Showdown With California

Arnold Schwarzenegger played The Terminator in his most famous acting role, a cyborg sent from the future to destroy mankind.

Today, as governor of California, his mission is to preserve it. And like the good cyborg he portrayed in the sequel, he is determined to save humanity from evil machines.

Much like it has the past 30 years, Schwarzenegger's California wants to lead the way with tough environmental regulations that slice tailpipe emissions, boost air quality and, most importantly, dramatically reduce greenhouse gases to stave off global warming.

Auto makers say they want those things, too, but not as badly as California, where concern about carbon-dioxide emissions and climate change has reached a fevered pitch.

California's initiative to help solve the climate crisis calls for drastic improvements in fuel economy to curtail CO2 emissions. The move has sparked a fierce battle between the state and federal government, which lays claim as the only body that can regulate fuel consumption. Caught in the crossfire could be California consumers, whose vehicle choices may become limited.

After decades of debating federal corporate average fuel economy (CAFE) standards, Congress, President Bush, the Environmental Protection Agency and the world's auto makers found common ground last December in setting a new national fuel-economy target: 35 mpg (6.7 L/100 km) by 2020, based on a fleet average for all light vehicles.

But that's not enough for California, which wants to enact AB 1493, a regulation adopted by the California Air Resources Board (CARB) in 2005. It requires vehicles to achieve a fleet average of about 36 mpg (6.1 L/100 km) by 2016 and 43 mpg (5.4 L/100 km) by 2020.

Whether California has the right to enforce CO2 standards is being decided by the courts. The state is suing the federal government after being denied a waiver from the EPA to regulate the greenhouse gas.

In the latest volley, the National Highway Traffic Safety Admin., which administers the federal CAFE program, issued its notice of proposed rulemaking last month, stipulating vehicles must achieve a combined fleet average of 27.8 mpg (8.4 L/100 km) in 2011, 30.5 mpg (7.7 L/100 km) in 2013 and 31.6 mpg (7.4 L/100 km) in 2015.

CARB officials, having just seen the document, say NHTSA is attempting to overrule California's ability to regulate CO2 emissions.

“Throughout this time, NHTSA has consistently taken the position that state regulations regulating CO2 tailpipe emissions from automobiles are expressly and impliedly pre-empted” under the Energy & Policy Conservation Act, writes NHTSA Administrator Nicole Nason.

President Bush, who has shown little regard for CO2 regulation throughout his nearly eight years in office, is beginning to address the issue, although in nebulous, non-committal terms, critics charge.

The debate will kick into high gear later this year when a new president is elected. All three front-runners — Republican and Democrat alike — have said they support California's right to the waiver and efforts to address global warming.

Lawsuits over fuel-economy regulations in other states looking to adopt the California code are pending as well.

Whose Place to Regulate Fuel Economy?

California concedes that Washington has the ultimate authority to oversee fuel-economy standards. The state says it is not setting fuel-economy standards but regulating CO2 emissions in an effort to combat global warming.

But the only way to slash CO2 is to cut fuel consumption, and Washington views California's efforts as a defiant way to enact back-door fuel-economy standards. Court dates are pending in the federal courthouse in San Francisco.

As the battle rages, auto makers are not watching from the sidelines. They have aligned with Washington, having weathered the arduous CAFE debate that just concluded.

Manufacturers say getting to a 35-mpg fleet average is an aggressive stretch target that will require years to reach and is bound to forever alter the vehicle mix in the U.S., with fewer fullsize pickups and SUVs and V-8 engines. Gasoline prices, currently headed toward $4 a gallon, will further shape this market dynamic.

It's not just Detroit auto makers that are protesting the feasibility of California's CO2 rules. Representing Detroit auto makers and seven others from Germany and Japan in talks about CO2 regulations is the Alliance of Automobile Manufacturers, a lobbying organization.

The two greenest auto makers in the world — Toyota Motor Corp. and Honda Motor Co. Ltd. — have voiced their concerns through their lobbying organization, the Association of International Automobile Manufacturers (AIAM).

If California's AB 1493 took effect today, “then all we could sell in California would be Prius,” says John Hanson, national communications manager for Toyota Motor Sales U.S.A. Inc. “What does everyone else sell?”

The hybrid-electric Prius, with a combined fuel-economy rating of 46 mpg (5.1 L/100 km), is the best-selling hybrid in the world. But with sales of 175,000 units in 2007, it makes up only a fraction of the 2.5 million vehicles Toyota delivered in the U.S. last year.

Meanwhile, Toyota has significantly ramped up capacity to produce fullsize Tundra pickups and Sequoia SUVs.

California sales of the behemoth Tundra and Sequoia have been robust. Hanson says it's “too early to say” whether the Japanese auto maker will be able to continue selling the vehicles in California if the state's CO2 regulations take effect.

“Some of the compliance mandates seem really difficult not just for us but probably next to impossible for a lot of other manufacturers,” he says.

With the more moderate federal CAFE program, however, Hanson says Toyota will be able to continue selling its fullsize vehicles in California.

Impact on California Fleet Mix

CARB Chairwoman Mary Nichols says AB 1493 is not intended to restrict the types of vehicles available in the state. She says CARB and the National Academy of Sciences have studied the proposed regulations closely, as well as their effects on consumer choices.

“And we have found there is absolutely no evidence that this will force everyone to buy a hybrid,” Nichols tells Ward's. “We're not requiring anybody to put on any technology that isn't already in use.” With regard to Toyota, Nichols says CARB has met with the auto maker to discuss its product plans. She is confident Toyota will be able to sell a complete portfolio of vehicles, including additional hybrids.

AB 1493 would require light-duty trucks (with test weights between 3,751-8,500 lbs. [1,701-3,855 kg]) to achieve 26 mpg (9 L/100 km) in 2016 and 33 mpg (7.1 L/100 km) in 2020. Compact trucks under 3,751 lbs. must meet the same California requirements as passenger cars: 42 mpg (5.6 L/100 km) by 2016 and 49 mpg (4.8 L/100 km) by 2020.

“Pickups will have to achieve little more than they do today,” Nichols says, adding she is confident that hand-wringing by OEMs about the CO2 requirements is unnecessary.

“They may be worrying about it, but they're all making plans, and they're all moving forward,” she says. “We are expecting to see widespread compliance.”

As the emissions debate intensifies, Schwarzenegger is eager to fight for California. In a February speech to Orange County environmentalists, he refers to a billboard that surfaced along Interstate 75 in Detroit last year.

Financed by the campaign to re-elect U.S. Rep. Joe Knollenberg, a Republican representing metro Detroit, the billboard slapped Schwarzenegger's support for AB 1493, estimated to cost the auto industry some $85 billion. The billboard read, “Arnold to Michigan: Drop Dead!”

“What I'm really saying is, ‘Arnold to Detroit:?Get off your butt. Get off your butt and join us,’” Schwarzenegger said to hearty applause.

“The fact is that California is doing more to save Detroit than anyone else, because we are pushing them to make the changes necessary so they can sell their cars right here in California,” the governor said.

If Detroit cannot satisfy California's demand for cleaner vehicles, Schwarzenegger says someone else will: the Germans, British, South Koreans, Chinese or Japanese.

“But I am a strong believer in American technology, and I think that in the end it will be technology that will ultimately save Detroit,” he says.

Legacy of Environmentalism

California has demonstrated in the past its capacity to confront environmental challenges straight on.

For decades, millions of urban dwellers in the Los Angeles basin choked on air polluted by aldehydes, carbon monoxide, sulphur dioxide, oxides of nitrogen and other tailpipe poisons. Longtime residents recall growing up in the 1950s unable to play outdoors some days because their lungs would burn.

“You couldn't see the end of the street because there was a thick brown haze. It hurt to suck a lungful of air,” recalls veteran automotive journalist John O'Dell, 60, who grew up in Orange County and now lives in Santa Monica.

“You hardly ever see days like that anymore, although we still have smog alerts,” O'Dell says.

Pollution has declined because California demanded cleaner cars and new technology to scrub tailpipe emissions. Detroit has complained in the past about California environmental targets it considered extreme, only to meet them eventually. Today, state officials are convinced the industry can deliver once again in curtailing CO2 emissions.

Tom Cackette, CARB's chief deputy executive officer, strongly disagrees with those who call AB 1493 onerous.

“These regulations were set using available technologies,” Cackette tells Ward's. Even the auto makers expected to struggle most to achieve compliance — General Motors Corp. and Chrysler LLC — should be able to meet them, he says.

“Which means all the rest of them have less of a problem meeting the requirements, including Honda and Toyota,” Cackette says. “I don't think it's difficult.”

Auto makers disagree.

Ford Motor Co. says its sales aspirations in California will be in jeopardy if the state is allowed to proceed with AB 1493.

“California's supposed requirements are a lot more stringent and happen much more quickly,” says Derrick Kuzak, Ford's group vice president-global product development. “At that point, it would impact what we would be able to sell to customers.”

The new CAFE regulations also require heavy lifting from auto makers in quickly launching highly efficient vehicles, but Kuzak says the federal rules will not preclude the Dearborn auto maker from offering a full vehicle portfolio.

In response to CAFE, the vehicle fleet mix across the U.S. is bound to tilt toward car-based cross/utility vehicles instead of larger, truck-based SUVs, as well as smaller, unibody-based pickups in place of conventional body-on-frame pickups, says Mike Omotoso, senior manager of global powertrain forecasting at J.D. Power and Associates.

Despite CARB's assurances, some auto makers could struggle mightily to bring certain vehicles into compliance, leaving the state's consumers with more limited options, industry observers say.

V-8 pickups today routinely get 13 mpg (18 L/100 km). Unless breakthrough technology allows them to double their fuel efficiency within the next eight years, it's conceivable California farmers will have to work their fields without new trucks.

Farming Without Trucks

Such a scenario would drain the lifeblood out of dozens of dealerships in California farming communities, such as Modesto and Bakersfield.

Halfway through April, Jim Burke Ford in Bakersfield — the third-largest Ford dealership in California — had sold a total of about 40 SUVs, CUVs and cars. But it also delivered 58 F-Series pickups in the same period, says Don Summers, the dealer's senior sales manager.

“I can't imagine what we'd do if we couldn't sell pickup trucks,” Summers says. “We couldn't make a living selling new cars, that's for sure.”

Summers doubts people in Bakersfield have paid any attention to the CO2 debate. “People probably don't even understand it's a problem,” he says, adding that pistachio, citrus and cotton farmers in California's South Central Valley have more pressing concerns — the future of their farms, among them.

At Heritage Ford in Modesto, Fusion and Focus cars are selling much better than Explorer and Expedition SUVs.

But V-8-powered F-150s continue to set the sales pace at Heritage Ford — many of them to third-generation customers who need pickups for farming, says assistant sales manager Khodi Aprim.

He says pickup trucks comprise 60% of the dealership's sales mix but also notes the Escape Hybrid is selling well, even without incentives.

Although trucks and SUVs are less popular in California than in most other states, they still comprised a substantial 46% of the state's fleet mix in 2007, according to R.L. Polk & Co. data.

California is not alone in its bid to regulate greenhouse-gas emissions from vehicles. Other states adopting the same code include Connecticut, Maine, Maryland, Masschusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington.

Auto makers fear allowing states to set their own emissions standards will result in a patchwork quilt of disjointed regulations that will be impossible to meet. The specter of separate fleet requirements for 50 states would be maddening, they say.

Nissan Motor Co. Ltd. and other OEMs support national fuel-economy standards such as CAFE, says Dominique Thormann, senior vice president-administration and finance for Nissan North America.

“The vehicle fleet mix that works in California will not be viable in Montana,” he says. “Consumers have different needs in different states. California-compliant vehicles may not satisfy the needs of consumers in Texas.”

CARB spokesman Stanley Young says concern about the “patchwork” approach to regulations is completely unfounded.

“There are two options: the California regulations and the federal regulations,” Young says. “States are free to adopt the California regulations exactly.”

In addition to the 12 states that have adopted California's CO2 regulations as their own, there are eight in the process of doing so. “These 20 states will account for almost 50% of the cars sold in the country,” Young says.

The federal Clean Air Act, enacted in 1970, and 40 years of case law recognize California's legal right to regulate emissions, Young says. He also notes the EPA historically adopts California's environmental regulations a few years after they are instituted.

“In the opinion of Congress, and of the courts, California is better suited to regulate emissions of cars sold within its borders,” he says. “We are not and cannot seek to regulate emissions outside our borders.”

Legislating Beyond Borders?

But the nature of CO2 supports critics who allege California is, indeed, attempting to legislate beyond its borders.

Carbon dioxide is a naturally occurring gas that is emitted into the atmosphere in many ways — by plants, animals and humans. It also is a greenhouse gas that is emitted whenever fossil fuels are burned, such as in cars and trucks and in coal-burning, power-generating plants.

Scientists say excessive amounts of manmade CO2 cause too much of the sun's heat to be trapped in the atmosphere, raising the Earth's temperature and causing calamities such as hurricanes, fires, rising sea levels, accelerated glacial retreat and melting of the polar ice caps.

GM Vice Chairman Bob Lutz, on the other hand, in February referred to global warming as a “total crock of s---,” when speaking with journalists.

Limiting CO2 emissions in California will do nothing to improve the state's air quality or achieve a California-specific reduction in greenhouse gases, because they are measured in parts-per million around the world, says Michael Stanton, president and CEO of AIAM, which represents 14 foreign auto makers in the U.S.

“It doesn't matter whether you emit in Russia or China or the U.S. The PPM around the world will be the same,” Stanton says.

With the Pacific Ocean on its doorstep, California claims to be particularly susceptible to climate change.

Bill Magavern, director of Sierra Club California, says no other state faces the combination of impacts from ice melt, wildfires, rising sea levels and agricultural problems. “The EPA needs to get out of the way and let California act.”

In this respect, California is acting globally in hopes of achieving a more stable environment locally.

One resolution to the debate is for California, the federal government and the auto industry to agree on one fuel-economy proposal that is attainable with reasonably priced production vehicles, while satisfying California's need to address greenhouse gases and eliminating the concern about patchwork regulations nationwide.

But if it were that easy, it would have happened years ago.

Critics question California's eagerness to push extreme stretch targets on the auto industry while seeking few sacrifices from state residents, many of whom spend hours each day commuting to and from work in V-8-powered luxury vehicles, without benefit of a carpool. Schwarzenegger reportedly commutes daily from his home in Brentwood to the state capitol in Sacramento via private jet.

Omotoso, the J.D. Power forecasting manager, views California as attempting to force the country to adopt its environmental codes, a strategy that could backfire badly by forcing certain types of vehicles on consumers.

“Hollywood should definitely not dictate U.S. transportation policy,” he tells Ward's. “If they still want corn from Iowa and beef from Texas, they should stick to the entertainment business.”

But Californians are a politically savvy lot and make some compelling arguments.

For instance, CARB says AB 1493 would reduce California's greenhouse-gas emissions by 35 million tons (31.7 million t) in 2020, 69% more than the 21 million tons (18.8 million t) eliminated under the new CAFE rules.

Factor in the 12 additional states adopting California's standard, and greenhouse-gas emissions would plummet by 478 million tons (434 million t) by 2020, an 89% improvement over the federal regulations.

“California's rules would be a better national solution,” CARB writes.

As recently as two years ago, the EPA did not consider CO2 a pollutant that should be regulated under the federal Clean Air Act. But last year the EPA lost an important lawsuit filed by the state of Massachusetts, in which the Supreme Court ruled the agency should regulate CO2, or explain why it would not.

California's Success in Court

For California to win its case against the EPA, it must prove it is not regulating fuel economy, but CO2 instead. Many auto industry observers say the state has a decent chance of winning its case.

“Their batting average is better than ours in the courts,” AIAM's Stanton says. “They've won so far, and we have not. (But) Congress was very, very clear when it came to fuel efficiency that there should be one national standard.”

Although CARB has appeared to be inflexible, Chrysler Vice Chairman Jim Press says he is confident California, the auto industry and federal government will come to agreement on fuel-economy regulations, and that Chrysler will be able to continue selling Ram pickups in California after 2016.

“We'll have a meeting of the minds, and science and technology and economics will be considered,” Press tells Ward's.

“And there will be some solutions, because I know there are Californians who require a vast array of vehicles, not just sedans,” Press says. “Farmers in Modesto need their trucks, and the garbage collectors need something bigger than a Prius to dump their garbage into.”

Being close to talks with CARB, AIAM's Stanton does not share Press' optimism. “I think there have been a lot of harsh words and bad feelings,” he says.

By the same token, Stanton hopes all the parties can reach a deal, even if it requires boosting the new federal CAFE standards to 38 or 39 mpg (6 L/100 km).

“I'd think that would be a better solution than trying to regulate CO2 under the Clean Air Act,” he says. “A possible compromise? Yes.”

CARB's Nichols says the relationship with the auto industry has become so contentious that negotiation seems futile.

‘Scorched-Earth Approach’

“When California adopted AB 1493 and then the standards under that law, the auto companies chose to use a scorched-earth approach, as it's known in the litigation world, suing in as many places as they could think of,” Nichols says.

“Nothing about their attitude has changed, and so it's impossible to have the kind of discussions you're talking about,” she says.

In response to Lutz's comments about global warming, CARB's Cackette says: “I think his view that climate change is not real or overblown is not very well reasoned.”

He does, however, give Lutz and GM credit for aggressively pursuing plug-in hybrid-electric vehicles, such as the Chevy Volt. “They've committed a lot to that, and committed it based on somewhat uncertain battery technology coming forward,” Cackette says.

Honda, always willing to push hard to do what some auto makers cannot, appears to support much of CARB's mission, despite the auto maker's membership in AIAM, which officially opposes California's CO2 regulations.

“The challenge of global warming advances as a threat to our planet,” Masaaki Kato, president of Honda Research & Development, says during a speech at the recent SAE World Congress in Detroit.

“We can no longer act independently and at a pace of our own choosing.” Kato challenges auto engineers to work together in solving global warming.

From 2002 to 2005, Kato worked at Honda's new plant in Lincoln, AL, and every day he enjoyed driving past Lake Logan Martin. Thousands of local residents use the lake for fishing and boating.

“But last year, the Southeastern U.S. began to experience a major drought,” Kato says. “And much of this beautiful lake I enjoyed seeing each morning was dry.”

No one can be sure global warming is the culprit, but Kato has his suspicions.

This spring, however, after healthy rainfall throughout the winter, he will be pleased to hear Lake Logan Martin, measuring some 15,000 acres (6,070 ha), is back up to its normal level, according to state environmental officials.

If Schwarzenegger has his way, dried up lakes could become a thing of the past. Even if he fails on this initial mission to save humanity from itself, you know what his answer will be: “I'll be back.”
with Byron Pope and James M. Amend

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