The week of March 18, 2024: The EPA’s EV mandate, fiscal policy, healthcare, the future of cities, and much, much more.
The week of March 18, 2024: The EPA’s EV mandate, fiscal policy, healthcare, the future of cities, and much, much more.
Helmuth von Moltke (1800-91), the greatest of Prussia’s nineteenth century generals, so the old (unreliable but enjoyable) story goes, laughed only twice in his life. Once when told that a certain French fortress was impregnable and once when told that his mother-in-law had died.
He would surely have at least permitted himself a smile at the over-confidence with which the EPA is attempting to reorder the American automobile industry. “No plan of operations,” he warned, “extends with certainty beyond the first encounter with the enemy’s main strength,” a wordy formulation often condensed into the pithier, but overly simplistic, “no plan survives contact with the enemy.” Von Moltke did not believe that planning should be dispensed with, but he insisted that its limitations should be recognized: He understood the trap that “certainty” could be. He thought it was far better to think through the various contingencies that might emerge once a battle or campaign was underway, and how to handle them.
The EPA’s plan for the auto sector, which we discussed (unenthusiastically) on the home page on Friday, reflects a different approach. It has imposed a (declining) CO2 quota on the auto sector, and then passed the buck. Carmakers will just have to find a way to sell the EVs they don’t want to make to consumers that don’t want to buy them (in sufficient quantities). No problem!
Surprise, surprise, that target is not realistic. Central planners are like that.
Let’s start with materials. Conventional cars are mainly made up of iron and steel, simple stuff, but EVs have a wider range of ingredients. The necessary metals are there but we don’t yet have the mines to get at them.
Mark Mills, writing for the Manhattan Institute in an article published in January:
All the world’s mines, both currently operating and planned, can supply only a small fraction of the 700 percent to 4,000 percent increase in various minerals that will be needed to meet the wildly ambitious EV goals. The IEA [International Energy Agency] estimates that we’ll need hundreds of new mega-mines to feed factories across the “transition” landscape, and that it takes 10 to 16 years to find, plan, and open a new mine.
What is supposed to happen in the interim?
And even when (if?) the mines open, their costs won’t only be financial.
Diana Furchtgott-Roth in the Daily Signal:
Mining battery ingredients causes environmental damage. EV batteries weigh about 1,000 pounds and can reach 2,000 pounds. About 100,000 pounds of ore are needed to get the lithium, cobalt, nickel, graphite, and copper to make the batteries function. To get the 100,000 pounds of ore, it’s necessary to move 500,000 pounds of earth.
Cobalt mining in the Democratic Republic of the Congo is partly performed by children who are sent into the mines to retrieve the minerals…
Part of the propaganda effort to persuade gullible Westerners to buy EVs includes renaming them “clean cars,” a deceptive label if ever there was one. Promising cobalt-free batteries are on the way, but those who argue that EVs are “clean” will not, I am sure, want to wait for that happy day.
Furchtgott-Roth looks at what happens to EV batteries after they have reached the end of their lifespan:
When the battery is worn out, it must be disposed of. Some materials such as plastics, copper, aluminum, nickel, and cobalt are worth recycling. The remainder is disposed of in landfills, using a method to ensure that the lithium-ion batteries do not catch fire.
These environmental concerns are one reason why some environmentalists will inevitably oppose the mines being opened to address other environmental concerns (fundamentalist environmentalists typically don’t think too much of trade-offs).
For his part, Mills observes that 50 to 90 percent of the critical materials required to make EVs are now produced in China “and will be for years yet, no matter how lawmakers rewrite the sourcing regulations,” yet another reminder that the geopolitical costs of the switch to EVs are likely to prove very heavy.
And:
It bears noting that buying basic materials accounts for more than half the cost of building an EV battery. That means the future price of EVs will be dominated by the future costs of those basic materials, which, in turn, depends on guesses about the future of foreign mining and minerals industries. Consider just copper, the pillar of electrification. EVs use 300 percent to 400 percent more copper than conventional cars. Industry data show that the world will need twice as much copper as it will be producing well before aspirational EV goals are reached. Unsurprisingly, one major mining CEO observed that the coming chasm between demand and supply could trigger a ten-fold copper price hike. That alone would add about $15,000 to the cost of building an EV.
That CEO was looking at the overall increase in the demand for copper coming from the electrification of, well, everything. Apart from anything else, this will take a lot of copper wire, primarily for use in undersea and underground cables (overhead uses aluminum, although that can be used underground too). Overall, the analysts at Rystad Energy reckon that the pursuit of something close to net zero greenhouse gases by 2050 will require an additional 18 million kilometers of wiring by 2030. Overall, Rystad reckons that there would have to be $3.1 trillion in investments in grid infrastructure, again by 2030. Where will that come from?
One of the reasons that American consumers are proving more resistant to EVs than anticipated is their higher cost. One solution to that could be to turn to China. Beijing’s planners have grasped the opportunity that was being created for them by the West’s coerced switch to EVs. They had patience, a potentially large (almost) literally captive domestic market, a cheap labor force, the money to lavish on a new sector, and no need to respect capital discipline. The result was that they learned to build EVs cheap enough to overcome the doubts of some potential EV buyers.
In Europe (where the relevant import tariffs are 10 percent, rather than the 27.5 percent levied in the U.S., and where the incentives to buy domestic EVs are lower), Chinese manufacturers are beginning to make inroads, taking advantage of the coerced transition to EVs underway over there. This threatens disaster for the continent’s automakers, now largely deprived of the advantages of incumbency that came with the internal combustion engine.
Meanwhile, BYD, China’s leading EV manufacturer, is looking to start production in Mexico (supposedly for the Mexican market only). Such production would be within the free trade zone governed by USMCA, the successor to NAFTA. This has triggered fears of a wave of tariff-free Chinese imports into the U.S. Those have been overstated (for now). Restrictions would limit the extent to which “made-in-Mexico” Chinese-brand EVs could take advantage of USMCA, because so many of their components would be sourced in China. Additionally, the administration has introduced rules that would make it difficult for buyers of EVs even loosely connected to China to be eligible for the IRA’s $7,500 tax credit.
Then again, via Robinson Meyer in the New York Times:
Geely [a Chinese company which owns Volvo Cars] is preparing to sell the small, all-electric Volvo EX30 S.U.V. in the United States for $35,000. That price — which seemingly includes the cost of a 25 percent tariff, first imposed by the Trump administration — rivals what American automakers are capable of doing today, even with the Inflation Reduction Act’s subsidies.
There’s no need to parse Donald Trump’s remark about the “bloodbath” in the U.S. auto sector, look instead at (slightly) less colorful comments made by others. For example, in January Elon Musk maintained that Chinese auto manufacturers would “demolish” international competitors unless the latter benefited from tariff protection. The Alliance for American Manufacturing has called for additional trade barriers against Chinese EVs to head off to prevent an “extinction-level event.”
The alliance, interestingly, is “a non-profit, non-partisan partnership formed in 2007 by some of America’s leading manufacturers and the United Steelworkers.” The growing awareness of labor unions of the threat posed, one way or another, by EVs is another element in the melee that, sooner or later, will develop over the electrification of the auto, but, looking at the Left alone, autoworkers will not have things all their own way. A recent report on Bloomberg, a reliable mouthpiece for climate fundamentalism, came with the headline that “China’s Super-Cheap EVs Offer Hope for Average American Buyers.” That’s one way of looking at it, but autoworkers will not feel the same way. It presages a future conflict within the Left, much of which will revolve around tariffs, a topic for another day.
The Beijing regime has been handed this economic and political opportunity by the speed and the scale of the transition to EVs that climate policymakers are trying to engineer — and their willingness to force it through. If instead they had allowed the EV sector to evolve organically beyond the niche created by Tesla, the chances that EVs would have developed into a mass market product any time soon (at least outside China and parts, maybe, of the developing world) would have been low. But to the extent that EVs did find a wider market in the West, the pace and the rules would have been set by the marketplace. This would have saved billions in taxpayer money and avoided the social, economic, and political disruption that now lies ahead. Moreover, under this scenario, EVs would have had to compete indefinitely with conventional cars, a contest that would have improved the quality of both.
Climate policymakers claim there is no time for such dilly-dallying: The planet is “boiling.” Well, leaving aside the fact that rough consensus estimates of an increase of a little short of 3 degrees Celsius between pre-industrial times and 2100 fall far short of an existential threat, the switch to EVs in the West is not going to make much difference any time soon.
In 2019, U.S. cars and light trucks accounted for approximately 2 percent of global greenhouse gas emissions, the EU for a little less than that. And the switch to an EV from a conventional car does not reduce emissions to zero. To be sure, an EV gives off no tailpipe greenhouse gasses, but then there are the emissions produced to generate the electricity that powers it, a calculation that becomes even trickier when, say, that electricity is powering a car in China. On top of that, there are the emissions generated in manufacturing and processing an EV and its components (much more material goes into EVs than conventional cars). After taking that into account, over its lifetime, an EV will, the EV-boosting IEA estimates, be responsible for a little less than half of the GHG emissions of a conventional car.
That may be too generous to EVs: Calculating the CO2 emissions saved by the switch to EVs is not, as Mills demonstrates, to put it mildly, a precise science:
The CO2 emissions arising from building an EV before it gets driven revolve around a simple fact: a typical EV battery weighs about 1,000 pounds. That half-ton battery is made from a wide range of minerals, including copper, nickel, aluminum, graphite, and lithium. Accessing those minerals requires digging up and processing some 250 tons of earth per vehicle. All that mining, processing, and refining uses hydrocarbons and emits CO2. The critical fact found in the technical literature is that those upstream emissions vary by 300 percent or more, depending on where and when materials are mined and processed. At the higher end of known ranges, upstream battery emissions can wipe out emissions avoided by not driving a gasoline car.
Every claim made about EVs reducing emissions, whether from automakers or governments, is a rough estimate at best—and sometimes an outright guess based on averages and assumptions. In every study, one finds that authors have cherry-picked a value, typically a low one.
Under the circumstances, the speed and the rigor with which the administration is pursuing its EV agenda is hard to defend (and that’s before considering the extra twists added by states such as California, another topic for another occasion).
That said, the EPA’s new regulations are slightly more flexible than had originally been proposed, both with regard to timing and (supposedly) vehicle choice. When it comes to timing, there has been some easing. The rules put a CO2 cap on a manufacturer’s sales, which still begins in 2027, but at a higher level than originally envisaged. The rate at which that cap is reduced will be weighted more to the later years as it approaches the same final (for now) target date of 2032, and the final (for now) CO2 allowance, but that allowance will be a bit higher than first proposed.
Depending on which, uh, “compliance pathway” auto manufacturers took, EVs would, under the original proposals, have had to account for as much as 67 percent of new light vehicle sales in the U.S. by 2032. To give an idea of the change which that would represent, in 2023, EVs accounted for 7.6 percent of new car sales in the U.S.
In the rules’ finished form, however, one acceptable “pathway” would (according to the EPA) lead to a 2032 mix made up of 56 percent EVs, 13 percent hybrids, and 29 percent traditional cars. That may be less of a concession than it purports to be, however. Capping the amount of new conventional cars that can be sold will, if they continue to be popular, push up their prices. Used conventional cars will still be able to be bought freely (for now). But if those looking for new conventional cars are priced out, many of them will turn, not to EVs, but to used conventional cars, raising prices in that market too.
The position of hybrids, a more pragmatic route to electrification, and one that is attracting increasing interest, is worth watching. As CEI’s Marlo Lewis explains:
Toyota’s most fuel-efficient Prius hybrid, which is also the world’s top-selling hybrid, gets 57 miles to the gallon and emits 155 grams of carbon dioxide per mile (CO2/mi), according to fueleconomy.gov. Toyota also sells several other hybrids and non-hybrids with lower mileage and higher CO2 emission rates. But even if Toyota scrapped all those models, and just sold Priuses, the company’s fleet-average CO2 emissions per mile would still be more than double the standard that the EPA has set for model year 2032 passenger cars—73 grams of CO2/mile.
Clearly, automakers cannot comply with the EPA’s allegedly “technology-neutral” and performance-based GHG program without rapidly phasing out sales of gasoline- and diesel-powered vehicles, including fuel-efficient hybrids, and rapidly ramping up sales of EVs.
Even if the “concessions” contained in the final rules were less than they appeared, the fact that the administration felt obliged to make them was significant. It reflected an awareness of the potential political costs that may come with this assault on Americans’ freedom to choose a car that works for them. They also represent a scrap thrown to automakers and the UAW, both of which had expressed concern about the pace and the extent of the proposed change. The White House may also have hoped that a slightly more modest approach might increase the chances of these regulations passing legal muster. For a regulatory agency to attempt to reshape the U.S. auto sector implies a very generous view of its own powers (the lawsuits will fly), as well as a disregard for democratic process all too typical of climate rulemaking.
But in one respect, these rules were an admission of failure. For all the hype surrounding EVs, the administration has had to concede that manufacturers will have to be forced to make them and drivers will (ultimately) be forced to buy them.
And for what?
The president of the Alliance for Automotive Innovation, a grouping representing companies responsible for nearly all U.S. new car sales, and which had strongly criticized the EPA’s earlier proposal, gave a cautious welcome to the final version, saying that “moderating the pace of EV adoption in 2027, 2028, 2029 and 2030 was the right call…These adjusted EV targets — still a stretch goal — should give the market and supply chains a chance to catch up.” Given how intertwined carmakers have become with the government, that statement was less surprising than the alliance’s earlier criticism.
As is surely well known by now, another factor contributing to consumer resistance to EVs is “range anxiety,” something that contributed to the failure of EVs in the early twentieth century. The two keys to resolving it are technological (better batteries) — and improvement in that area continues — and something more basic: the availability of public chargers that permit refueling at a pace roughly equivalent to that available in the gas station, something that “fast chargers,” another misnomer, do not do, especially when it is cold. Or too hot.
When it comes to the availability of charging stations, well, over to Mills:
A roadside fuel station puts an electric power load (again, not energy) on the grid equal to just one 7-Eleven store. A typical EV fueling station will have the power demand of a stadium. Highways need tens of thousands of fuel stations. Making on-road refueling as convenient, simple, and cheap as the gasoline network isn’t possible with current technology.
Tesla, seeing an obvious opportunity, has been opening up its network (which is pretty good) to third parties, but Tesla cannot do it all. Other auto companies are trying to follow suit, but that may take a while. The U.S. government (I’m not sure what other governments are doing elsewhere) is ready to help (a promise that should terrify anyone who remembers a certain comment by Ronald Reagan). The 2021 Bipartisan Infrastructure Law allocated $7.5 billion in funding for EV chargers. As Dominic Pino noted in Capital Matters in November none (0) had installed at that time. I gather that a handful have been put up since then.
Overall, 167,000 public charging ports have now been installed in the U.S., only 40,000 of which are “fast” (which the Department of Transportation defines as meaning that they can charge an EV to 80 percent in “just” 20 minutes to 1 hour).
“Just.”
And that’s if it’s not too cold. Or too hot.
The rest of that 167,000 are Level 2 chargers. According to the DOT, they can charge an EV from empty to 80 percent in a blistering 4-10 hours, although in a public space they would, I imagine, be used for a top-up rather than a full refill.
In January last year, S&P calculated that if by 2030 there were 28.3 million EVs on US roads, an estimated 2.13 million Level 2 and 172,000 “fast” chargers will be required on top of chargers installed in people’s homes.
Most of today’s EV owners have their own parking garage (as do around a third of U.S. households), where they can charge their EV overnight (and keep it out of the cold/heat). It’s also possible to install charging facilities in private driveways. But what about those Americans who do not have either, perhaps because they live in a more densely populated urban environment? Organizing overnight charging will either be difficult or impossible, reducing them to dependence on commercial charging stations. “Enthusiasts,” explains Mills:
[A]ssert that charging points can be added at parking lots and roadsides. All of it will require staggering neighborhood-grid upgrades that have neither been funded nor included in the Inflation Reduction Act’s lollapalooza of spending.
There are those — madmen, of course — who suspect that the planners regard the difficulty of reconciling urban life with the practicalities of charging as a feature, not a bug. It would “encourage” walking, cycling, or taking public transport.
Crazy talk, as I said.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 162nd episode, David is joined by Dr. Matthew Fienup, Executive Director of the Center for Economic Research and Forecasting. It turns out a Christian college in Ventura County can punch way above its weight when it comes to high-level economic analysis with a strong bias for economic growth! David and Matthew discuss everything from Covid antibody analysis to the Latino contribution to GDP growth to housing policy and what it means to economic opportunity. Research can be put to good work, and you will love to hear how in this episode of Capital Record.
The Capital Matters week that was . . .
Fiscal Policy
In the summer of 2022, California governor Gavin Newsom, apparently high on the smell of cash, announced that California had just smashed through the state-budget equivalent of the first four-minute mile: a one-year surplus of $100 billion. Calling it “simply without precedent,” Newsom bragged, “No other state in American history has ever experienced a surplus as large as this.”
“Neither the governor nor the Legislative Analyst’s Office acknowledged how precarious that ‘surplus’ was,” says Mark Moses, author of The Municipal Financial Crisis: A Framework for Understanding and Fixing Government Budgeting…
Alex Muresianu of the Tax Foundation has written a long paper comparing the Tax Cuts and Jobs Act (TCJA), the tax reform that Republicans passed in 2017, with the CHIPS Act and the so-called Inflation Reduction Act (IRA). He concludes that “the TCJA caused a substantial increase in investment, as we would expect. In contrast, the targeted subsidies of the IRA and CHIPS Act have not led to a broad increase in private investment outside of subsidized sectors.”
Of course, the TCJA has had more time to work, and evidence from the IRA and CHIPS is only starting to roll in, a limitation Muresianu acknowledges in his paper. But we would expect the TCJA to work better than the IRA or the CHIPS Act based on economic theory…
The Congressional Budget Office (CBO) recently released its updated outlook for the finances of the federal government. CBO projects that the deficit will rise to historically unprecedented levels for the United States, even compared with our worst recessions and following World War II, and are beginning to approach the troubled finances of countries such as Italy and Portugal.
The projection forecasts the deficit will grow from 5.6 percent of GDP in 2024 to 6.1 percent in 2034 then to 6.9 percent in 2039, and that debt held by the public will increase from 99 percent of GDP, to 116 percent, then to 127 percent in the same years. To make matters worse, underlying the CBO projections is an optimistic view that, as a share of GDP, federal government spending will be somewhat contained, revenues will rise, and interest rates will fall.
Michele Wucker has defined a “gray rhino” as:
“a highly probable, high impact yet neglected threat: kin to both the elephant in the room and the improbable and unforeseeable black swan. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence. The bursting of the housing bubble in 2008, the devastating aftermath of Hurricane Katrina and other natural disasters, the new digital technologies that upended the media world, the fall of the Soviet Union . . . all were evident well in advance.”
I’ve borrowed the term to describe the situation in the office-property market, but it works very well to describe the position with regard to U.S. government debt…
Management Consultancy
Perhaps the most famous depiction of consultants, those outside analysts parachuted into another business to give advice, is in the Mike Judge comedy Office Space. The “Bobs” interview employees at software company Initech, asking, “What would you say you do here?” The seemingly innocuous question is a potential prelude to unemployment, and a testament to the efficiency-driven technocratic mind-set that consultants bring to their projects (which can provide a patina of objectivity to decisions a given company was going to make anyway).
A recent Wall Street Journal report suggests that this mind-set is now being trained on an unexpected target: consulting firms themselves…
Antitrust
The phrase “missing the elephant in the room” is often trotted out when an argument or conversation overlooks a large aspect of the situation at hand. Seldom has this analogy been more apt than in describing politicians’ and activists’ statements in opposition to the recently announced merger plans of Capital One and Discover…
Agriculture
[T]he Department of Agriculture manages the agriculture sector through the Commodity Credit Corporation, created in 1933 during the New Deal, when socialized agriculture was all the rage. According to the Bureau of Labor Statistics, in 1933, 20 percent of the U.S. workforce was in agriculture, and the unemployment rate was 25 percent. New Deal planners saw agriculture as a jobs program. Today, 2 percent of the workforce is in agriculture, yet the CCC has become more powerful since 1933…
The Cities
Talk of the future of (some) cities these days can bring out the pessimists, who warn of an “urban doom loop.” Yet just as the urbanistas overestimated the “back to the city” movement, they also may be underestimating the possibilities for an urban resurgence….
Healthcare
Tomas Philipson & Casey Mulligan:
This month marks the fourth anniversary of the proclamation on March 13, 2020, that declared a national emergency concerning the pandemic. We’ve learned that lives and livelihoods depend on replacing the health profession’s reliance on government planning with an appreciation for market solutions that empower individual choice.
Doctors Francis Collins and Anthony Fauci at the National Institutes of Health became the public faces of the pro-lockdown policies. Collins recently acknowledged focusing only on the minimization of disease alone while ignoring other aspects of the pandemic was a mistake. Fauci admitted in closed congressional hearings that the guidelines for social distancing (and other disruptive protocols) were arbitrary.
The public-health profession often fails to consider the impact of a disease beyond its mortality and morbidity rates…
Labor
Few government agencies elicit more outrage than the Transportation Security Administration (TSA). From surly agents to invasive pat downs, the TSA is not known for customer service or efficiency. A new collective-bargaining agreement between the TSA and its federal-employee union will make them even less helpful…
Efforts to unionize Starbucks have been the focus of years of progressive activism. Judging by media coverage, you might think coffee-shop workers are also very enthusiastic about unionizing, and that their enthusiasm might be representative of a larger trend toward organized labor in the U.S. In early March, the Starbucks Workers United union, which is backed by the SEIU, celebrated an agreement with Starbucks to “build a foundational framework toward contract bargaining and organizing.”
But there are plenty of coffee-shop workers who aren’t interested in joining a union, including workers who have already been part of one and want out.
Industrial Policy
Protecting the U.S. supply chains against the possibility of a Chinese invasion of Taiwan doesn’t require onshoring production in the U.S. There are many friendly countries around the world with lower labor costs than here and, more importantly, lighter regulatory burdens. The regulatory burden in the U.S. is one of the many reasons that most of the fab constructions are facing enormous delays and costly overruns…
Trade
Scott Lincicome has written a great piece about how to respond to the subsidies-driven excess capacity, in China in particular, in lower-end semiconductors, electric vehicles and batteries , solar panels, and other goods…
Baby-Formula & the Free Market
The Federal Trade Commission released a report on March 13 about the problems in the baby-formula market, and it confirms many of the details that free-market critics alleged had contributed to the baby-formula supply disruptions in 2022…
Property Taxes
A tax revolt is brewing, with homeowners and farmers in a half-dozen states and counting swinging behind sweeping proposals to eliminate local property taxes. A popular movement to repeal a major tax may sound like a conservative’s dream, but for free-market conservatives, this particular dream could easily turn out to be a nightmare…
Hispaniola
The horrific events unfolding in Haiti have caught the world’s attention. Haiti is an unusually poor country compared to the rest of the Western Hemisphere. It tends to make international news only for terrible events, such as violent uprisings or the 2010 earthquake.
But Haiti is on the same island as the Dominican Republic, a country with an entirely different reputation…
Retirement
Rich Lowry wrote this morning about Sanders’s wrongheaded proposal to legislate a 32-hour workweek, complementing NR’s editorial from Monday. Over at the Hill, Andrew Biggs of the American Enterprise Institute wrote today about a different aspect of Sanders’s wrongness: “Sanders’s statements about retirement savings in the U.S., buttressed by a recent report released by his committee staff, are so inaccurate as to be irresponsible.” …
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