August 2022 Cleantech Roundup: Most Known Unknown Provisions from IRA | Big Policy Moves in California | What Form of Electric Vehicle is in Your Future?
This month, we’re looking back at the Inflation Reduction Act to identify some of the most interesting and under-appreciated threads, exploring why golf carts might show us something about the future of mobility, highlighting some big changes coming from the golden state, and sharing recent EV sales trends!
Inflation Reduction Act — and More!
Some of the dust has now settled from the Inflation Reduction Act’s passage, and I wanted to call out a few things that weren’t in the initial headlines:
One important one was that the EPA’s ability to successfully propose, implement, and legally defend climate regulations was improved– the law defined greenhouse gasses as pollution (which was not the case previously) — this will make new regulations more difficult to challenge in court.
Another is about where the emissions reductions are going to be coming from. You may have heard a lot about electric vehicle tax credits (maybe you’re thinking about buying an electric vehicle?), but transportation emissions are actually a pretty small focus of this bill. Based on an initial Department of Energy analysis, the power sector will be responsible for more than 10 times the emissions reductions than the transportation sector.
Speaking of electric vehicles, there is an interesting tension in this bill between policy simplicity and policy leverage (this bill leans towards leverage). For automakers to qualify for the full EV tax credit, they need to move a substantial amount of their supply chain onshore (so much so that some automakers are going to struggle even if they would like to meet it), pay prevailing wages, and support apprenticeship programs. These provisions will make the law more complex to administer, although should actually drive real domestic investments. Indeed, we are already seeing domestic investment start to take place in the battery supply chain (prior to the bill), so it’s not a stretch to imagine the bill would accelerate it.
Also, while some automakers aren’t going to be able to receive the tax credit in the near term, many don’t actually have spare capacity for their EV models over the next few years anyways, and it’s probably a fair question to ask whether a car needs a big tax credit, if it is already essentially sold out for a couple of years.
For EVs, there are winners and losers. GM and Tesla are the nearer term winners with this new EV tax credit structure, which seems like it also has karmic balance — GM and Tesla were the automakers who had hit their EV tax credit cap (because they had sold a bunch); now instead of getting punished, they get tax credits that are theoretically neutral but actually favor these two companies (because of their pre-existing north american supply chains). Related: here are the 20 EV models assembled in North America that will qualify for the new tax credit.
One final note is that, while this is the biggest climate bill ever, it does not stand in isolation. Third Way argued the best way to think about federal investments in clean energy and innovation as three bills, not one: the Inflation Reduction Act, the CHIPS and Science bill, and last year’s Bipartisan Infrastructure Law. To that point, BNEF developed the nice graphic above that compares spending from the IRA and the Bipartisan Infrastructure Law. One other comparison that is helpful is how these bills stack up with previous efforts. The Atlantic highlighted this analysis from RMI, emphasizing that recent climate and infrastructure investment efforts are triple federal climate spending from the previous decade.
Golf Carts Without Golf?
Fun story from Slate about how a city in Georgia came to love and embrace golf carts as a transportation option. This is a good example of how we can have different solutions for different types of transportation needs. No one is going to drive a golf cart to the coast, but that doesn’t mean something of that scale is not a good solution locally, especially if we make sure to build the infrastructure to accommodate it.
I think eventually, there will be a convergence of form factors between cars and scooters, and we’ll end up with a bunch of small but more robust vehicles that are electrified and great for city transportation and logistics (e-bikes, mopeds, and things like this bike / delivery vehicle that EAV is developing, which if you squint does look a bit like, yes, a golf cart).
One quote I also wanted to highlight from the Slate article is how smaller, slower vehicles can better connect you to the community:
“If you’re on your golf cart and you see your neighbor doing yardwork, you’re going to pull over and chat,” she said. “You’re never going to do that if you’re in a car.”
This is a really underappreciated point. If I’m biking somewhere and see something interesting, it is pretty trivial to stop or take a detour and check it out (and in the process become more connected to the physical fabric of the community). You can smell good things cooking, park, and be waiting in line in 30 seconds! This connectivity is not why people chose these alternate modes of transportation to begin with, but I think it helps cement the habits.
A couple of major climate policy actions happened in California. One that California is banning the sale of new internal combustion vehicles by 2035. I initially thought this was just a keeping-up-with-the-Jones move (England and France have indicated they’ll phase out new gas cars in the 2030s as well), but that impression was not correct — those European plans are not binding; California’s is (although they could always grant waivers). From The New York Times’:
“Experts said the new California rule, given its potential reach, could stand alongside the law signed by Mr. Biden last week as one of the world’s most important climate change policies.”
California is a huge market (per Reilly Brennan’s newsletter Future of Transportation for 2022.08.29, if it were a country it would be the fifth largest in the world) and a trend setter, but another reason this is big news is that historically more than a dozen other states have just followed and adopted California’s vehicle standards for themselves as well.
One really important sign of the times here was that, once California announced these new rules, automakers didn’t jump up and say these rules were a disaster — they issued a bunch of non-opposition statements about how they are already running in that direction.
As The Times also highlighted:
“One reason automakers are embracing rather than resisting the transition is that consumers have shown an appetite for electric models. In the first half of the year, more than 370,000 fully electric vehicles were sold in the United States, up 76 percent from the year before, according to Cox Automotive.”
But that’s not all from the golden state! There’s also a $54 billion climate bill (this California climate bill is more than double all of the climate-related spending from the Recovery act), including billions for new electric school buses, transit projects, investing in wildfire resilience, and water programs to address drought. It also means this bill is one of the largest and most substantive climate bills the country has ever seen (even if it is just technically applicable to one state). The state will be mandated to cut emissions by 85% by 2045 (and offset the rest). It’ll also keep the Diablo Canyon nuclear plant open for another 5 years (a no-brainer). It didn’t hurt that California was facing a variety of climate-related disasters while these pieces of legislation were being debated.
Who is Selling Electric Vehicles?
Tesla still dominates EV sales in the United States, although several other companies are having early success as well (Ford, Hyundai, Kia). I think by 2024 this chart looks a lot different, with Tesla, Ford, GM, and Hyundai/Kia all capturing double digit market share (and Nissan and Volkswagen wouldn’t surprise me either). After all, many of these brands are still in the early innings of ramping up sales — for example, the Ford sold more F-150 Lightning trucks in August than it did in the entire first half of the year; Tesla’s market share dropped from 75% in Q1 to 66% in Q2.
Eneus Energy gets big infrastructure bank investment to grow its renewable ammonia project developments (there are some tradeoffs, but it is generally easier to store and transport ammonia (NH3) than just hydrogen (H). Ammonia could be especially relevant to decarbonizing ocean shipping in the longer-term. Link
Gas stations are facing difficult choices on whether or not to build new EV chargers. Link
A coalition led by the Detroit Regional Partnership Foundation, which includes Evergreen Climate Innovation partner Centrepolis Accelerator, was awarded a $52 million grant to support investments in their advanced mobility cluster. Congrats! Link