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Detroit's Death Wish Comes Roaring Back as Trump Vows to Lower Emission Standards

Insights + Opinion
Trump meets with CEOs of GM, Ford, Fiat and Chrysler.

The oil industry and its "deep state" allies in the Trump administration have lured U.S. auto companies into a potentially fatal political trap, chumming Detroit by tapping into the deeply embedded penchant of the Big Three for chasing short-term market trends at the expense of long term value.

Excited by the arrival of a Big Oil ally, Scott Pruitt, to head the U.S. Environmental Protection Agency (EPA), the auto industry asked the Trump administration to undo the recent Obama Administration rule locking long term, reliable standards for emissions and fuel economy. The industry argued that the standards, which it agreed to back in 2009 as part of the auto bail-out, were now too onerous because consumers were shifting to buy SUV's again with lower oil prices. The argument is utterly bogus. The 2009 rules set separate, if ambitious, standards for each size class of vehicle, so while more SUV sales do drive up average emissions and oil consumption, they do not require the companies to make a single vehicle to a higher standard than they agreed to.

What's really at stake here is the pace of vehicle electrification. Meeting the 2009 standards for each vehicle class was always dependent on a significant portion of those vehicles being zero-emission electric drive. That's an existential threat to the oil industry—and in many ways to Detroit's dealers, who make most of their money repairing the drive trains of internal combustion cars. Electric drive vehicles (EV) have a fraction of the maintenance costs of gas or diesel.

But a rapid deployment of electric drive cars is vital to the long term global viability of automobile manufacturers. Whatever happens in the U.S., global auto markets are going electric and the Big Three need a major U.S. EV market to compete in the 21st century.


A few days before the Trump administration announced that—surprise, surprise—it was giving the auto industry everything it had asked for and more, not only waiving the post 2022 economy standards but also seeking to strip California of its historic right to set its own vehicle emissions rules, I attended a high level strategy session in New Delhi devoted to the future of India's auto fleet. If Detroit had been listening it might have realized the folly of resuming its servile junior partner status with oil.

The message could not have been clearer. Minister after Minister—roads, industry, rail, urban development—proclaimed India's urgent need for "transportation without oil." The government of India's top planners made clear that they were uniformly committed to an all electric vehicle economy by 2030, a step which would dry up the oil industry's biggest remaining growth target. It would also shut off the world's fastest growing automotive market to U.S. manufacturers if they continue to rely on internal combustion engines.

India's domestic ride-hailing service, Ola, announced a partnership with Indian auto maker Mahindra to test electric taxis. The government indicated it would suspend the permit process for electric vehicles, as the City of Beijing has already done, giving electric car ownership a big boost. Toyota boasted that 46 percent of the Camry's sold in India are already hybrids or electrics. The electric drive train has already left the station. With China already far down the electric vehicle pathway, Europe being forced onto it by air pollution problems and India trying to leap-frog both, an auto industry that continues to rely on 20th century technology will rapidly become a 20th century relic.

Why would U.S. auto companies, like General Motors with its big—and bold—bet on the ground-breaking electric Bolt, give up the level playing field and predictability which the 2022 emission and economy rules had given them in 2009? Just as Trump was signaling that he will ease the requirements, Rob Threlkeld, global manager of renewable energy for General Motors, said the automaker is pushing to source all of its power from clean sources by 2050 because that's what consumers want. Why would manufacturers choose a strategic pathway so clearly at odds with where world auto markets are going?

Why would they pick such a big fight with their biggest domestic market. California, joined as it is by a bevy of other states seeking cleaner and cheaper transportation options? Well, dealership pressure is one reason. Dealers hate EV's, because they don't break down and don't fatten their service departments. Another is that the auto industry's lobbying apparatus thrives on the message, "the government is out to hurt you. Fight back!" (After all, if Government Affairs departments concede the reality that government regulations have been, net, good for the industry, keeping it competitive with the German and Japanese manufacturers, what's the argument for fat lobbying budgets?)

From 2004 to 2008, as oil prices soared, Detroit clung to its SUV dependent business model, pronouncing that gasoline prices could never reach the $2.50 mark at which customers starting seeking fuel economy. When that marker was crossed in 2006, Chrysler and GM headed for bankruptcy, Ford for massive debt and value loss and the U.S. industry almost went away except for the Obama administration rescue.

Now, just as happened in that era, the auto industry is once again barreling towards long-term bankruptcy for short-term relaxation of standards. What can rescue Detroit from its own death wish?

Primarily California and its allied states, (Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont), which have adopted their own version of the 2022 fuel efficiency rules and an electric vehicle mandate to go with it. Representing 30 percent of the U.S. auto market, these states alone can drive Detroit to remain competitive in the electric drive segment. While the Trump administration appears ready to deny California the waiver which enables it to maintain its own rules, there will be a major legal battle in the courts over whether the federal government can revoke a waiver once it has been issued. And even if, in the short turn, the Trump administration prevails, California and its allies can make clear that once political attitudes in Washington change, as they always do, that the next round of economy and emissions standards will be much, much tougher than those Detroit is seeking to weaken today. The 2022 rules were very much a compromise—and with foreign manufacturers racing to electrify, California holds a much stronger long term hand than Detroit.

So what the auto companies and auto workers and auto communities, all ought to be praying for is that the Trump administration's ploy to reinforce Detroit's dependence on oil fails—because the courts uphold state's rights and California's ability to insist that the auto industry remain globally competitive.

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The huge surge this year in Amazon deforestation is leading some European countries to think twice about donations to the Amazon Fund. LeoFFreitas / Moment / Getty Images

By Sue Branford and Thais Borges

Ola Elvestrun, Norway's environment minister, announced Thursday that it is freezing its contributions to the Amazon Fund, and will no longer be transferring €300 million ($33.2 million) to Brazil. In a press release, the Norwegian embassy in Brazil stated:

Given the present circumstances, Norway does not have either the legal or the technical basis for making its annual contribution to the Amazon Fund.

Brazilian President Jair Bolsonaro reacted with sarcasm to Norway's decision, which had been widely expected. After an official event, he commented: "Isn't Norway the country that kills whales at the North Pole? Doesn't it also produce oil? It has no basis for telling us what to do. It should give the money to Angela Merkel [the German Chancellor] to reforest Germany."

According to its website, the Amazon Fund is a "REDD+ mechanism created to raise donations for non-reimbursable investments in efforts to prevent, monitor and combat deforestation, as well as to promote the preservation and sustainable use in the Brazilian Amazon." The bulk of funding comes from Norway and Germany.

The annual transfer of funds from developed world donors to the Amazon Fund depends on a report from the Fund's technical committee. This committee meets after the National Institute of Space Research, which gathers official Amazon deforestation data, publishes its annual report with the definitive figures for deforestation in the previous year.

But this year the Amazon Fund's technical committee, along with its steering committee, COFA, were abolished by the Bolsonaro government on 11 April as part of a sweeping move to dissolve some 600 bodies, most of which had NGO involvement. The Bolsonaro government views NGO work in Brazil as a conspiracy to undermine Brazil's sovereignty.

The Brazilian government then demanded far-reaching changes in the way the fund is managed, as documented in a previous article. As a result, the Amazon Fund's technical committee has been unable to meet; Norway says it therefore cannot continue making donations without a favorable report from the committee.

Archer Daniels Midland soy silos in Mato Grosso along the BR-163 highway, where Amazon rainforest has largely been replaced by soy destined for the EU, UK, China and other international markets.

Thaís Borges.

An Uncertain Future

The Amazon Fund was announced during the 2007 United Nations Climate Change Conference in Bali, during a period when environmentalists were alarmed at the rocketing rate of deforestation in the Brazilian Amazon. It was created as a way of encouraging Brazil to continue bringing down the rate of forest conversion to pastures and croplands.

Government agencies, such as IBAMA, Brazil's environmental agency, and NGOs shared Amazon Fund donations. IBAMA used the money primarily to enforce deforestation laws, while the NGOs oversaw projects to support sustainable communities and livelihoods in the Amazon.

There has been some controversy as to whether the Fund has actually achieved its goals: in the three years before the deal, the rate of deforestation fell dramatically but, after money from the Fund started pouring into the Amazon, the rate remained fairly stationary until 2014, when it began to rise once again. But, in general, the international donors have been pleased with the Fund's performance, and until the Bolsonaro government came to office, the program was expected to continue indefinitely.

Norway has been the main donor (94 percent) to the Amazon Fund, followed by Germany (5 percent), and Brazil's state-owned oil company, Petrobrás (1 percent). Over the past 11 years, the Norwegians have made, by far, the biggest contribution: R$3.2 billion ($855 million) out of the total of R$3.4 billion ($903 million).

Up till now the Fund has approved 103 projects, with the dispersal of R$1.8 billion ($478 million). These projects will not be affected by Norway's funding freeze because the donors have already provided the funding and the Brazilian Development Bank is contractually obliged to disburse the money until the end of the projects. But there are another 54 projects, currently being analyzed, whose future is far less secure.

One of the projects left stranded by the dissolution of the Fund's committees is Projeto Frutificar, which should be a three-year project, with a budget of R$29 million ($7.3 million), for the production of açai and cacao by 1,000 small-scale farmers in the states of Amapá and Pará. The project was drawn up by the Brazilian NGO IPAM (Institute of Environmental research in Amazonia).

Paulo Moutinho, an IPAM researcher, told Globo newspaper: "Our program was ready to go when the [Brazilian] government asked for changes in the Fund. It's now stuck in the BNDES. Without funding from Norway, we don't know what will happen to it."

Norway is not the only European nation to be reconsidering the way it funds environmental projects in Brazil. Germany has many environmental projects in the Latin American country, apart from its small contribution to the Amazon Fund, and is deeply concerned about the way the rate of deforestation has been soaring this year.

The German environment ministry told Mongabay that its minister, Svenja Schulze, had decided to put financial support for forest and biodiversity projects in Brazil on hold, with €35 million ($39 million) for various projects now frozen.

The ministry explained why: "The Brazilian government's policy in the Amazon raises doubts whether a consistent reduction in deforestation rates is still being pursued. Only when clarity is restored, can project collaboration be continued."

Bauxite mines in Paragominas, Brazil. The Bolsonaro administration is urging new laws that would allow large-scale mining within Brazil's indigenous reserves.

Hydro / Halvor Molland / Flickr

Alternative Amazon Funding

Although there will certainly be disruption in the short-term as a result of the paralysis in the Amazon Fund, the governors of Brazil's Amazon states, which rely on international funding for their environmental projects, are already scrambling to create alternative channels.

In a press release issued yesterday Helder Barbalho, the governor of Pará, the state with the highest number of projects financed by the Fund, said that he will do all he can to maintain and increase his state partnership with Norway.

Barbalho had announced earlier that his state would be receiving €12.5 million ($11.1 million) to run deforestation monitoring centers in five regions of Pará. Barbalho said: "The state governments' monitoring systems are recording a high level of deforestation in Pará, as in the other Amazon states. The money will be made available to those who want to help [the Pará government reduce deforestation] without this being seen as international intervention."

Amazonas state has funding partnerships with Germany and is negotiating deals with France. "I am talking with countries, mainly European, that are interested in investing in projects in the Amazon," said Amazonas governor Wilson Miranda Lima. "It is important to look at Amazônia, not only from the point of view of conservation, but also — and this is even more important — from the point of view of its citizens. It's impossible to preserve Amazônia if its inhabitants are poor."

Signing of the EU-Mercusor Latin American trading agreement earlier this year. The pact still needs to be ratified.

Council of Hemispheric Affairs

Looming International Difficulties

The Bolsonaro government's perceived reluctance to take effective measures to curb deforestation may in the longer-term lead to a far more serious problem than the paralysis of the Amazon Fund.

In June, the European Union and Mercosur, the South American trade bloc, reached an agreement to create the largest trading bloc in the world. If all goes ahead as planned, the pact would account for a quarter of the world's economy, involving 780 million people, and remove import tariffs on 90 percent of the goods traded between the two blocs. The Brazilian government has predicted that the deal will lead to an increase of almost $100 billion in Brazilian exports, particularly agricultural products, by 2035.

But the huge surge this year in Amazon deforestation is leading some European countries to think twice about ratifying the deal. In an interview with Mongabay, the German environment ministry made it very clear that Germany is very worried about events in the Amazon: "We are deeply concerned given the pace of destruction in Brazil … The Amazon Forest is vital for the atmospheric circulation and considered as one of the tipping points of the climate system."

The ministry stated that, for the trade deal to go ahead, Brazil must carry out its commitment under the Paris Climate agreement to reduce its greenhouse gas emissions by 43 percent below the 2005 level by 2030. The German environment ministry said: If the trade deal is to go ahead, "It is necessary that Brazil is effectively implementing its climate change objectives adopted under the [Paris] Agreement. It is precisely this commitment that is expressly confirmed in the text of the EU-Mercosur Free Trade Agreement."

Blairo Maggi, Brazil agriculture minister under the Temer administration, and a major shareholder in Amaggi, the largest Brazilian-owned commodities trading company, has said very little in public since Bolsonaro came to power; he's been "in a voluntary retreat," as he puts it. But Maggi is so concerned about the damage Bolsonaro's off the cuff remarks and policies are doing to international relationships he decided to speak out earlier this week.

Former Brazil Agriculture Minister Blairo Maggi, who has broken a self-imposed silence to criticize the Bolsonaro government, saying that its rhetoric and policies could threaten Brazil's international commodities trade.

Senado Federal / Visualhunt / CC BY

Maggi, a ruralista who strongly supports agribusiness, told the newspaper, Valor Econômico, that, even if the European Union doesn't get to the point of tearing up a deal that has taken 20 years to negotiate, there could be long delays. "These environmental confusions could create a situation in which the EU says that Brazil isn't sticking to the rules." Maggi speculated. "France doesn't want the deal and perhaps it is taking advantage of the situation to tear it up. Or the deal could take much longer to ratify — three, five years."

Such a delay could have severe repercussions for Brazil's struggling economy which relies heavily on its commodities trade with the EU. Analysists say that Bolsonaro's fears over such an outcome could be one reason for his recently announced October meeting with Chinese President Xi Jinping, another key trading partner.

Maggi is worried about another, even more alarming, potential consequence of Bolsonaro's failure to stem illegal deforestation — Brazil could be hit by a boycott by its foreign customers. "I don't buy this idea that the world needs Brazil … We are only a player and, worse still, replaceable." Maggi warns, "As an exporter, I'm telling you: things are getting very difficult. Brazil has been saying for years that it is possible to produce and preserve, but with this [Bolsonaro administration] rhetoric, we are going back to square one … We could find markets closed to us."

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