The Impact of Regulation on Automobile Innovation
From the time I worked at EPA 4 many years ago until the current day, I actually have been thinking about using public policy to influence the behavior of organizations and individuals to cut back damage to our surroundings. EPA’s essential approach as a regulatory agency has been to utilize command and control regulation: telling someone what they need to do. EPA has grant and emergency response programs, but its essential business is rule-making. Regulation is a blunt instrument of influence—but one which has a spot in effective governance. It is usually over-used and misused, and in at the present time of cheap information and communication, it still appears to be designed for an era of fax machines and computer punch cards. Rules could be custom-tailored to maximise advantages and minimize costs, but our regulatory structure too often assumes “one size matches all.” My view has long been that regulation must be improved somewhat than eliminated.
In considered one of the primary books I co-authored (Environmental Regulation Through Strategic Planning, 1991), Shel Kamieniecki and I discussed regulatory strategy, which conceptualized command and control regulation as considered one of many methods that may influence behavior. We wrote that regulatory strategy encompassed tools of influence starting from command-and-control rules to tax deductions and will also include grants, subsidies, training, and even exhortation to encourage specific behaviors. Command and control regulation is one element of a regulatory toolbox—it just isn’t the whole set of tools. One among the issues with rulemaking and implementation is that it takes years for rules to be finalized after which enforced. Furthermore, the kind of American regulation provides firms with a few years before they’re required to totally comply with rules. There are faster ways to influence behavior, and if rapid change is required, rules may must be proposed to set goals, but then other tools have to be deployed to supply incentives and positive reinforcement as quickly as possible. Firms are influenced by proposed rules and infrequently make investments to arrange for eventual compliance.
There’s an assumption that regulation impairs innovation and business growth, and this has been backed up by academic literature, anecdotal evidence, and, in fact, political ideology. The argument is that coping with a product’s externalities costs money, and if profits could possibly be made doing that, firms would already be doing it. Nonetheless, back in 1991, Harvard economist Michael Porter wrote that regulation could stimulate innovation. His hypothesis has been tested by economists ever since, with evidence pointing in every direction. The numerous small-scale empirical measurements favored by economists are inconclusive, but when one takes a less analytic but more historical take a look at the auto industry for the reason that Nineteen Sixties, one sees constant industry opposition to regulation and equally constant innovation to comply with the principles which can be inevitably adopted. The political rhetoric of “job-killing regulation” needs to be reversed and called “job-creating regulation.” This takes place despite the determined opposition of the industry and its lobbyists. In 2017 I wrote in regards to the “can’t do” approach of the auto industry:
“Over half a century ago, the American auto industry fought against seat belts. In 1970, they fought against the requirement that they install catalytic converters to cut back air emissions. They’ve opposed airbags and other safety standards as well. Today, they proceed to fight against reducing emissions and improving fuel economy.”
We’re seeing this once more with reflexive opposition to EPA’s latest proposed emission standards which can be designed to work alongside subsidies to speed up the demise of the inner combustion engine. As Coral Davenport reported recently within the Latest York Times:
“The Biden administration on Wednesday proposed the nation’s most ambitious climate regulations thus far, two plans designed to make sure two-thirds of latest passenger cars and 1 / 4 of latest heavy trucks sold in the US are all-electric by 2032…While major automakers have invested heavily in electrification, they’re apprehensive about customer demand for the pricier all-electric models, the availability of batteries and the speed with which a national network of charging stations could be created. Autoworkers fear job losses, since electric vehicles require fewer than half the variety of employees to assemble than cars with internal combustion engines. Labor unions are particularly concerned because many latest electric vehicle plants and battery factories are being inbuilt southern states which can be politically hostile to unionized labor and where wages are relatively low.”
The union issues are more legitimate than industry opposition but could possibly be addressed by public policy to encourage industry siting in pro-union states. Auto industry opposition to regulation is an old story. On reflection, opposition to safety regulations—seat belts and airbags—was silly because the industry learned that individuals would pay more for safer cars. In actual fact, safety became a feature that auto salespeople began to make use of of their sales pitches. While industry is correct to cite the challenges of rapid change, they’re underestimating their ability to fulfill those challenges. Even the problem of price is something that could be addressed as the marketplace for electric vehicles grows.
Over the past half-century, the necessity to innovate to comply with changing rules has modified the conservative culture of auto design by introducing greater engineering talent into the industry. The experience of Tesla, which viewed electric vehicle design as an electronic, data, and software exercise somewhat than considered one of mechanical and operational engineering, resulted in an incredibly progressive vehicle design. Early problems with Tesla manufacturing demonstrated the necessity for mechanical and operational engineering together with the corporate’s computer and electric engineering talent. However the “can-do”, problem-solving culture of Tesla worked to correct early manufacturing problems. In the normal auto firms, the engineers brought in to fulfill environmental and safety regulations turned to other tasks once they addressed the necessity to comply with regulations. As I observed back in 2017:
“Air pollution and safety regulations have provided opportunities for engineers to look at every aspect of the auto and the result has been a contemporary auto stuffed with electronics and computer controls and lighter, more durable materials. The self-driving automobile is a direct consequence of efforts to supply more conventional autos with sensors, cameras and controls that help avoid accidents. Cornell Professor [the late] Ann Johnson’s 2016 paper on automobile innovation presents persuasive evidence of the important thing role that regulation has played in driving technological innovation within the auto business and she or he concludes that:
“Within the case of automotive innovations, it is evident that prime emissions standards did force the event of latest technologies by jumpstarting a quest to enhance the automobile, to make it less environmentally taxing and harmful to human health… Technology-forcing regulations could be effective and the opposition of industries affected by them is normally temporary, only an element until latest technologies can be found.”
As Davenport notes in her Latest York Times reporting, Tesla can have no problem complying with the proposed EPA rules for the reason that only cars they make are electric vehicles. I’m removed from certain that the brand new EPA rules will ever be formally promulgated, however the message to the auto industry will still be communicated: The age of the inner combustion engine is coming to an end.
It might be unwise to assume that the present technology of electrical vehicles will remain stagnant. Just as motorized vehicles became less mechanical and more electronic over the past several many years, we are able to expect innovations in battery design and vehicle charging. The reliance on expensive minerals and toxic chemicals might be reduced, and the general price of those vehicles may even be cut. In the US, our pattern of land use development and our lifestyles are built around personal transportation. In my very own lifestyle, I live in Manhattan many of the yr, but in the summertime, I weekend in Long Beach, Latest York. I garage my automobile for many of the yr but drive lots in the summertime. I prefer mass transit, but it surely just isn’t practical on Long Island. I see the difference between the 2 lifestyles, and I’m convinced that almost all of America won’t ever depend on mass transit. That signifies that the transition to environmental sustainability in America requires rapid, widespread adoption of electrical vehicles. It’s going to take a generation to perform this transition, and the earlier it starts, the higher.