The Impact of Regulations on Automotive Innovation
Since my work at the EPA forty years ago, I have been interested in using public policy to influence the behavior of organizations and individuals to reduce damage to our environment. The EPA’s primary approach as a regulator is through command-and-control regulation: telling someone what they have to do. The EPA has grants and emergency response programs, but its main business is rulemaking. Regulation is a blunt tool of influence — but it has its place in effective governance. It is often overused and misused, and in this age of cheap information and communication it still seems designed for the age of fax machines and computer punched cards. Rules can be tailored to maximize benefits and minimize costs, but our regulatory structures often assume a “one size fits all”. It has long been my view that improvement is needed, not deregulation.
In the first book I co-authored (Environmental governance through strategic planning, 1991), Shel Kamieniecki and I discuss regulatory strategies, conceptualizing command-and-control regulation as one of many ways in which behavior can be influenced.we wrote regulation strategy Tools of influence range from command-and-control rules to tax breaks, and can include grants, subsidies, training, and even exhortations to encourage specific behaviors. Command and control regulation is one element of the regulatory toolbox – it is not the whole set of tools. One of the problems with rulemaking and implementation is that it takes years for rules to be finalized and enforced. Additionally, the way the U.S. is regulated gives companies years to fully comply with the rules. There are faster ways to influence behavior, and if rapid change is required, rules may need to be proposed to set goals, but then other tools must be deployed to provide incentives and positive reinforcement as quickly as possible. Companies are impacted by proposed rules and often make investments in preparation for eventual compliance.
There is an assumption that regulation hurts innovation and business growth, supported by academic literature, anecdotal evidence, and, of course, political ideology. The point of contention is that dealing with product externalities costs money, and if doing so is profitable, companies are already doing it. However, as early as 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 every direction. Many of the small scale empirical measurements favored by economists are inconclusive, but if you look less at the auto industry since the 1960s and focus more on the auto industry, you’ll see that the industry is constantly fighting against regulation, as well as constantly innovating to comply with those rules. . The political rhetoric of “job-killing regulation” should be reversed and called “job-creating regulation”. This happened despite the staunch opposition of the industry and its lobbyists. 2017 I wrote related”can’t do it” What the automotive industry does:
“More than half a century ago, the American auto industry opposed seat belts. In 1970, they opposed the requirement to install catalytic converters to reduce air emissions. They also opposed air bags and other safety standards. Today, they continue to oppose reducing emissions and improving fuel consumption. fight economically.”
We’re seeing this again, while reflexively opposing the EPA’s new proposed emissions standards, which, along with subsidies, are meant to hasten the demise of the internal combustion engine.as Coral Davenport Recently reported in New York Times:
“The Biden administration on Wednesday proposed the most ambitious climate regulations in the U.S. to date, with two plans aimed at ensuring two-thirds of new passenger cars and a quarter of new heavy-duty trucks sold in the U.S. by 2032 are All-electric… and major automakers, despite investing heavily in electrification, are concerned about customer demand for pricier all-electric models, battery supply and the pace at which the nationwide network of charging stations can be built. Autoworkers worry Job losses because electric cars require fewer than half the assembly workers of internal combustion engine cars. Unions are particularly concerned because many new electric car plants and battery plants are being built in southern states that are politically hostile to union labor and wages relatively low.”
The union issue is more legitimate than industry opposition, but can be addressed through public policy to encourage industry to sit in pro-union states. The auto industry’s opposition to regulation is a cliché. In retrospect, it was foolish to oppose safety regulations — seat belts and air bags — because the industry has learned that people are willing to pay more for safer cars. In fact, safety has become a feature that car salespeople are starting to use in their sales pitches. While the industry is right to cite the challenges of rapid change, they underestimate their own ability to meet them. Even the price issue could be addressed as the EV market grows.
Over the past half-century, the need to innovate to comply with changing rules has transformed the conservative culture of automotive design by introducing more engineering talent to the industry. Tesla’s experience in viewing electric vehicle design as an electronics, data and software exercise rather than mechanical and operational engineering has resulted in an incredibly innovative vehicle design. Early problems with Tesla’s manufacturing showed a need for mechanical and operations engineering as well as the company’s computer and electrical engineering talent. But Tesla’s “can-do,” problem-solving culture helped correct early manufacturing problems. In traditional automotive companies, engineers brought in to meet environmental and safety regulations move on to other tasks once the need to comply has been addressed.as i observed Back in 2017:
“Air pollution and safety regulations have given engineers the opportunity to examine every aspect of the car, and the result is modern vehicles filled with electronic and computer controls and lighter, more durable materials. A direct result of efforts to avoid accidents with sensors, cameras and controls. Cornell University professor [the late] Ann Johnson’s 2016 paper Research on automotive innovation provides convincing evidence that regulation plays a key role in driving technological innovation in the automotive industry, and she concludes that:
“As far as automotive innovation is concerned, it is clear that high emission standards do drive the development of new technologies by initiating the quest to improve vehicles in order to reduce the burden on the environment and the hazards to human health… Technology-enforcing regulations may be effectively affected by them Opposition from affected industries is usually temporary and only a factor until the new technology becomes available.”
As Davenport pointed out in her New York Times story, Tesla has no problem complying with the proposed EPA rules because the only cars they make are EVs. I’m not sure if the new EPA rule will be officially enacted, but it will still send a message to the auto industry: The era of the internal combustion engine is coming to an end.
It would be unwise to think that current EV technology will stagnate. Just as motor vehicles have become less mechanized and more electronic over the past few decades, we can expect innovations in battery design and vehicle charging. Reliance on expensive minerals and toxic chemicals will be reduced, as will the overall price of these vehicles. In the United States, our land use development patterns and our way of life are built around personal transportation. In my own lifestyle, I live in Manhattan most of the year, but in the summer I spend weekends in Long Beach, NY. I park in the garage most of the year, but drive a lot in the summer. I prefer public transportation, but it’s not practical on Long Island. I see the difference between the two lifestyles, and I believe most Americans will never rely on public transportation. This means that the transition to environmental sustainability in the United States requires rapid and widespread adoption of electric vehicles. It will take a generation to make this transition, and the sooner it starts, the better.
