The impact of regulation on automotive innovation
From working at the EPA 40 years ago to the present, I have been interested in using public policy to influence the behavior of organizations and individuals to reduce damage to the environment. EPA’s primary approach as a regulator has been to use command and control regulations and tell someone what to do. EPA has grant programs and emergency response programs, but its primary function is rulemaking. Regulation is a blunt instrument of influence, but it plays an important role in effective governance. It is often overused and misused, and even today, when information and communication are cheaper, it still looks like it was designed for the era of fax machines and computer punch cards. Although rules can be customized to maximize profits and minimize costs, our regulatory structures too often assume a “one size fits all” premise. My long-standing view is that regulation needs to be improved, not removed.
One of the first books I co-authored (Environmental regulation through strategic planning, 1991), Kjell Kamienieki and I discussed regulatory strategies and conceptualized command-and-control regulation as one of many ways that behavior can be influenced.we wrote the regulations strategy This includes tools for influence, from command and control rules to tax credits, and may also include grants, grants, training, and even recommendations to encourage specific behaviors. there is. Command and control regulation is one element of his regulatory toolbox, not the entire set of tools. One of the problems with creating and enforcing rules is that it can take years between the time they are finalized and the time they go into effect. Additionally, the US regulatory style takes many years before companies are required to fully comply with the rules. If there are faster ways to influence behavior and rapid change is required, you may need to suggest rules to set goals, but in that case incentives and positive reinforcement as soon as possible. Other tools must be deployed to provide this. Companies are affected by proposed rules and often make investments to prepare for eventual compliance.
There is a belief that regulation stifles innovation and business growth, and this is supported by academic literature, anecdotal evidence, and, of course, political ideology. The argument is that there is a cost to addressing product externalities, and if it was profitable to do so, companies would already be doing it. But in 1991, Harvard economist Michael Porter wrote that regulation can stimulate innovation. Since then, his hypothesis has been tested by economists, and the evidence points in all directions. Although many of the small-scale empirical measurements favored by economists are inconclusive, a less analytical and more historical look at the auto industry since the 1960s reveals that the industry’s continued opposition to regulation and similar There is constant innovation to comply with regulations. inevitably adopted. The political rhetoric of “job-killing regulations” should be reversed and called “job-creating regulations.” This was done despite the staunch opposition of the industry and its lobbyists. In 2017 I wrote about “.Can notAutomotive industry approach:
“More than half a century ago, the American auto industry fought against seat belts. In 1970, they opposed requirements to install catalytic converters to reduce air emissions. They fought against airbags and other They continue to fight to reduce emissions and improve fuel efficiency.”
We are seeing this again with knee-jerk opposition to the EPA’s proposed new emissions standards, designed to work in tandem with subsidies to accelerate the phase-out of the internal combustion engine. As Coral Davenport recently reported, new york times:
“The Biden administration on Wednesday proposed its most ambitious climate change regulations yet, which would require two-thirds of new passenger cars and one-quarter of heavy-duty trucks sold in the U.S. to be fully electric by 2032. Meanwhile, major automakers say they have invested heavily in electrification, but are struggling with customer demand for more expensive all-electric models, battery supply and charging station availability. They are concerned about the speed at which a national network can be built. Auto workers are concerned about job losses, as it takes less than half the number of workers to assemble an electric car than a car with an internal combustion engine. Unions are particularly concerned because many new electric vehicle and battery factories are being built in southern states that are politically hostile to unionized workers and have relatively low wages. ing.”
Union issues, which are more legitimate than industry opposition, could be addressed by public policies that encourage industry to locate in pro-union states. The auto industry’s opposition to regulation is an old story. In hindsight, it was foolish to oppose safety regulations like seat belts and airbags when the industry learned that people would pay more for safer cars. In fact, car salespeople started using safety in their sales pitches. Industries are right to cite the challenges of rapid change, but they underestimate their ability to meet those challenges. Even the price issue is one that can be addressed as the electric vehicle market grows.
Over the past half-century, the need to innovate to comply with changing rules has changed the conservative culture of automotive design by bringing better engineering talent into the industry. Tesla’s experience in viewing electric vehicle design not as his one of mechanical or operational engineering, but as an electronic, data, and software practice has resulted in some incredibly innovative car designs. Tesla’s early manufacturing problems demonstrated the need for mechanical and operational engineering in addition to the company’s computer and electrical engineering talent. But Tesla’s “can-do” problem-solving culture worked to fix early manufacturing problems. In traditional car companies, engineers were brought in to address environmental and safety regulations, then moved on to other tasks once regulatory compliance needs were addressed. As I observed in 2017:
“Air pollution and safety regulations have given engineers the opportunity to consider every aspect of a car, resulting in the modern automobile, packed with electronics and computer controls and lightweight, durable materials. The Driving Car is a direct result of efforts to provide conventional cars with sensors, cameras, and controls to help avoid accidents.Cornell University Professor [the late] Ann Johnson’s 2016 paper This paper on automotive innovation provides convincing evidence of the important role of regulation in driving innovation in the automotive business, and she concludes:
“In the case of automotive innovation, it is clear that high emissions standards have galvanized the quest to improve cars and forced the development of new technologies to reduce their environmental burden and negative impact on human health. …Regulations that force technology can be effective,” and opposition from affected industries is usually temporary, merely a factor until new technology becomes available. ”
As Davenport points out in the New York Times report, Tesla will have no problem complying with the proposed EPA rule because the only cars it makes are electric cars. I’m not at all certain that the new EPA rules will ever be officially promulgated, but they certainly send a message to the auto industry that the days of the internal combustion engine are coming to an end.
It would be unwise to assume that current electric vehicle technology will continue to stagnate. Just as cars have become less mechanical and more electronic over the past few decades, we can expect innovations in battery design and vehicle charging. There will be less reliance on expensive minerals and toxic chemicals, which will also lower the overall price of these vehicles. In the United States, land use development patterns and lifestyles are structured around personal transportation. As for my personal lifestyle, I live in Manhattan most of the year, but in the summer I spend weekends in Long Beach, New York. I keep my car in the garage most of the year, but I drive it a lot in the summer. I prefer public transportation, but it’s just not practical on Long Island. I understand the difference between her two lifestyles. And I’m sure most people in America will never rely on public transportation. In short, America’s transition to environmental sustainability requires rapid and widespread adoption of electric vehicles. It will take a generation to complete this transition, but the sooner we start, the better.