443404577051832763572816.html> (last

accessed on 20 March 2012).

126 Jon Gertner, “Does America Need Manufacturing?” supra note 9.

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The Obama administration is using several Congressional acts to help achieve its goal of putting

one million plug-in vehicles on the road by 2015.128

The three major programs advancing this

effort are a $25 billion loan guarantee program launched in 2005 by the Department of Energy, a

2008 consumer tax credit for motorists who purchase a plug-in vehicle, and the 2009 American

Recovery and Reinvestment Act’s authorization of billions of dollars in grants to stimulate the

electric vehicle industry. These three programs constitute a national industrial policy for

transport electrification.

The first loans under the 2005 Department of Energy bill were not issued until the Obama

administration came into office in 2009. About $9 billion has been loaned to date. The program

provides loan guarantees instead of cash to reduce private investor risk. Companies that succeed

cost taxpayers zero, and 10% of the total value of the loan portfolio is set aside to cover failed

enterprises.129

Loans are limited to companies that are “financially viable”, which is why GM

and Chrysler did not receive loans at the outset.130

The largest loans went to Ford, Nissan, Fisker

and Tesla.

The 2008 initiative provides consumers a federal income tax credit of up to $7,500 for the

purchase of a plug-in vehicle though 2014. Buyers of both the Nissan Leaf and the Chevrolet

Volt are eligible for the full credit. At the same time this credit was authorized, the U.S.

Congress decided not to renew existing tax credits for conventional hybrids and advanced

diesels. The scope of this initiative was enlarged by the 2009 stimulus bill by removing a cap on

credits of 200,000 total units, and replacing it with a cap of 200,000 units per manufacturer. The

industry is now pushing to relax the 200,000-unit cap to encourage development of a second-

generation of plug-in vehicles.131,132

A federal tax credit also existed until 2012 to defray charger

installation costs at a home (30%, up to $1,000) and business (30%, up to $30,000 charging

systems). The 2009 stimulus package provided funding for nearly every component of plug-in

vehicle development. It budgeted $4 billion in 30 grants funding projects in manufacturing

batteries, battery components, and electric drive components. The Department of Energy projects

these grants will help increase the U.S. share of the global battery industry from 2% in 2009 to

127

Neal Boudette and John Stoll, “Big Three Seek Battery Subsidies,” Wall Street Journal, 9 January 2007, at p.

A14.

128 Margaret Kriz, “Is Obama’s Goal of Putting One Million Plug-In Hybrids on the Road by 2015 Achievable?”

National Journal, 2 May 2009.

129 J. Johnson,. DOE Plans Shift in R+D Direction. Chemical and Engineering News. 89(40). October 3, 2011,

130

Neil Roland, “Feds to Lend CAFE Money by Midyear,” Automotive News, 24 January 2011, available on the

Internet at <http://www.autonews.com/apps/pbcs.dll/article?AID=/20110124/OEM06/301249981/1143> (accessed

20 March 2012).

131 David Shepardson, “Sen. Levin, GM Exec Want Cap on EV Credits Lifted,” Autos Insider, 14 October 2010.

132 Peter Whoriskey, “Two Michigan Democrats Propose Billions More in Tax Incentives to Encourage Electric Car

Sales,” Washington Post, 27 January 2011, available on the Internet at <

http://www.washingtonpost.com/national/2-mich-democrats-propose-billions-more-in-tax-incentives-to-encourage-

electric-car-sales/2011/01/26/ABIp23Q_story.html> (last accessed on 20 March 2012).

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40% in 2015.133

Grants are restricted to plants located in the United States but the companies

may be headquartered elsewhere in the world. This allows such arrangements as Compact

Power’s, a subsidiary of South Korean battery giant LG Chem, ability to use $303 million to

establish a new battery manufacturing plant in Holland, Michigan to supply battery needs for

General Motors and Ford.134

The 2009 stimulus program also supported eight innovative

demonstrations that encompass 20,000 charging stations and 13,000 grid-connected vehicles.

Another $4.5 billion in grants for “smart-grid” projects was also provided.135

Utilities gather

data, encourage vehicle owners to recharge at off-peak hours, and explore whether electricity can

be transmitted in a two-way flow between the vehicle and the grid, thereby allowing the vehicle

to act as a storage vessel as well. DOE has a burgeoning research and development program on

energy storage for automotive applications, growing from $21.2 million in 2003 to $69.4 million

in 2009.136

The 2009 stimulus package assigned $400 million to a new Advanced Research

Projects Agency-Energy (ARPA-E)137

, of which advanced lithium ion batteries are a central

focus, and most recently, President Obama’s Council of Advisors on Science and Technology

recommended that DOE’s R&D budget be reoriented to have less focus on electricity generation

and more focus on electric vehicles.138

Public policy to address the societal risks of oil consumption and greenhouse gas emissions due

to automobile use has historically been quite weak in the U.S. Oil consumption (including

imports) have low taxes and there is no national carbon price. Average fuel prices including

taxes, at roughly $3.00-$3.50 per gallon in 2011, are low compared to other developed countries

and below the estimated external social costs of gasoline consumption.139

An economy-wide,

cap-and-trade program for greenhouse gases proposed by the Obama administration failed to

pass the Congress and is no longer active legislation. The U.S. has mandatory performance

standards for carbon emissions and fuel economy that are applicable to each vehicle

manufacturer’s fleet of new vehicles. Fuel economy standards are being ramped up from 27.5

miles per gallon in 1990 to 35 miles per gallon in model year 2016, and 54.5 miles per gallon in

133

U.S. Department of Energy, “The Recovery Act: Transforming the American Economy through Innovation”

(white paper, 2010), available on the Internet at <

http://www.whitehouse.gov/sites/default/files/uploads/Recovery_Act_Innovation.pdf> (last accessed on 20 March

2012).

134 Keith Schneider, “A Bet on Clean Energy in the Automotive State,” New York Times, 4 August 2010, available

on the Internet at < http://www.nytimes.com/2010/08/04/realestate/commercial/04battery.html> (last accessed 20

March 2012).

135 Rebecca Smith and Ben Worthen, “Stimulus Funds Speed Transformation of ‘Smart Grid,’” Wall Street Journal,

28 September 2009.

136 David Howell, James Barnes, Gary Henriksen et al., “Current Status of D.O.E.-funded R&D on Energy Storage

for Automotive Applications” (white paper, EVS24 International Battery, Hybrid and Fuel Cell EV Symposium,

Stavenger, Norway, 13-16 May 2009), pp. 1 et sqq., available on the Internet at <

http://www.cars21.com/files/news/EVS-24-980321%20Howell.pdf> (last accessed 20 March 2012).

137 Coral Davenport, “Tempting Target,” National Journal, 19 February 2011, at p. 57.

138 Jeff Johnson, “DOE Plans Shift in R&D Direction,” 89 Chem. Eng. News (2011), at p. 9.

139 Ian Parry, “How Much Should Highway Fuels be Taxed?” supra note 13.

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2025. This may help contribute to the US becoming a net exporter of oil for the first time since

the mid-20th

century140

. The required standard for CO2 emissions from new vehicles will be

about 163 grams per mile in 2025.

On the surface, the US mileage and carbon regulations are performance standards but it may be

difficult to comply with them without a significant program of transport electrification. The

standards contain special compliance provisions that favor plug-in vehicles over other carbon-

reducing or fuel-saving technologies. EPA standards allow a vehicle manufacturer to treat a

plug-in vehicle as a zero-emitting vehicle. The zero-emission compliance incentive is available

for an unlimited number of vehicles from model years 2017 to 2021. From model years 2022 to

2025, a manufacturer can continue to use the zero-emission incentive but only for the first

200,000 plug-in vehicles the company produces, unless the manufacturer produces more than

300,000 plug-in vehicles during model years 2019-2021, in which case the cap is raised to

600,000 vehicles. Like the European Union, U.S. regulations feature compliance multipliers for

plug-in vehicles allowing manufacturers to count them as more than one vehicle when

computing fleet-wide average carbon emissions.. For all-electric vehicles, the incentive

multiplier starts at 2.0 in model year 2017 and declines to 1.5 in 2021; for plug-in hybrid

vehicles, the incentive multiplier starts at 1.6 in 2017 and declines to 1.3 in 2021. Similar

compliance incentives are made available for vehicles powered by fuel cells. Conventional

hybrids are favored in the compliance formulas only if they are implemented in large pick-up

trucks. Similar to the EU, the U.S. government has not yet established compliance penalties for

upstream emissions induced by use of electric vehicles.

Unlike China, U.S. policy is not necessarily hostile to the importation of plug-in vehicles or

batteries. Mitsubishi’s all-electric i car, which is produced in Mizushima, Japan, will be sold in

all 50 states by June 2012.141,142

Toyota has not announced any plans to produce the plug-in

version of the Toyota Prius in the United States but it will be marketed in the U.S., following the

pattern of the original Prius. The first Chinese car to be offered in the U.S. may be the “Coda”,

an all-electric sedan with U.S. engineering, Chinese batteries, and an assembly plant in Benicia,

California.143

The Chinese automaker BYD has plans to offer its all-electric e6 in both the U.S.

and China but the location of its production facilities remains unclear.144

140

IEA (2012) “World Energy Outlook 2012.” International Energy Agency, Paris, France.

141

Luca Ciferri and Hans Greimel, “Mitsubishi Will Build EVs for Peugeot, Citroen,” Automotive News, 15 March

2010, available on the Internet at < http://www.autonews.com/article/20100315/OEM01/303159999> (last accessed

on 20 March 2012).

142 Hans Greimel, “Mitsubishi Pulls Forward U.S.-wide Launch of i EV,” Automotive News, 5 December 2011,

available on the Internet at < http://www.autonews.com/article/20111205/RETAIL07/312059960/1429> (last

accessed 20 March 2012).

143 Chris Woodyard, “All-Electric Coda: First Chinese-Made Car Comes to U.S.,” USA Today, 15 September 2011,

available on the Internet at < http://abcnews.go.com/Business/electric-coda-chinese-made-car-

us/story?id=14523671#.T2pJANnCZqg> (last accessed on 20 March 2012).

144 Norihiko Shirouzu and Joanne Chiu, “BYD Sales Drop Threatens Expansion,” Wall Street Journal, 24 August

2011, available on the Internet at <

http://online.wsj.com/article/SB10001424053111903461304576525453165905370.html> (last accessed 20 March

2012).

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Summary of U.S. Case Study

The United States sees development of an EV industry as part of an ambitious industrial policy.

Massive economic-recovery investments have been made in the entire EV supply chain with an

explicit aim of enhancing the global competitiveness of companies with production facilities in

the United States. Generous public subsidies of EV purchases, including recharging stations,

have also been made. Following the model established with the Toyota Prius in California, states

are also granting EVs access to the HOV lanes on congested highways, thus providing a

nonfinancial incentive for EV purchases. In a variety of ways, both the supply and demand for

EVs is being boosted even though one of the most critical obstacles to EV purchases – low

gasoline prices – has not been addressed.

A rapid growth in EV sales in the US will not necessarily bring environmental progress, which is

partly why EV policy in the US is not seen as risk-management policy. Legislation for carbon

taxes and cap and trade programs have failed in the U.S. Congress. While ambitious fuel-

economy standards have been established in the US through 2025, special compliance

preferences have been given to manufacturers who produce EVs. Thus, if an automaker sells in

EV, the regulatory system makes it easy for them to sell an additional premium sedan or SUV,

and thus the net effect on carbon emissions is marginal. Moreover, the U.S., like China, is

heavily dependent on carbon-intensive sources of electricity, and thus a switch from gasoline

vehicles to plug-in vehicles may have only a marginal environmental benefit due to the creation

of upstream emissions at the power plant.145

Thus, there is no assurance that the US industrial

policy toward EVs will help reduce energy-security and environmental risks.

CONCLUSION

Our central finding is that a risk management rationale is insufficient in explaining the

proliferation of EV policies. While the European Union has taken a policy stance that appears

consistent with risk management alone, China, Germany and the United States appear to be more

engaged in industrial policy. California and France display a substantial blend of industrial

policy and risk management.

The results of this study find that the electric vehicle is being promoted largely for reasons of

industrial policy. Most EV-related policies in the political jurisdictions studied here exist to

encourage economic development. In the United States and China, where no carbon price has

been established, electricity is generated from high-carbon sources, and fuel prices are relatively

low, EV policies are geared primarily toward establishing a competitive position in an emerging

global electric-vehicle industry. In the US, risk management type objectives such as energy

independence and mitigating pollution are being achieved through regulation of other elements

of the energy sector, such as diesel fuel refinement146147

. Germany appears least committed to the

145

Jeremy Michalek, Mikhail Chester, Paulina Jaramillo et al., “Valuation of Plug-In Vehicle Life-Cycle Air

Emissions and Oil Displacement Benefits,” 108 Proc. Natl. Acad. Sci. USA (2011), pp. 16554 et sqq.

146 EIA (2012). “Exports: Petroleum and Other Liquids.” US Energy Information Agency. Accessed via

http://www.eia.gov/dnav/pet/pet_move_exp_dc_NUS-Z00_mbblpd_m.htm, 10 January 2013.

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EV but is engaging in an industrial policy of hedging to protect the market share and viability of

its premium car industry, should electric propulsion gain a foothold in the worldwide premium

car market.

The policies of France and the State of California are an interesting blend of risk management

and industrial policy. Both states have made significant advancements in risk management

policies and have been among the strongest voices among their peers for mitigating the negative

effects of economic and industrial development that lead to urban air pollution, congestion, and

climate change. At the same time, France and California are homes to significant players in the

EV industry (including investors) who will benefit enormously from a vibrant global EV

industry. Thus, California and France see EVs as a technology than can foster both economic

development and environmental progress.

The European Union, on the other hand, appears to have a more technology-neutral approach to

policies. While some investments have been made in the research and development of EV

technology, there has been nothing like the incentives and fleet penetration targets for EVs seen

in the other cases. Instead, the policy promotion has been for societal-level goals, including car-

free cities, enhanced personal mobility through non-motorized transport, and e-mobility, which is

accomplished through fuel cells and EVs. The broader goal of mitigating EU contributions to

climate change appears to be a dominant priority.

A desire for economic development amid recovery from the Great Recession as well as

increasing global competitiveness in the automotive, battery, and EV supply chain industries

appears to be the primary motivation behind policies incentivizing the electric vehicle. Places

that have overt risk management benefits that arise from EV adoption – in these cases, the green

electricity production in France reducing automobile carbon emissions, and reducing automobile

emissions improving urban air pollution in California – lead to a blend of risk management with

industrial policy. The only entity studied here that acts as a supranational regulatory state is the

European Union148

, and it also is the only one where pure risk management as it relates to the

electric vehicle occurs. This may be because of a lack of direct authority over any one country,

or political resistance from member states to play favorites or introduce industrial policy that

may benefit one or some member countries at the expense of others. For risk management

policies to be introduced either independently or blended with existing industrial policy, the

needs and advantages for risk management must be more immediately obvious or tangible.

France may be more open to risk management policies because of its already green upstream

emissions, while the connection between urban air pollution and auto emissions in California has

been an established policy priority for decades. Future changes to the policy context in other

states, such as increasing fuel prices – which were highest in France and California, and in places

in the EU are extremely high – as well as inclusion of upstream emissions in evaluation of

energy use may further incentivize risk management policies with regard to the electric vehicle.

147

Weissmann, J. (2012) “How Did America Become a Net Fuel Exporter?” The Atlantic. Accessed via

http://www.theatlantic.com/business/archive/2012/01/how-did-america-become-a-net-fuel-exporter-thank-the-

epa/250857/, 10 January 2013.

148

Majone, Giandomenico Regulating Europe. Routledge, London, 1996.

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FUTURE RESEARCH

Given the heavy dose of industrial policy we have uncovered, we urge scholars of competition

law, trade and the World Trade Organization to look carefully at EV policies. Any semblance of

commitment to trade liberalization seems to be lost when governments are offering direct

financial assistance to producers of batteries and electric vehicles, inducing an “arms race” of

public subsidies of products that are sold in a global marketplace.

A limitation of our study is that we do not examine how industrial policy makers are treating the

competitors of electric propulsion. Since there are many promising competitors (e.g., greener

gasoline engines, advanced diesels, conventional hybrids, biofuels, natural gas engines, and

hydrogen fuel cells), it is beyond the scope of this inquiry to examine all of the relevant

industrial policies. Such inquiries would be a useful extension of what we report in this article.

Interesting future research questions also exist related to the effectiveness of each of the policy

classifications in reaching their stated goals. As of this writing, the EV, though sales are

beginning to grow, has largely failed to meet the high expectations of technological development

and market penetration. In the United States, for example, the 2015 national goal of one million

plug-in vehicles is unlikely to be accomplished and some of the US companies in the EV supply

chain have not survived a tough business environment, despite subsidies and loans from the U.S.

government. More research is necessary to determine which technological or policy innovations

are necessary to spur commercialization of EVs in a cost-effective manner.

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