Electric Vehicles and The Need For A More Intelligent Regulatory Grid
Daniel P. Malone
On January 18, 2011, President Barack Obama signed an Executive Order calling for a comprehensive review of all U.S. federal regulations. That same day, he authored an Op Ed entitled “Toward A 21st Century Regulatory System” that explained his reasons for doing so.  Both reflect considerable thought on what this nation’s regulatory system should look like going forward; and I admire the President for taking a proactive leadership role on this critical topic. How we choose to modify our regulatory system will have a profound impact on shaping our nation’s future.
Given its scope, the automotive industry needs a broader regulatory vision. Currently, its overall regulatory “system” resembles a patchwork quilt consisting of countless divergent and often uncoordinated regulations. That approach creates needless, considerable delays and untold, avoidable expenses. In light of its enormous economic impact, the industry deserves a more holistic, deliberative, and iterative approach to developing, and then improving, regulations. It needs a more “intelligent”, efficient global regulatory grid; and governments should commit to one that supports, not hinders. Having more regulatory diversity than necessary makes little sense at this juncture. The regulatory choices made in this regard will have a profound impact on shaping the world’s transportation future.
At this juncture, however, we are hardly writing on a blank slate. For decades, efforts have been made to take a more collaborative approach to regulations. While some success has been realized, progress has been slow. A window has opened, however, that provides governments an opportunity to making real progress in harmonizing automotive regulations. It involves the imminent new wave of electric vehicles (EVs) and related products. Twenty seven new models come to market in 2011. For the reasons discussed herein, governments owe it to citizens and the industry to work within a globally inclusive forum in creating an efficient and smarter approach to regulations for these innovative vehicles and products. Indeed, EV success will depend largely on governments and industry talking to and not at one another.
I. Welcome Back To the Future
Electric-powered vehicles (EVs) are not new. Henry Ford's wife drove a 1914 Detroit Electric Model 47 Brougham. After a false start a decade or so ago, EVs now seem to be on the threshold of playing a potentially game changing role. The offerings at this year’s auto shows support that conclusion. Why the sudden reversal of interest? Numerous reasons exist. Of particular note, governments have played a hugely influential role in this impending development. In the United States, for example, ambitious CAFE standards/regulations have accelerated efforts to design alternative drivetrain technologies. Moreover, massive tax credits and government grants have supported, even steered, the trend toward the "electric wave". Similarly, the Chinese government contemplates a rapidly increasing and essential role for EVs. Its overall government incentive package for this trend exceeds that of the current U.S. incentives by a wide margin. That’s because, in China, a "more of the same" approach to internal combustion driven vehicles could likely result in crushing public health and energy problems (e.g. severe air pollution, major foreign oil dependency). Similar reasons will promote EV sales in many emerging economies, especially in South East Asia. Indeed, sales in nations like India, Pakistan, and Indonesia could cause a shift in the global automotive balance. At this juncture, EV technology has shifted from "if ever" to "when".
II. Reconciling Business and Regulatory Models
The resurgent interest in this rapidly evolving technology raises numerous, fascinating issues. One concerns how to best make our electric grids “smarter” to accommodate anticipated needs. Perhaps none is more basic, however, than how best to formulate appropriate safety and environmental standards. This issue highlights a fundamental disconnect between manufacturers and the government agencies that regulate them.
A. The Disconnect
Traditionally, each nation has formulated its own unique regulations. Like stopping at "toll booths", manufacturers must separately obtain certification for a product in every market it chooses to sell that product. The “toll” for even one country can cost tens of millions of dollars! That approach creates a slow and very expensive bureaucratic gauntlet to negotiate for any manufacturer interested in selling in other than its own domestic market; and these days, which automaker doesn't? Indeed, that "siloed approach" to regulations makes little sense in a globalized industry trying to recover and bent on creating global platform vehicles. The clear trend toward raising efficiencies through economies of scale demands consideration of common (harmonized) vehicle performance regulations. Yet virtually all nations continue to formulate such regulations on their own. Herein lies the stunning disconnect between the global “business model" that manufacturers have created and the "local model" that governments perpetuate to govern them.
Efforts to harmonize road vehicle performance regulations are not new; and the current approach is not a panacea. Indeed, many impediments exist to the global harmonization process. The approaches to infrastructures and automotive regulations varies as much globally as languages spoken. For that reason, reconciling differences in technical requirements, while recognizing and preserving sovereign infrastructures, is a prodigious undertaking. Organizations like SAE International and ISO have worked tirelessly to address the technical issues. Governments should now address divergent infrastructure issues.
Other impediments exist as well. The very nature of the industry has tended to run counter to regulatory harmonization. Undeniably, ferocious competition among companies to outdo each other by being "first to market" works well for advancing technology. But that prevailing mindset also effectively undermines regulatory "common ground". In an era that rewards pushing the envelope, efforts to harmonize tend to get subordinated.
Governments tend to engage in a similar "dog eat dog" ferocity of competition. In this case, however, the competition among governments focuses more on who will set the global norm for safety and environmental performance - a move primarily intended to garner political support from respective domestic interest groups. Thus, notwithstanding measurable public benefits, neither regulators nor the regulated appear incentivized to embrace global regulatory harmonization. It appears easier to perpetuate redundancy, time loss, and very considerable, avoidable costs by certifying products on a market-by-market basis (and continuing to pay for it). This explains why inertia and competing norms, among others, constitute such thorny impediments to regulatory reform.
A fundamental question nonetheless lingers, however: are these impediments worth the hundreds of millions, more likely billions, of dollars it costs the industry (and ultimately consumers) in added costs and unnecessary delays to certify products for sale on a market-by-market basis without measurable increases in public benefits? In the EV segment, the answer should be no. So what's different?
Currently, manufacturers strive for economies of scale; and the trend is clearly toward designing global platform vehicles (i.e. vehicles acceptable in numerous markets). Global vehicles are designed and manufactured by global workforces for sale globally. Second, EVs and related products (e.g. lithium-ion battery packs) are, in effect, public/private initiatives (e.g. heavily subsidized by governments because the return on investments (ROI) will be uncharacteristically
slow). This relationship between governments and industry, should necessarily strive to be as efficient as possible. Third, the viability and future growth of the EV fleet has demanded significant technological advances that have served to accelerate a major convergence between global automotive and other industries.
The global goal of effecting environmentally clean and fossil fuel efficient road transport vehicles should be significantly advanced by EVs entry into the global fleet. But EVs also create the need for new regulatory regimes to address the unique environmental and safety issues they pose. Governments and industry would benefit by embracing this transformation in a holistic and collaborative manner. In an industry fixated on squeezing out every unnecessary penny (and employee), however, perpetuating the patchwork approach to regulations smacks of being incredibly penny wise and pound foolish.
C. A Solution
A credible, innovative, and sustainable forum exists for taking a collaborative, "global approach" for creating harmonized environmental and safety regulations. The United Nations World Forum for Harmonization of Vehicle Regulations (WP.29), http://www.unece.org/trans/main/welcwp29.htm, can facilitate these efforts through the global agreements it administrates. As a United Nations forum, it serves as a catalyst for government regulatory officials, technical experts, and representatives of non-governmental organizations from over 50 different countries to meet in an innovative environment. The forum it provides and the agreements that it administrates enables WP.29 to achieve a workable balance between regulatory harmonization and the sovereign rights of participating nations. It presents the means to facilitate the development of international standards andregulations that, when adopted into national laws, provide the basis for global uniformity of vehicle performance. Never has this concept been more essential.
Not surprisingly, the above-referenced realities and impediments have largely kept harmonization an elusive concept (e.g. think Sisyphus).It may leave one wondering whether harmonization is worth the sustained effort and what it has to do with each of us. Absolutely, because it matters more than we realize. The “driving public” everywhere faces, among other things, common challenges (e.g. accidents, pollution, cost) and shares common interests (e.g. safer cars, lower costs, improved environment). After all, governments create these regulations to make cars and the environment safer for its citizens. Likewise, as localization (i.e. build cars where sold) becomes ever more predominant, regulations will serve either to “connect” markets or keep them segregated without necessarily improving safety. Which makes more sense for regulating a hugely important global industry?
Unless an experienced, competent organization helps to “orchestrate” local requirements into safety and environmental regulations, “global cars” may well remain only a dream for manufacturers. With appropriate, sustained commitment, WP.29 can play an increasingly important role in the transportation world’s need for future energy, trade, and environmental solutions. Still in its infancy (think Africa, South America), it has considerable potential to serve. Lastly, WP.29 works! Its harmonizing of a global regulation for audible alerting systems noise levels for the blind stands as a tangible example of how talented and dedicated people from various nations can work efficiently and collaboratively toward a common good.
The time has come to harmonize the process for formulating the environmental and safety standards and regulations that will govern the worldwide acceptance of EV products. Requirements for EVs differ notably from those for conventional vehicles.
In light of the above, I offer the following, concrete recommendations.
1. Promote Regulatory Convergence, Not Divergence.
Taking a global "best practices" approach to regulations that govern EV-related technology has numerous, tangible benefits (i.e. more than cost savings). For starters, EVs benefit the public by improving the environment. The more EVs, the better. Once in place, harmonized regulations would reduce both the manufacturing costs as well as the time for new product development. This, in turn, should serve to reduce purchase prices. Reduced prices would certainly incentivize more citizens to purchase these vehicles. More use of lower cost energy to power vehicles would also, in theory, improve geo-political considerations by reducing energy dependence on less stable areas of our world. Clearly, promoting international communication on a sustained basis has numerous benefits, especially these days. These are but a few of the undeniable and measurable benefits that regulatory convergence through harmonization would promote.
2. Take A Lesson from the Blind.
As mentioned, one EV-related regulation in the process of being harmonized deals with alerting devices. EVs are quiet. The blind community has mounted and sustained an impressive, grassroots effort to mandate a globally uniform sound characteristic and minimum sound level that provides all pedestrians an indication of otherwise very quiet EV operations at speeds below roughly 20 miles per hour. WP.29 has provided the leadership, global forum, and process for doing so. This is an excellent example for the automotive industry to follow to achieve some synchronicity between the global business models they have built and the regulatory “model” that governs it.
Governments generally do not support initiatives that are not in their nation's best interest. But consider this: through their enormous tax credits and colossal subsidy grants, governments have spoken - EVs are in their long-term best interests! Nonetheless, absent a "change agent" to champion the cause, governments will likely perpetuate the status quo. Like those advocating for the blind, therefore, the industry should promote the need for regulatory harmonization, particularly in this market segment.
The argument for harmonizing these regulations, at least to the extent feasible, should be rather obvious. Business case sustainability in the EV segment looms as a huge issue for the industry, particularly if (or when) government funding ceases and gasoline prices stay relatively unchanged. Satisfying environmental and safety regulations on a market-by-market basis is extremely expensive. These are sobering realities; and profits may well remain low for some time. Herein lies major reasons why in-process national EV regulations should be prime candidates for global harmonization.
3. Strive for "Coopetition".
Dr. David Cole of the renowned Center for Automotive Research frequently speaks of "coopetition" - the practice of competitors raising efficiencies by cooperating on some issues while saving resources for competing more aggressively on others. Even among fierce competitors, common interests exist. Clearly, auto companies will always compete for sales. But when it comes to national standards and regulations, cooperation should be the order of the day. Automotive companies and others should urge governments to create harmonized technical regulations for critical EV-related matters such as, for example, battery safety, labeling, transportation, and recycling. The process should also actively recruit the input of highly regarded organizations like DOT/EPA (U.S.), CATARC (China), ZVEI (Germany), JARI (Japan), KATS (Korea), ABNT (Brazil), SAE International, ISO, and many others (think Davos).
The key lies in the power of open and sustained collaboration. What better way to embrace that critically needed spirit than in jointly formulating harmonized regulations that are science-based (i.e. the process is objective, reproducible, data-based, and workable)? Doing so would provide, among other things, reduced barriers to international trade, needed uniformity in procurement, guidance to achieving targeted goals, benchmarking points, and even needed assistance in conflict resolution.
The automotive industry operates in a vast, largely convoluted and exceedingly complex global “regulatory arena”. In the EV space, we should strive to have our evolving technology fit within a comprehensive and efficient regulatory scheme. In that regard, the industry routinely speaks of creating a "smart electric grid" to charge its products efficiently. It should demand no less for the regulatory scheme that governs its efforts to market these products globally.
Should we perpetuate a global regulatory system that resembles a patchwork quilt consisting of numerous, divergent and uncoordinated efforts? Whether we recognize it as such, collectively these regulations constitute a regulatory “grid” of sorts. In some respects, it operates no more efficiently than the “dumb” electric grids that, if not improved, may have trouble meeting anticipated needs. Or do we needa more holistic, deliberative, and iterative approach to develop, then improve, regulations that best position this new technology for success? The mere posing of the question mandates only one practical response: governments owe it to both their citizens and industry to work in a globally inclusive forum (i.e. WP.29) in creating mutually acceptable regulations that support these critical, innovative industry-wide efforts to achieve global transportation goals.
Impediments notwithstanding, this critical effort can succeed, but only if both regulators and regulated fully commit to supporting these efforts and send competent people to the table who can and are permitted to think and act collaboratively. Doing so will constitute a meaningful step toward creating a truly “21st Century Global Regulatory System” or grid for the automotive industry built on quality (e.g. intelligent) and quantity (e.g. less).
* Daniel P. Malone is an attorney with Dykema Gossett, www.dykema.com. He serves as the firm’s Director of Asian Client Initiatives. He can be reached at (313) 568 – 5317 or email@example.com.
1 See, Obama, “Toward A 21st Century Regulatory System”, Wall Street Journal, A17, January 18, 2011.
2 These include, in particular: the remarkable advancements in battery technology; increased environmental concerns regarding air pollution; demand for reduced dependence on foreign oil; and overall manufacturing efficiency (think global common vehicle platforms and economies.
3 Corporate Average Fuel Economy.
4 The following are mere samples of issues that lay ahead. Which should come first - an infrastructure that will eventually be necessary (e.g. think gas stations) or a sufficient number of electric vehicles on roads to justify the staggering cost for building it (e.g. chicken or egg)? Whether to re-charge batteries or "swap them out" for other "pre-charged" batteries (think gas barbeque grilles)? How best to distribute the anticipated demand for electricity (i.e. how to make the grid more "intelligent")? How to reduce the cost of batteries to make the vehicles competitively affordable without adversely affecting battery "field performance", i.e. safety, durability, and reliability? Finally, going forward, this overall discussion will clearly concern the safe, environmentally clean, and efficient movement of people and goods. For that reason, and in light of unprecedented migration to cities, the overriding issue will not merely be "electric v. internal combustion" vehicles, but rather "overall transportation". As we embrace what lies ahead, therefore, the on-going global dialogue on this important topic must necessarily include all practical means of transportation and not just "more vehicles" no matter what powers them.
5 For example, in order for a manufacturer to sell a product in one other market, it incurred an additional $42 million in design and development costs. See, Wilber & Eichbrecht, Transatlantic Trade, the Automotive Sector: The Role of Regulation in a Global Industry, Where We Have Been and Where We Need To Go, How Far Can US-EU Cooperation Go Toward Achieving Regulatory Harmonization? German Marshall Fund Academic Policy Research Conference, May 2008.
6 For a comprehensive discussion of regulatory harmonization, particularly under WP.29's innovative 1998 Agreement, see, Malone, Klindt & Akiba, "Global Technical Regulations - No Panacea, But A Significant Step Toward Harmonization", SAE Int'l (2009-01-1662); Malone, "Straightening Global Automotive's Backbone" (AIAG 2010); Malone, Dwyer & Smith, “World Consensus on “Vehicle Safety Standards: Speed Bumps on the Road to Common Ground,” BNA Product Safety & Liability Rptr, Vol. 34, No. 47 at 1183-1190 (Dec. 11, 2006).
7 Potential impediments include: intellectual property concerns; bias to protect a domestic market; a particular view; reluctance to commit to a specific position; cultural differences; and standardization efforts tend to lag behind commercialization of new products. See, e.g., Galyen, SAE International Vehicle Battery Summit, September 3, 2010.
8 See, e.g., China's National 863 Plan in its 10th & 11th Five Year Plans for the development of EVs and essential, related technologies; U.S.'s American Recovery and Reinvestment Act (DOE grants billions to accelerate development of U.S. manufacturing capacity for EVs, batteries, and electric drive components). See “EVs Need More Federal Aid to Compete With Asia”, Automotive News (Feb. 3, 2011)(Indiana Univ. study 82 pages – urges more global collaboration). According to one source, the U.S. represents 1% of the lithium-ion battery manufacturing market. Japan (46%), South Korea (27%), and China (25%) represent virtually all of the balance, AABC: DOE gives its perspective, 2011-02-02 CARS21.com.
9 While outside the scope of this article, EVs provide measurable environmental benefits, particularly if clean energy creates the electricity they use (i.e. if coal, gas, or oil generates the electricity, the “well to wheel” environmental benefits tend to diminish), see http://www.unece.org/trans/events/ClimateChange _Transport.html.
10 See generally, "Boost! Transforming the Powertrain Value Chain - A Portfolio challenge", McKinsey Report, January 2011; CARS21.com 2011-01-20. See also, “Competitive Automotive Regulatory System for the 21st Century” (aligning EU vehicle regulations more closely with UNECE).
11 Fortunately, those at WP.29 remain fully committed to this challenging, evolutionary process, see generally, Albert Camus, “The Myth of Sisyphus” (1942).
12 To date, WP.29 amended existing regulations under its responsibilities to address various EV potential safety issues (e.g. electrical shocks). A second area of WP.29’s EV focus will involve technical analyses and, presumably, proposed amendments to regulations regarding, by way of example: restraint systems; radio interference; identification of controls; end-of-life; reusability; recyclability; and recoverability.
13 For example, Infiniti will equip its 2011 M35h, its first in-house-developed hybrid, with a sound generator to warn pedestrians of its approach. The new system is called Approaching Vehicle Sound for Pedestrians (VSP). In at least a similar vein, Volvo is offering its Pedestrian Detection feature in the safety package for its S60; the General Motors 2011 Volt will also have, as standard equipment, an alerting device. The list grows with the Nissan Leaf and others.
14 See Galyen, fn 5, supra.
15 Numerous polls suggest that the majority of consumers are not yet ready for EVs. Reasons include, among others: price; recharging strategies; range anxiety; resale value; fuel prices; governments reducing or eliminating rebates; and, perhaps above all, “field performance”, see “What 8 leading surveys have to say about EVs”, CARS21.com 2011-01-17. At the outset, the most likely EV purchasers of any volume will likely be fleet owners (e.g. buses, delivery trucks, taxis). Recharging stations will be built into the prescribed routes and/or storage yards.
16 See, fn 1, supra.