Smart policy and regulation is critical in supporting transformative sectors of the 21st-century economy. If we remain passive, America will be left behind.
TWO years ago, I sat across a table from a high-level Chinese official discussing the country’s then embarrassing foray into electric cars. China had promised to sell 500,000 such cars by 2011 and lead the world’s transition away from oil. Instead, that year it sold exactly 2,338.
“What would you do?” he asked. Surprised by his candor, I gave my two cents: study successful policies in California.
I wasn’t especially optimistic. Over the next 18 months, however, China transformed its sputtering electric-vehicle industry into a global juggernaut, surpassing the United States as the world’s largest market for this critical 21st-century technology. At the end of 2015, China was on track to sell 180,000 electric cars, nearly 300 percent more than the year before and 20 times more than in 2013.
What happened? I claim no credit for this decision, but China did in fact look to California for inspiration.
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Until recently, EVs were enormously expensive to build. Bringing the cost down would require technological innovation and mass production, which wasn’t going to happen without a little coaxing from the government. In China, huge consumer incentives (almost $20,000 a car) weren’t enough, and neither was political pressure on automakers.
Quality was low, cost was high and the value proposition for Chinese consumers was not good. “Companies do not want to build these cars, and people do not want to buy them,” one Chinese executive told me in 2011.
Many analysts suggested that China abandon the project altogether.
Instead, in 2014, the China Automotive Technology Research Center, which helps craft policy and standards for the national industry, invited California’s regulators to Tianjin to explain their success. It also sent experts to the West Coast to learn more.
In California, regulators had required each automaker to produce an escalating percentage of EVs. Simultaneously, the state had built a synthetic market that allowed automakers to buy and sell EV credits (awarded for selling electric cars) among themselves, thus rewarding manufacturers such as Tesla that bet big on innovation.
California also invested heavily in public charging infrastructure, provided financial incentives to consumers, gave EVs access to HOV lanes and otherwise helped tip the scales in favor of electrification. This bevy of policies was responsible for the advent of the consumer EV and today California accounts for about half of U.S. EV sales.
China was a quick study. Later in 2014, policymakers adopted a California-style EV mandate — though limited it to government vehicle fleets. Beijing decreed that by 2016, 30 percent of municipal vehicles must use batteries or fuel cells. Financial subsidies were somewhat reduced. (The city of Shenzhen’s cumulative subsidy, for example, was about $14,000, compared with $18,500 before.) But the mandate and other incentives more than compensated. Many cities now also offer reduced parking fees, access to bus and HOV lanes and exemptions from stringent commuter restrictions.
In at least one sense, the Chinese have gone even further than California in encouraging EV use. To combat multiday traffic jams and suffocating smog, major cities have throttled the number of license plates (auto registrations) allowed. In 2015 the average cost of a license plate in Shanghai was more than $18,000, and in Beijing there were nearly 200 applications for each registration granted. But cities, including Beijing, Shanghai and Shenzhen, have created special carve-outs for EVs. For example, Beijing allotted 30,000 free license plates for EVs in 2015.
China’s nudging worked. In January 2014, China sold only 600 so-called new energy vehicles — predominantly electric cars. In December 2014, China sold more than 15,000 EVs as local governments scrambled to meet fleet mandates. In November of last year, China sold more than 25,000 electric cars — more than twice as many as the U.S. (Of course, China’s overall auto market is also larger. In 2014, China sold about 24 million vehicles compared with the United States’ 17 million.)
Washington, D.C., provides a sad, sharp contrast. After binge spending on EVs during the 2009 stimulus, the federal government retrenched. It eliminated most of its expenditures on EV technology and practically zeroed out funding for charging infrastructure. Washington’s conversation on electric cars has degenerated into partisan squabble.
Yes, California remains a bright spot, but other states are held back by a lack of direction from D.C., and not only in comparison with China. In November, Europe sold 19,500 electric cars, putting it far ahead of the United States.
Smart policy and regulation will be critical to supporting the transformative sectors of the 21st century — EVs, roboticization, automated vehicles, renewable energy, drones and even artificial intelligence. If Washington, D.C., remains passive, America will be left behind.