 This is Think Tech Hawaii. Community matters here. Okay, we're back. We're live. We're here on Energy in America here on Think Tech. And on a Wednesday afternoon in the three o'clock block with Lou Pruirisi, he's the CEO of E-Princk and Energy Policy Think Tank in Washington, D.C., and he's taking time off for a conference to join us, and we really appreciate that. Lou, thank you very much. Happy to be here, Jay. So it was very interesting this week. We heard that the administration was repealing some regulations adopted during the Obama period, pushing the, what do you call it, CAFE standards from 30 miles per gallon to 50 miles a gallon. And now that's been repealed and they're reconsidering the 50 miles. They may find something else, but we won't know what that is for some time. And it offers all kinds of questions and issues and possibilities and I'm so glad that we can talk about it with you now. So tell us what happened. Okay, so I think it's very important to talk about what the reality of the corporate average fuel economy is and how the regulatory program fits in with that. So if you think about this program going back to the, oh, as far back as the Arab oil embargo in the mid-70s, the motivation for improving fuel efficiency came out of a sense that we were importing too much oil, which we used to make gasoline, that we were reliant on insecure and expensive sources of foreign oil, and that we should have a program not only, maybe you can recall this. If you remember in the 70s, nobody could drive more than 55 miles an hour. Oh, sure. Yeah, we had reduced the amount of time people could drive, how fast they could drive. Then we said, well, you know, we need to make our cars more fuel efficient. And economists always say, well, just put a big tax on them. That'll do it. You know what they do in Europe. We don't like to do things that way. We like to have a kind of sub-mandate. So we have this corporate average fuel economy. But it's very important to remember that its original intent was based on this concern over not necessarily environment, but on our reliance on foreign oil. Yes. Now, at the same time, at the same time, going back to the 60s, the government also began to control what comes out of the tailpipe of an automobile. And if you go back to the 50s and 60s, all kinds of stuff was coming out of the tailpipe. I mean, lead, sulfur dioxide, volatil organic compound, particulates of all kinds of sizes. And as that process got moving, California actually was ahead of the government in many of these sort of tailpipe emissions. We had the end of leaded gasoline, the introduction of a catalytic converter, in order to prove what comes out of the tailpipe. And in fact, I think a lot of people don't really understand how much improvement we have seen on the tailpipe. So I think we should put this slide up right now. Okay, let's put the slide up and examine that. Okay, here we go. It's called Auto Emissions Then and Now. So this slide shows a 1968 four-speed driven by Steve McQueen in the American detective thriller movie called Bullet. And actually McQueen did a lot of his own driving, stuff driving for this film. And if you listen to the soundtrack, which is actually quite interesting, you will hear a lot of double clutching, which you know then the soundtrack was not really related to the movie because McQueen was driving a four-speed, he did not need to double clutch. But I think that the first thing to think about is what's coming out of that tailpipe, right? And in 1968, over 100,000 miles, that car, that's 68 Mustangs, you know, could emit as much as one ton of criteria pollutants. That would be lead, sulfur, voltoorganic compounds, particulates, all this terrible stuff, right? And today, as you can see, these automobiles are a lot cleaner. Maybe a new Mustang probably does not generate more than 10 pounds over 100,000 miles. Wow, that is a big difference. That is a big difference. And the reason I'm showing you this slide is so you understand what the motivation was for California to get what was called kind of special treatment or a waiver to the standards, right? So California was given a waiver on its regulatory program on what it could come up with the tailpipe. And that was an EPA decision that was embedded in the Clean Air Act. California said, look, we have special conditions and those conditions are smog in the LA Basin because we know that even when the Native Americans lived there, there was smog when they barbecued because it's a natural air inversion. So they got that provision. So that provision though is one that EPA could grant. But the CAFE standards, your fuel efficiency, those are actually not issued by EPA. People may not understand this, but those are issued by the National Highway Transportation Safety Administration, or NHTSA for short. So we have these two agencies that are kind of interlocked in a way on this whole regulation of how automobiles perform. And that is the core of what happened this week in Washington. Because on April 1st, the Environmental Protection Agency concluded what's called its mid-term evaluation. And if you recall, at the beginning of the Obama administration, very rigorous CAFE standards were set. Now, what they say they're going to get and what they actually get in real life are two different things. The mileage standards are a kind of modeling exercise. They're not really how the automobiles perform in the real world. But the key feature of those regulations was that if you recall, at the beginning of the Obama administration, the industry was on its back. GM was essentially bankrupt. And in exchange for, you know, getting certain financial concessions from the government, the autos went along with all the stuff, even though they knew they would have a hard time beating them. So we're going to take a short break and reconnect with Lou Pulirisi. He's the CEO of EPRINC, which is an energy policy research organization in Washington, D.C. He joins us every two weeks by Skype, or in this case Zoom, and Voice over Internet Protocol. And we're going to reconnect. We'll be right back to talk some more about the CAFE standards change that happened just this week. Hot news. This is Think Tech Hawaii, raising public awareness. The host of Voice of the Veteran, seen here live every Thursday afternoon at 1 p.m. on Think Tech Hawaii. 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So join us for Human Humane Architecture every other Tuesday at 4 p.m. on Think Tech Hawaii. And we're back. I'm Jay Fidel. This is Think Tech. This is actually Energy in America with Lupu Uriisi, who joins us now by voiceover in Internet Protocol Voice from Washington, D.C. We're going to talk about, we are talking about the change in the CAFE standards that happened just this week. Very important. So, Lup, you were talking about the change and what happened in California and how the basic focus of this kind of emissions control changed. Can you finish that discussion? Yeah. So what I really want to do is, and I think it's illustrated by the Steve McQueen Mustang 68 and 2016 versions there that we saw the photo of. So the question is automobiles have become extremely clean on tailpipe emissions. And when you listen to the discussion, people in California and on both sides say, well, this is really a fight between whether we're going to have dirty air or not. But it's not, that's really not what it's a fight about. It's a completely wrong idea. This is a fight about carbon, you know, greenhouse gas emissions. This is what California is thinking a waiver for. And that's why I told the story earlier, because California got a waiver through the Clean Air Act to deal with smog in the LA Basin, right? And some, maybe San Francisco Bay Area. But now they are using that waiver, kind of what's now called a programmatic waiver, to deal with greenhouse gas emissions. But greenhouse gas emissions are not a local pollution problem in California. Actually, carbon is odorless and colorless. So it's really, you know, there are no particulars in carbon. But California is trying to use this waiver for which the administration believes the wrong purpose. After all, GHG emissions is a global climate problem. Whatever California does on GHG emissions, it's going to have no effect on the climate. So the real fight now is, and if you think about Trump, he's Trump for, he's for populism, nationalism, and industrialism, right? And so the auto industry is a very big, important view of his fate. And so the problem is that for the auto industry, they really want a single national standard. So by this decision, the administration has first said, well, the existing standards are probably, you know, they're going to go through a rulemaking. They have actually not decided what the new standard should be. They're just saying the existing standard, which were heavily back-loaded into the regs, which means that most of the heavy lifting occurs over the next five years, five to seven years. That's not appropriate. It's very interesting how the thing kind of backfired on Trump, because he was trying to serve the automobile industry, saving the money of R&D and the additional costs and cars and the pressure on sales by trying to reach a 50-mile efficiency. So ease it off at 30 miles and put off the whole issue about whether and to what extent to increase it later. That was clearly a gift to the automobile industry. But California is committed. And I would think what happened was really surprised him, is that the states, especially California, which doesn't like him too much anyway, said, no, no, no, we are going to be ahead of you. We have our own standards, and it's a higher standard than you're proposing in retaining the 30-mile per gallon standard. So what he created, he created a problem for the auto industry in that now there would have to be two kinds of cars, one in the center of the country and one on the east coast and west coast. This is not what he intended at all. Well, I think, I don't know what he listened to. I think that's not what he intended. What he wanted is a modified standard for the whole country. But as you say, California is not going along with it. But the question, the point I wanted to make is, well, the rationale, if you like, for California to have a separate standard is not based on the traditional waiver authority because of they have a local smog problem, understand? It has nothing to do with that. That is where the real fight going to take place and how they're going to work this out, we don't know. Remember, the administration has not changed the standard. They have just gone into rulemaking for a new standard. They have just determined that the midterm review, which was put into the law a long time ago, has finished. And the midterm review, they're concluding. The midterm review says that the cost of achieving this standard is bad in a couple of ways. It's forcing people to buy cars they don't want to buy. And it's increasing the cost of the average cost of automobile. And that's actually going to flow the rate at which the fleet turns over. So I think those are the kind of highlights of what the issue is, but there's a kind of inside baseball problem as well, which is how will the court, what will the administration do? Are they going to go to court? Are they going to tell California, look, you might have had a waiver under EPA for local pollution, but this is a national standard that's going to be set in a national highway. Well, just in the four corners of this conversation, it seems to me the administration will go to court because it wants to protect the automobile industry. If the automobile industry has to create two kinds of cars, it's going to be very inefficient and very costly to the automobile industry. So they will go to court and claim that this is a federal area. This is preempted. That the waiver procedure that you described does not apply. And so California should follow the national standard, whatever it is, as far as efficiency is concerned. It sounds like they'll have to go to court, no? Yeah, I agree. And by the way, the net savings and gasoline of this standard and a likely alternative standard is probably not more than, I know, 100,000 barrels to 110,000 barrels a day on a transportation sector that probably is using 9 million barrels a day. So I think they have a case to be made here that, look, the standard itself is not really reducing consumption of gasoline that much. So you're paying a lot for a relatively low yield. So that's one issue that needs to be vetted and explained better. And then the other question is how will EPA propose to modify this standard? So what will be the next step? We don't know yet. Well, one thing is before we had a timeline where everybody could plan. Before the automobile industry here and overseas knew that by a certain date they had to meet a certain standard. Now all of that is in a cocked hat. We don't know when they will decide or what they will decide or when it will be effective. Yeah. So, I mean, if you look at, you know, these standards are very complicated and it's very interesting in how this plays out because I do think the administration has a point on the waiver, which is, well, does California really get a waiver for global warming? Yeah, they get a waiver for local pollution, but does the law permit them to take a waiver for global warming? And I think only the courts will be able to settle that. Yeah. Well, I mean, do you feel this is a good thing? I mean, it may only be 100 or 110,000 barrels a day, but that's a lot of barrels, at least in an absolute sense. And this is more of the same from Trump. Right, but I do think that, you know, because Trump is proposing it, I understand how people feel. I have the same reaction. But I do think that, you know, we talked about this once before. If your strategy is, I mean, what is your objective function on this program, right? If your objective function is just to save gasoline, the fundamental criteria for that is gone. We're not relying on foreign sources anymore. We're almost entirely independent. We don't have an energy security problem anymore. So this issue should be legitimately caught out on all the environmental benefits worth the cost. You know, one thing that comes to mind on that exact issue is this. If I were Obama, you know, and thinking through what he did, a move to 50, I would know that it was going to cost the industry more money for that R&D. That is a very hard standard to achieve. And that means that fossil cars will be more expensive. And so I say in the world of consumer choice, this is actually a motivating feature directing people to renewable energy cars, whether they be electric or hydrogen or what have you. And so if Trump had left it alone, it would have been one of those factors that drives the transportation industry to migrate just a little quicker to electric cars. Now I think this is a blow the other way. That taking that standard away and leaving it in a kind of amorphous state, which is what he did, is actually a move to retain fossil cars and not to push on electric cars. Don't you agree? Well, I think that's really what we call, you know, small beer because electric car sales are not more than 1%. I saw that even the Tesla sales were falling off a bit. Yeah, electric, it's not so much electric cars. I don't really think that's the right way to think about it. I think the right way to think about it is that in the end implementing this standard would eliminate a limited consumer choice. You can argue that it's a good or a bad thing. And second, it would have made the average cost of an automobile more expensive anywhere from $1,000 to $2,000 per automobile. That would be the net effect if you look at the data. Maybe they could have gotten better at it. And part of this driven by the fact that gasoline prices are lower and people will want to drive small cars. You're probably riding around in a zip car or something, but you know, most people in the middle of the country they don't want to drive a zip car. They want an SUV. So I think that's a legitimate debate on what, okay, what is the value of limiting the choice? Is it working? Are you getting value for paying more for these cars? Well, let me ask you this though. All of that, shake and bake it, where do you think we're going on this? I mean, a couple of things from this conversation are pretty clear. Right now there is no mandate to go to 50 miles a gallon. There's no deadline by which the government has to decide. So it's going to be stable for a while at 30 miles a gallon as anybody's guess about when it changes. That's one thing. The industry, automobile industry will be happy. Consumers, I suppose, who don't care about this issue, they will be happy. They'll pay just a little less for cars. The environmentalists will not be happy. But where do you think this is all going to go? Well, I think, you know, this issue is really not, if what you're trying to buy is reduced emissions of global, you know, of greenhouse gas emissions. This is a very costly way to do it. It's a global issue. There are lots of cheaper, lower cost ways to do that. And that we have quite a few subsidies for electric cars now. And so I'm generally a person who doesn't really like mandates or requirements. I think that we subsidize electric cars. You know, there's plenty of producers who want to make them. And it's up to the consumers to decide whether the electric car is delivering for them what they want. And that it's a kind of unidimensional environmental calculation. Because to produce these electric cars, we have to power the grid. In many cases, that's with coal. We have to dig up this lithium around the world. Huge amounts of tailings and environmental consequences. And we don't seem to be worried about that. We have a kind of narrow view of the environment. It's not a kind of global calculation. So yeah, kind of Trump is a kind of problematic character in the way he presents the issue. He's very combative. He doesn't take a lot of time to explain the subtleties. Well, there are other implications that we haven't covered. For example, what happens depending on the result and the litigation which you and I foresee would happen in California, maybe other states as well, and whether there has to be two kinds of cars. And there are 10 states that are going to go with California. And finally, how does this affect manufacturers overseas who are trying to sell in this country? They've been ramping up to the 50 miles and now they don't have to. I guess they would be happy. But what's the comparison between the cars they make here and there and not only in Asia but in Europe? So I mean, it's had global implications. Yeah, most manufacturers proceed on their automobile production as a global market. The U.S. is part of a global market for everybody. I can tell you one well-known Japanese manufacturer told me, one of the biggest, they make no money in California, that right now in California, one out of 10 of the cars they sell is hybrid. Under the Obama standards that you like, one out of two of their cars would have to be hybrid. GM, I guess Fiat has publicly said they lose $14,000 on every electric vehicle they sell. Wow. So we have a problem. I mean, the consumers want X. And some people in the environmental community or the government want Y. And we don't seem to have a very good way of sort of squaring that circle. Yeah, amen to that. You know, sometimes you can reach a decision which may have a good basis, at least in somebody else's analysis, but you announce it and you push it forward in a way that offends people. And that's happened so many times in this administration. Even if they're right, they're not handling it very well. But you and I can watch. I could not agree more. You and I can watch and we can see it going forward. I'm sure there's more shoes to drop on this one, Lou. This is going to be a big fight over the next 12 months and there's going to be a lot of negotiations with California. I think some of the administration will hope that California will come to the table and they can reach a compromise on a single national standard because I do believe if you watch the auto company, they kept going around saying, well, these failures are too difficult to meet, but we should have only one standard. Yeah, yeah. One thing is clear that Jeff Sessions will be busy. This will be his second case against California within the last month. Yeah, yeah. This is the federal government versus California. Well, thank you, Lou. The problem is this could drag on for years. Yes, I agree. And we'll cover it, won't we? Yes, of course. Okay, Jake. Thank you so much. Lou Plurici, CEO of E-Princk, who took the time off to talk to us today. So much. We really appreciate it very much, Lou. I really do. Take care. Talk to you next time. Bye.