Podcast - Electric Vehicles Roll Out, Clean Tech Legislation Stuck in Neutral

Sydney Bopp: Thank you for taking the time out of your day to listen to Holland & Knight's Eyes on Washington podcast today. We'll be talking about what's going on in the transportation space in the U.S. and specifically the momentum we're seeing around technology, innovation, reinvigoration of the automotive industry after the Biden Administration took office, and where all of this is likely to be headed. I'm Sydney Bopp, senior public affairs advisor with Holland & Knight's Public Policy & Regulation Group, where I focus on the intersection of public and private funding and financing to advance new technologies necessary for achieving deep decarbonization. Today, I'm joined by my colleague Isabel Lane, who's also a senior public affairs advisor and focuses her practice on climate policy and emissions reductions with an emphasis on the transportation and manufacturing sectors.

Isabel Lane: Hi, everyone. Glad to be here with you, Sydney.

Decarbonization and Electrification of the Transportation Sector

Sydney Bopp So, Isabel, let's start off by talking about why transportation is so important right now. Where's all this coming from?

Isabel Lane: Sure, thanks Sydney. So when we're talking about economy-wide, the climate goals, we're looking at major emissions reductions in all sectors of the economy. Today, about one third of the U.S. carbon emissions come from the transportation sector. That's about the same as what comes from the power sector. So when we're talking about economy-wide net zero ambitions – like what the Biden Administration is targeting, like what we're seeing in Democratic legislative proposals – the transportation sector is as important as wind and solar and transitioning to renewable resources for power generation. There's also a huge opportunity here to boost American industry through revitalizing the automotive industry and the supply chain for components that go into cars, because historically, the U.S. has led in this space, and especially when we're talking about light-duty vehicles, this is an area where American manufacturing can carve out a competitive advantage, both domestically and internationally. So overall, vehicles are an attractive area for the Biden Administration and Congress to be investing political capital, because if it's done right, it's a win-win for both the environment and American business, especially across the battleground states in the Rust Belt that were so important to victories for both former President Trump and President Biden. Now, one thing I do want to note here is that when we're talking about reducing emissions from the transportation sector, not all vehicles are made equal. And we really need to look at decarbonization, not just electrification, because a one size fits all approach won't get us to net zero in the timeframe that we need to meet. There are some sectors of the transportation space – mid- and heavy-duty trucks, aviation, oceangoing vessels – that are really hard to electrify. The technology just isn't there right now to electrify those sectors at a commercial scale. So if you want to see emissions reductions quickly, which is really important when we're talking about climate, the U.S.'s approach needs to be broader than just electrification.

We need to be able to fuel existing cars and trucks and planes with cleaner, more renewable fuel, and we need to be looking at technologies beyond just batteries and electrification. Hydrogen fuel cells, nuclear technologies, they all have applications in this broader transportation space and will eventually be part of a comprehensive solution.

Sydney Bopp: So, speaking about where our technology is, there's been a lot of progress in the last few years. We've seen the introduction of a lot of new passenger vehicle models from the major automakers. We've seen this rise of companies like Tesla who are really placing climate and this transition at the forefront for this industry. We also are seeing an emergence with this transition of the use of lithium ion battery technology as being the technology of choice moving forward. There's a lot of technologies that are still in development, but lithium ion seems to be the furthest along and the most widely adopted right now. But in addition to the cars themselves and the technology inside the vehicles, we're also seeing a major transition on, quote unquote, "fueling," right? And the move away from gasoline- and petroleum-based fuels and internal combustion engines to electric power drive chains, whether that's for battery-powered EVs or hydrogen-electric vehicles. And so what's emerged also is this question of charging: charging stations versus an approach like battery swapping for actually powering these cars. But I think the biggest driver for this transition has also been these major commitments from the automakers. Like you said, we're already seeing the introduction of electric models from the major automakers and very aggressive targets, in many cases, and goals that have been set by the automakers for all transitions to electric vehicles moving forward. It's a lot of change and a lot of transition that will be required to support these major goals.

Challenges of EV Infrastructure

Isabel Lane: Sydney, what challenges are you seeing in meeting the targets these automakers have set with aggressive timelines for, really, fleet-wide electrification? What are the things that these companies need to be focused on addressing, and the federal government as well?

Sydney Bopp: Yeah, it's a great question. So I think that the biggest challenge that a lot of these automakers are facing right now – and the federal government is also acknowledging – is that this is a major challenge. And we're seeing that both from announcements from the Biden Administration as well as through pieces of legislation that have been introduced in Congress. It's really focused on supply chain, and not only the manufacturing supply chain but also all the way down to the materials that are going into some of the major components for these cars, specifically the critical minerals and materials, rare earths, and how we're going to be able to process all of the materials that are needed to go into the batteries to support these cars and these different modes of transportation, as well as how we're going to be able to reuse and recycle and refurbish some of these materials. So I think that has emerged as one of the primary challenges in meeting this transition. And all eyes are on it right now. And we're seeing, like I said, a lot of attention focusing on this through different executive orders, and I know, Isabel, that you're going to talk about this a little bit later, but also legislation that's been introduced, specifically looking at addressing this issue.

Isabel Lane: Yeah, it's a tough nut to crack. The other challenge we talk about a lot in the context of electric vehicles is infrastructure buildout. We hear a lot from industry on Capitol Hill about the chicken and egg problem, where it's really hard to recruit investment into EV infrastructure without really high levels of demand for the actual EV cars. You need demand to drive supply. Conversely, it's also really hard to get consumers to choose to purchase EVs regardless of whatever tax breaks or incentives that are available at the law and at the time of purchase, if they aren't confident that their community, their workplace, their home, have the charging infrastructure to support the purchase of them. Policymakers are trying to incentivize on both sides of the equation here.

Now, when we're actually talking about the EV infrastructure itself, there are three real challenges that policymakers are trying to work out in building this infrastructure. The first is cost, the second is location, and the third is ownership. As much as charging stations, the ones you put into commercial and public applications, can juice up a car in 30 minutes or less, those stations can cost upwards of a quarter million dollars per station. That's a huge amount of upfront investment that you need to somehow finance. Which raises the second issue: Who's going to own and service this infrastructure? Is it going to be public bodies like state and local governments, utilities, private automakers and those playing the EV space, real estate developers like entities that own and service parking garages, airports? There are so many different players in this space, and figuring out who's going to own and service this equipment is something that is probably going to be handled in a sort of jurisdiction, in a state or local government-specific way. But it is something the federal government is trying to make sure that they're incentivizing the right way. And the third issue: Where are these charging stations going to be located? There's talk of developing national corridors along major interstates and traffic corridors that are highly electrified to support these fast charging stations. Or do we put them in environmental justice communities where people will benefit most from investment in emissions reductions? These are the three main questions being contemplated by Congress and the administration as we're talking about infrastructure and the buildout of stations and what you need to support a national network of EVs.

Federal Involvement: Executive Orders, DOT, NHTSA

Sydney Bopp: So Isabel, that's a great segue into what the federal government can be doing. Congress – and the actions that Congress is going to take – remains uncertain, and I know that you're going to touch on this a little bit later. But even without Congressional action, a lot can be done. And as I mentioned before, what we're already seeing from the Biden Administration, and I believe we'll continue to see, is a whole lot of government approach to solving these big challenges that have aggressive timelines. And this transition for transportation electrification and transition to EVs is a great example of that. We've already seen from the Biden Administration several executive orders that are aimed at addressing this challenge and issue [and] for meeting this transition in a timely manner. One touches on federal procurement of electric vehicles for the federal government, and then the other is Executive Order 14017, which speaks more specifically to supply chain for batteries. In response to the supply chain executive order, we have already seen from several federal agencies, including the Department of Energy and the Department of Defense, requests for information from industry, academia, you name it, folks who are working on this issue every day to provide additional insight into what these challenges really are, suggestions about how some of these shortcomings may be approached by the federal government, and so there is an opportunity for that public-private discussion on how to go about addressing some of these issues. And I think that will continue. But right now, step one was putting out the executive orders. Step two is the agencies putting out these RFIs to collect the information from industries to inform future reports and decision-making on how to address these issues. And so this will continue over the next several months and probably likely a year or two of the Biden Administration. We're also seeing continued activity from agencies like the U.S. Department of Energy (DOE) and investing in technology development, advanced manufacturing, supply chain. Again, there's a new program for critical materials in the Office of Fossil Energy at the DOE and also interagency work between agencies like the Department of Energy, Transportation, Interior, GSA, etc. for this broader infrastructure and EV charging infrastructure piece. So there's a lot, a lot that's going on, and a lot in the technology development that will continue. I think there'll be more that we'll see out of these agencies. Isabel, I'm going to turn it back to you to get your thoughts on not only what we're seeing from the White House and DOT and Energy, but also to hear your thoughts about the roles of the Transportation Department and EPA in this transition as well.

Isabel Lane: Yeah, thanks Sydney. The DOE and Commerce Department and White House, their roles are mostly about incentivizing technology development, incentivizing procurement, creating those markets, creating the technology, making sure that they end up there. DOT and EPA play a different role. They're mostly going to be on the planning and regulatory side of the EV equation, but it's an important piece of the equation and not something to overlook. Many companies are really focused on funding and focused on getting resources out of the federal government, but you also need to be thinking about defensive, and in some cases, offensive opportunities with the DOT and EPA. So, DOT plays a big role in infrastructure investment and planning. How do resources become allocated to these different state and local government initiatives? They have things like the Smart City Initiative, which is about long-term planning for our urban areas that incorporates not just things like EVs but also autonomous vehicles and connectivity. So those are things that the DOT plays a big role in from a planning perspective.

NHTSA also is a big part of the equation here, too, the National Highway Traffic Safety Administration. They're the ones that set standards for vehicles and safety standards associated with vehicle design. As cars are electrified and as vehicle design changes, again, including not just alternative advanced propulsion mechanisms but also autonomous components, vehicle design is changing. And so they are playing a big role in making sure that safety still is something that we can address in some of these new vehicle designs, in addition to the tailpipe emissions benefits and also the overall emissions profile of these new vehicles. So DOT and NHTSA also work with EPA on tailpipe emissions standards. These are the CAFE [Corporate Average Fuel Economy] standards for light-duty vehicles. Regulation on that front is really going to help drive the transition to EVs. So it's very clear that the Biden Administration is going to be promulgating new standards for CAFE (Corporate Average Fuel Economy) standards for passenger vehicles in model years 2021 to 2026. These will replace the Trump Era standards established in the eighth role and that in turn replaced the Obama Era standards. So this is sort of the third iteration of these fuel economy standards that have been put in place for model years 2021 to 2026. And as you can tell from the constant updating, there really hasn't been a lot of certainty in the space. And that's something that's frustrated automakers. They're in the business. They're creating model designs 10 years in advance. And so the lack of certainty around these standards has been a frustration in terms of their long-term planning as they're envisioning these new advanced propulsion mechanisms. So a number of these automakers actually went directly to strike a deal with California to voluntarily meet more aggressive standards back in 2019 after the Trump Administration rolled out their standards. So the next iteration of the federal standards are likely to build on the voluntary agreement here. And there are a number of different court cases that we need to be paying attention to in this space. But it's something to consider from a regulatory perspective, the number that they set these emission standards at in order to meet these standards, the automakers are going to have to have a certain amount of EV in their portfolio to meet very aggressive Corporate Average Fuel Economy standards. So it's something to keep an eye on as well from the regulatory perspective.

Potential Legislation, Tax Credits

Sydney Bopp: Great. So, Isabel, all of that insight on the rule of the Transportation Department, EPA, what's happening in the states is so relevant. Then we also have the legislative branch of the federal government. So, could you talk about what Congress is looking at right now in terms of transportation and, more specifically, elements that touch on transportation, electrification and decarbonization?

Isabel Lane: Absolutely Sydney. Big picture, transportation is a big focus for Congress right now, especially congressional Democrats. As I mentioned at the beginning of this podcast, transportation accounts for a third of the emissions profile in terms of the U.S.'s carbon footprint. So it's something that all committees are thinking about and taking into consideration, particularly in the House. Energy and Commerce are leading on this. The House Select Committee on the Climate Crisis is really looking at this. While they don't have any legislative jurisdiction, they're certainly in the business of developing proposals that can be sent to the other committees of jurisdiction, as well as the House Transportation Infrastructure Committee. A few others folks on the Senate side. You've got the Senate Environment Public Works Committee leading on some of these transportation electrification issues. You also have the Senate Committee on Natural Resources playing. And you also are looking at tax incentives. So you have the tax committees playing this space as well. So there's there are a lot of different legislative bodies within Congress, both the House and Senate, that are focused on EVs and where they can use their jurisdiction to build a future for these vehicles and for electrification of the passenger vehicle sector. So big picture, I'll just sort of lay the sort of vehicles out that may move this year with the note that everything is up in the air until it happens when it comes to Congress.

So this is all speculation, but there is potential for a couple of different pieces to move on EVs that I think people should be aware of. Number one, and the most certain, is going to be the federal budget for Fiscal Year 2022. So funding is set to expire for the federal government this year on September 30, and Congress needs to pass its annual appropriations for the federal government by that date or have some sort of extension and pass the final bill by the end of the year, which is typically what they do. Now, there's a lot of programmatic funding that go to existing government programs to watch in these bills. There may be a lot of language that designates an average amount of funding to some of these programs but specifically says a carve out from this program must go to support EVs or EV infrastructure. So there's something to be looked at, not just in the topline numbers that come out of these budgets but the way that the congressional committees are writing their reports to direct the usage of this funding. Also in the next, earmarks are back. Community Project Funding, as it's known this year, are small pots of money that individual members of Congress secure for their districts. And it's very possible that some Democrats try to get funding directed to their constituents for things like infrastructure buildout for EVs. So it's something to keep an eye on as well. And from an individual local government or state perspective, that's a huge opportunity for buildout to support EVs and electrification. So that's sort of bucket number one.

Slightly less certain bucket number two is the potential for an infrastructure package. There are two routes that can that can be taken for this package. One is bipartisan, and the other could pass with just Democratic votes. So one is going to be something that moves with the support of Republicans and Democrats, and the other, through a process known as budget reconciliation, could move without any Republican support directly. Now, that's a high bar, and especially when we're talking about EVs, because while there's a lot of interest in electrification, it's still a pretty partisan issue on Capitol Hill. Republicans are careful about allocating funding to specific technologies. I think that generally, philosophically, they sort of like to take a more technology-neutral approach. And some Democrats are interested in that as well. So spending a lot of government resources on buildout to support one specific technology, it's something that is going to be hard to get a lot of bipartisan support for. That said, there is a ton of Democratic interest in this based on just the opportunity for emissions reductions. So they do have sort of a back and forth on this, especially in the context of infrastructure. So if a transportation package moves in a bipartisan way, it's probably going to be tied to reauthorization for surface transportation programs. So all of the DOT's programs are authorized through a usually mid- to long-term bill that's passed every couple of years. These programs are set to expire on September 30 this year. So barring some kind of extension, there's going to have to be a package to address DOT's programs on surface transportation, and that includes highway programs, a lot of city funding for transportation and transit issues. Typically the advancement of that bill would move in a bipartisan way, especially through the Senate, so there's certainly going to be attention paid to that. And there are a number of different proposals that could hitch a ride on that theoretically. Now, if those negotiations don't go well, Democrats may try to move a bill without those Republican votes. And there are a couple of Democratic proposals out there of different levels of sort of aggressiveness, some would say. And those proposals may work their way into at least the House's version of a partisan infrastructure bill. Those include the Clean Future Act, the Moving Forward Act that was introduced last Congress and they're probably going to have reintroduced pretty soon here on the Transportation and  Infrastructure Committee side. There's also discussion of including a tax title in this bill, and there are a couple of different tax rates that are really important for electrification. Number one is the tax credit that can be used to actually install EV infrastructure. There's discussion of raising – currently the credit is capped at $30,000 per station. That doesn't go as far as it needs to for high intensity charging stations, the ones that I mentioned earlier that can cost upwards of $250,000 to have. That $30,000 incentive just really doesn't get it. So there's discussion about trying to increase the value of that credit and a few other amendments there. There are also credits that are offered to individuals who purchase EVs. With that you're sort of addressing the supply, and you're also addressing the demand. Right now there are limits on how many of those credits can be offered to people who buy EVs per automaker. So each automaker is allotted of a certain number of credits that they can give, basically. And this is something that there's a lot of Democratic interest in expanding or extending. So there are a couple of different tax pieces here that could go into an infrastructure bill and certainly a lot of Democratic interest. And I'm going to stop there. There are a couple of other bills on the horizon that I'm happy to talk to at a different podcast, but I'm going to stop there, as I don't want to drone on here. But the topline takeaway is that there are a lot of things moving in Congress right now. And ultimately, it's a good time to get plugged in.

Sydney Bopp: Love the puns. Thanks Isabel, and there is a lot that's happening right now and a lot that has yet to be introduced in Congress. There's a lot of work that's happening within all of these agencies, and it's just a really exciting time for folks who are involved in this industry tracking it as part of this bigger transition.

So I think from everything we've shared through our discussion today and this conversation, what my biggest takeaway is that this transition is happening. Even without congressional action, we're seeing so much occur and being driven by private industry.

There's so much that federal agencies can already do with existing authority, and having certainty with either extension or expansion and revision of existing tax credits and programs does provide that additional certainty to the industry that enables them to plan for the future. But I think plans are being made anyway. So with that, it's an exciting time. It is a good time to get engaged if you're not already. And Isabel, I just want to thank you for joining me in this conversation today, and I want to thank everyone who has tuned in for listening to our conversation. If you're interested in learning more, please feel free to reach out to either Isabel or myself, and have a great rest of your day. Thank you.

Isabel Lane: Thanks Sydney.