May 31, 2022
Chair Laine Randolph and Members
California Air Resources Board
1011 I Street
Sacramento, CA 95814
RE: Advanced Clean Cars II Regulation
Working Californians continue to struggle with a
cost-of-living crisis that is driving our worst-in-the-nation
poverty rate and denying a generation of residents the opportunity
of upward economic mobility. Much of the increased costs facing
families comes directly from increased energy and transportation
costs, especially electricity and gasoline prices. We strongly
support the state’s climate change goals and are proud of the
leadership California businesses have demonstrated in moving
forward a national and international dialogue on reducing
greenhouse gas emissions. However, it is important as we work
toward achieving these goals, we do not do so on the backs of
California’s working families and those who can least afford
it.
Unfortunately, in reviewing the Advanced Clean
Cars II Regulation, this proposal will do just that—force
those who can least afford it to pay the most, creating a de facto
regressive tax. It will also do economic harm, further erode
economic upward mobility, and cost the state well-paying jobs. If
other states are going to follow California’s ambitious lead
on these regulations to address climate change, we must lead in a
way that shows we can balance economic growth, create jobs, drive
economic opportunity, and control costs for working families.
The Advance Clean Car II Regulation does not accomplish these
goals.
A Regressive Tax on Working
Families
The Advanced Clean Cars II Regulation would
further drive-up energy and transportation costs, which
disproportionately affect those who can least afford them. The
Advanced Clean Cars II Regulation would be a de facto regressive
tax on working families.
According to the Center for Jobs and the
Economy’s April 2022, State
Progress on Zero Emissions Vehicle Goals: Q4 2021, “Using
data points from the state’s recent announcement of the one
millionth ZEV sold in the state, direct state and federal subsidies
have enabled only 3% of these ZEVs (broadly defined) to be
purchased by low income households, while all
households—low, medium, and high income—pay for those
subsidies directly through higher costs of energy and other goods
subject to the greenhouse gas credits, the cost of tax credits and
other subsidies, and indirectly through higher vehicle prices (new
and used) incorporating the cost of the state and federal
regulatory credits.”
Beyond the direct cost of ZEV vehicle purchases,
the Advanced Clean Car II Regulation fails to recognize the diverse
needs of the state and its residents. Due to the state’s
housing crisis, lower-income families have been forced farther and
farther away from their workplace to find affordable housing. These
families pay higher transportation costs and higher electricity
costs—up to 70 percent higher than affluent coastal residents
who can afford to live in more temperate climates and closer to
work hubs.
The Advanced Clean Cars II Regulation will
impact lower-wage workers in two ways: first, the Regulation
ignores the transportation demands on working families by
eliminating vehicle options with higher travel ranges; second, it
will drive up the cost of ZEVs further out of reach. In fact, the
California Department of Finance found that, “the regulations
are expected to increase the cost of vehicle ownership by an
average of just under $6,000 per car between 2026 and 2035,”
largely driven by the higher purchase price of ZEVs and by
increased power consumption. Forcing these families to remain in
affordable traditional vehicles while gas prices rise even higher
will drive up their cost-of-living even higher.
A Significant Loss of Jobs and Economic Output
The Advanced Clean Car II Regulation will likely
cost California more than 85,000 jobs and result in lower household
incomes. Given the myriad other regulations and barriers to
business investment in this state, ZEV component manufacturing is
not siting or growing in our state. There will be little to no
replacement “green jobs” to account for this
significant economic loss. Again, according to the recent Center
for Jobs report:
California does have the
original Tesla plant, but Tesla chose that location because the
closure of NUMMI spun off a vacant automotive plant capable of
quick retrofitting, thereby avoiding the state’s long and
litigious approval processes that otherwise could have delayed the
company for years. As the company has expanded, greenfield
facilities instead have gone to Nevada, China, Germany, and Texas.
Faraday Future continues activities related
to opening
production at another former automotive parts
plant in Hanford, but the company has been proposing capacity in
California or Nevada since at least 2014 and continues to encounter
both financial
issues and turnover in its key
management. The company instead now appears to be
pursuing high volume production through a subcontractor
in South
Korea. Karma Automotive continues to produce luxury
electric vehicles in California, but its overall volume is small
compared to other producers and even former Karma executives
seeking to launch their own company by resurrecting
the DeLorean as
a ZEV have chosen to build in Texas instead.
Other California-based
companies while maintaining their headquarters here for now, have
placed the production side of their operations and its far more
numerous jobs and larger tax base elsewhere, including Lucid
(Arizona),
Mullen (Tennessee),
Rivian (Illinois and Georgia),
VinFast (Kentucky),
Battle Motors (Ohio),
Xos (Tennessee),
and Fisker (Austria
and India) as are suppliers such as CellLink (Texas)
and Simwon America (Texas)
as they expand to be near the new electric vehicle production
centers in the Southeastern and Southwestern states. Others have
moved their full operations, including Canoo (Texas
and Oklahoma), Noodoe EV (Houston),
REE Automotive (Austin),
and Envirotech (Arkansas).
Still other manufacturers are bypassing California altogether,
including Ford (Tennessee and Mexico),
GM (Michigan),
Hyundai (Alabama),
Honda (Ontario,
Canada), and Arrival Automotive (North
Carolina), along with related facilities such as the
Tritium DCFC Ltd. charging station factory (Tennessee)
recently showcased by the White House and ZEV parts manufacturers
TEKLAS (Georgia)
and GEDIA Automotive Group (Georgia).
Even electric tugboats intended to comply with the electrification
mandates on the state’s ports are now being produced
in Alabama.
The anywhere-but-California
trend extends as well to the batteries that constitute a third or
more of the total ZEV cost base. Other than Tesla’s
Gigafactory in Nevada, current battery pack production is heavily
concentrated in China, while battery cell production is heavily
concentrated in Japan and South Korea along with China. In 2021,
the top
three producers—CATL (China), LG Energy Solution
(South Korea), and Panasonic (Japan)—accounted for 68.7% of
global electric vehicle battery production, while all producers
within these three countries produced 93.9%.
This situation is about to
change as a number of new battery plants are now being completed
(Tesla in Texas) or have been recently announced in the North
American market. In addition, Mullen just announced it will begin
battery pack assembly at its California facility
in Monrovia to
fulfill its own needs, but its most recent 10-K filing
also states that it intends to eventually consolidate all
manufacturing at its Tennessee facility after that expansion is
complete.
As California continues to transform its economy
through energy policy, we must ensure that the state is investing
in helping employers grow wage-comparable jobs. For example, we
cannot replace high-wage energy sector jobs with lower-wage and
short-term solar installation jobs. Otherwise, we are eliminating
important rungs in the economic ladder, further eroding middle-wage
jobs and creating even more instability in our economic outlook.
Further Exacerbates Reliance on Foreign Energy
Sources
Lastly, the mandate for electric-only vehicles
will further increase the state’s reliance on foreign
countries and a destabilized supply chain structure. The shift to
ZEVs not only eliminates a domestic jobs base, it substantially
increases dependence on minerals mostly produced in other
countries, not only those needed for ZEV batteries but as well for
expansion of generation, transmission, and charging capacity to
keep them running. As recently acknowledged by
President Biden, “China controls most of the global
market of these minerals, and the fact is that we can’t build
a future that’s made in America if we ourselves are dependent
on China for the materials, the power, the products.”
China by itself produces few of these
energy-critical minerals other than rare earths and graphite,
but mining production currently is concentrated within a few
countries to the point that, with the primary exception of nickel,
it has been possible for Chinese companies to centralize access to
a large portion of current global exported supplies. More
critically, processing of those ores consequently is even more
concentrated within China.
As stated in the Center
for Jobs report:
The key minerals [for ZEVs]
are far more concentrated and consequently carry an elevated risk
stemming from future trade disruptions, problems arising at the
centralized mining and processing locations, and supply chain
interruptions such as the current war in Ukraine. As an example,
the collapse of a single cobalt mine (Kobato mine in Democratic
Republic of the Congo (DRC)) in 1990 as the result of corruption
caused prices to nearly double, moderated only by recession in that
period. Cobalt prices again nearly doubled in 1992 as riots and
looting affected a larger cobalt mining region in the DRC. The risk
from centralized commodities is both that prices can rise and that
supplies will not flow.
…
The current strained supply
conditions from clean energy shifts exacerbated by supply
disruptions stemming from pandemic shutdowns in China and from
Russian sanctions due to its war on Ukraine have already sent
prices soaring for the affected materials. These price spikes in
turn have already caused Tesla,
other ZEV producers, and vehicle
producers overall to add to inflationary
pressures through higher prices. The more narrowly traded
but battery critical graphite alone has risen more
than a third so far this
year. And while recent rises in gasoline prices
have renewed concerns over national energy policies, the
inflation potential from materials prices—which have ranged
up to 10 times higher for lithium than for crude
oil—has so far been moderated only by the low
national and global market share to date for ZEVs and related
vehicles.
The world is feeling the ripple effects of
supply chain disruptions that will likely last for years. Beyond
the backlog at our ports, shutdowns in China have left hundreds of
ships waiting to offload raw materials needed for the production of
critical component parts and batteries needed to meet the mandates
in the Advance Clean Cars II. This uncertainty and long-term
inability to predict market conditions and raw material supply have
already caused some ZEV manufacturers to reduce
2022 production projections. We have all seen the impact of
supply chain disruptions and the ongoing war in Ukraine have had on
inflation and the cost of living. Mandating transportation options
that are acutely vulnerable to this short- and long-term
instability will only create future unpredictability in the cost,
availability and feasibility of ZEV vehicles and supporting
technologies and infrastructure.
These risks are all exacerbated by the fact that
both the mining and processing of materials essential to the
fulfillment of the proposed regulation are concentrated to an
extraordinary degree in only a few nations, including copper, class
1 nickel, lithium, cobalt, graphite, rare earth elements, and
others. This situation is in sharp contrast to the current
environment, in which fuels for the state’s overall
transportation fleet considered as a whole are far more diversified
and to a far greater extent are produced from more stable and more
reliant domestic sources.
Adding to these risks, California is not the
only entity pursuing these changes. Consequently, there are
considerable uncertainties over whether the required
materials will be available and at what cost. The International
Energy Agency in their May 2021 report The Role of Critical
Minerals in Clean Energy Transitions, anticipates that demand just
from their lower range projections will exceed production from both
current mining operations and those now under construction by 2028
for lithium and cobalt, and by 2026 for copper. Other assessments
expect nickel demand to exceed supply in 2026 as well. Another
recent analysis from BloombergNEF
expects cumulative demand to exceed known reserves for
lithium, cobalt, and nickel by 2045 under their Net Zero
scenario.
If California is going to lead, we have to
ensure we are allowing employers to create not just green jobs, but
a green job ladder that allows for economic upward mobility seen in
the traditional energy, manufacturing and other industry sectors.
For these reasons, we strongly encourage you and
your colleagues to re-evaluate the Advanced Clean Cars II
Regulation, which, as written, will drive up the cost of living and
force those who can least afford it to pay the most for the
state’s climate change policies.
Thank you,
ROBERT C. LAPSLEY
President
|