Big 3 Mess May Undermine State Climate Goal

A major greenhouse gas reduction plan adopted by California December 11 expects the auto industry to spend billions of dollars to produce green cars, but two of the nation’s biggest automakers may face imminent bankruptcy after an automotive bailout bill in Washington failed. To meet the 30 percent greenhouse gas reduction goal under California’s climate protection law, AB 32, the state Air Resources Board is counting on automakers to produce higher mileage gasoline-powered cars, more hybrid vehicles, and plug-in hybrid vehicles in greater numbers. Yet with auto sales plummeting, GM and Chrysler are nearly insolvent, casting doubts about their ability to produce low carbon cars anytime soon short of a massive infusion of cash from Washington. The Air Board’s plan for carrying out AB 32 counts on the cleaner vehicles to achieve 18 percent of its total emissions reductions, or 31.7 million metric tons a year by 2020. The green vehicle standards constitute the state plan’s single biggest emission reduction measure--except for a carbon cap-and-trade plan. While the Big Three bailout is pending in Washington, there’s a connection between Detroit and California in several ways. To the extent the state falls short in achieving emissions reductions from cars, it may have to further squeeze power companies and other industries to stay on track in cutting greenhouse gases under the law. The bailout, if it is approved, also could undercut California’s nascent “green” car industry, like Tesla, California green vehicle makers claim. The House on December 10 passed a $14 billion short-term rescue package to provide the Big Three automakers with operating cash until they can develop long-term restructuring plans. However, Senate Republican lawmakers denounced the plan December 11, leaving it short of the votes needed for passage in the upper chamber. Later that day, a Republican senator introduced an alternative bill seeking deep wage concessions from auto workers, but that plan failed too, leaving the fate of the automakers uncertain at press time. Even if Senate Democrats could have mustered the votes to pass the House version of the bill, HR 7321, or the Republican alternative in the Senate, it would have transferred money to help automakers meet basic expenses through winter from a fund Congress set up in 2007 to finance retooling auto plants to produce green cars. This would leave the automakers in the position of having to seek additional money from Congress to modify their factories to produce green cars in the long-term. “It’s unfortunately the short-sighted political brinkmanship that is causing Congress to have to do that,” said Eli Hopson, Union of Concerned Scientists’ Washington representative. Under HR 7321--introduced by Rep. Barney Frank (D-MA)-- automakers would have met their short-term cash needs by tapping a $25 billion Department of Energy fund set up to finance a transition to green cars. To date, Congress has appropriated just $7.5 billion for the fund and the Department has approved disbursals of just $29 million of the money. The bill by Frank, who chairs the House Financial Services Committee, would have taken $7 billion of the DOE green car money to provide bridge financing to the automakers. The transfer would leave just $500 million in the fund, which Congress set up in 2007 under section 136 of the Energy Independence and Security Act. The redirected funds under the latest bailout bill would have come just as GM was planning to use $2.9 billion from the green car fund to help roll out its much heralded plug-in hybrid Volt beginning in 2010. Plug-in hybrids run on batteries to meet average driving needs, cutting greenhouse gases, but also have gasoline engines for extended trips. This makes them more appealing to motorists than pure electric cars, which have a limited driving range. Frank’s bill represented a compromise with the White House, which resisted Democratic lawmakers’ preference to provide auto companies money from the $700 billion Troubled Assets Relief Program, passed earlier this fall in an effort to bail out financial firms. The Bush administration insisted instead that lawmakers shift money from the DOE 136 fund. House Speaker Nancy Pelosi reluctantly agreed. “We will not permit any funds to be borrowed from the advanced technology program,” said Pelosi, “unless there is a guarantee those funds will be replenished in a matter of weeks.” The measure would have authorized Congress to appropriate funds to replace the money, but it set no specific deadline for action. The bridge financing bill would have provided automakers just 41 percent of the $34 billion they requested from Washington last week under individual plans. In a December 8 review of those bailout plans submitted by the Big Three automakers, the Natural Resources Defense Council said they were sufficient to enable both GM and Ford to meet the California greenhouse gas limits for new autos on a nationwide basis. Because Chrysler did not provide fuel economy projections in its plan, NRDC said it could not tell if the smaller automaker also would meet the standards. However, Moody’s chief economist Mark Zandi told the Senate Banking Committee December 4 that $34 billion not only would be inadequate to retool the industry to make green cars, but insufficient to prevent the Big Three automakers from going bankrupt within two years. Zandi said that’s because future auto sales are likely to remain depressed. As a result, he said the companies “would ultimately need $75 billion to $125 billion to avoid bankruptcy.”

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Big 3 Mess May Undermine State Climate Goal

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