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Revisiting a favorite episode with guest Ilaria Mazzocco.
The Chinese electric automaker BYD is entering a new stage in its history. Last month, it sold more than half a million electric vehicles and plug-in hybrids. BYD has already shipped more cars this year than Ford and Honda, and it is fast coming for Volkswagen, GM, and Toyota’s crowns as the world’s three largest automakers.
Earlier this year, Rob and Jesse spoke with Ilaria Mazzocco, a senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, D.C. She has watched China’s EV industry grow from a small regional experiment into a planet-reshaping juggernaut. On this week’s episode of Shift Key, we’re re-running that conversation — one of our favorites ever to happen on the show. We’ll be back with a new episode next week.
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: It’s been clear since Trump pulled out of the Paris Agreement, to some degree, that China was trying to race ahead in these clean technologies in a way that America was not. But I feel like the full arrival of the Chinese EV industry in the U.S. discourse has only happened in the past year. Can you zoom out and just give us a sense of how we went from the Chinese car industry being … not a joke, necessarily, but not really seen as a serious global competitor, to now, where the Chinese EV industry is shaping U.S. and European policy at the highest levels?
Ilaria Mazzocco: I actually think the fact that the traditional internal combustion engine automotive industry in China was so uncompetitive is part of the reason why we’re here, right? So the Chinese government for decades tried to come up with ways of getting a world-class industry. So it’s like, you know, to access the Chinese market, you have to create a joint venture, and the government picked — usually it was state-owned enterprises, which are not known for their dynamism and creativity and innovation.
And in fact the car companies that did do better in China were often sort of the private, or like the small state-owned enterprises that were sort of coming in from the margins and maybe struggled to get a license to operate initially — like Geely, right? Geely was sort of a classic example of that.
But essentially, by around the global financial crisis, there was the sense that this just wasn’t working. And this was also at a time when the Chinese bureaucracy is starting to think more and more about industrial upgrading. Salaries in China are going up. So you want to think of what’s next steps as maybe textiles and other sort of lower-end manufacturing moves outside of China. And so the thinking was, well, why don’t we invest and put our weight behind the next-generation technology in automotive, and sort of invest in that. And that way, we’re competing on a level playing field.
Ironically, that’s sort of the idea — or in the sense that, you know, you’re not competing with companies that have been accumulating IP for over 100 years, you’re sort of playing … Chinese companies may have even an advantage if they start early.
This was sort of the brainchild of the minister at the time, the minister of science and technology, who was an auto guy, Wan Gang. And so this was a fairly small project, to be honest. This wasn’t something that the secretary of the party or the premier who came up with it. It was a ministry-level initiative. There were four ministries working on it, but yeah, pretty small. It was really pilot city programs, not a big success initially — kind of expensive — but they stick with it. And that’s kind of the key there, right? So that’s what the big advantage that the Chinese bureaucracy has, that it can have that policy continuity. These are not politicized things, issues. These are, there’s also not, there’s no voters there looking at the budget and saying, You’re spending a ton of money on this unproven technology. And so that’s one advantage.
What I also like to point out is that it was the right time. This is, they started the program to commercialize, right? Obviously there’d been R&D grants and that sort of thing, but there’s a program to start actually giving consumers rebates to buy EVs and incentivizing taxi fleets, which was pretty crucial in China, and bus fleets to electrify self-starts around 2009, 2010. And you know, in those years, that’s also when Tesla is starting to emerge, right? This is a moment in which the technology is … not mature, but it’s mature enough that it can actually make real strides when it starts to be commercialized.
And then the third part is you had really good entrepreneurs. You had BYD that was just there lobbying to get this. You actually had Tesla in there trying to get more incentives for this, as well. But, you know, you had Chinese companies like BYD that were really at the margins and quite hungry that really took up this opportunity and started investing and really believed in it. So I think you had that combination of factors and, you know, now we’re like 15 years later, I think we’re seeing the results of it.
I will say it doesn’t always work that way. To an extent, there’s an element of luck, right? This is the problem with industrial policy. You can do the work right in the research and you can get it right, but it’s still not a … you don’t always know that it’s going to work out. And I give the example of fuel cell technology. They received the same types of subsidies, fuel cell passenger vehicles in China. And that, you know, we’re nowhere close to seeing a mass market for that.
This episode of Shift Key is sponsored by …
Watershed’s climate data engine helps companies measure and reduce their emissions, turning the data they already have into an audit-ready carbon footprint backed by the latest climate science. Get the sustainability data you need in weeks, not months. Learn more at watershed.com.
As a global leader in PV and ESS solutions, Sungrow invests heavily in research and development, constantly pushing the boundaries of solar and battery inverter technology. Discover why Sungrow is the essential component of the clean energy transition by visiting sungrowpower.com.
Intersolar & Energy Storage North America is the premier U.S.-based conference and trade show focused on solar, energy storage, and EV charging infrastructure. To learn more, visit intersolar.us.
Music for Shift Key is by Adam Kromelow.
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The Senate’s reconciliation bill essentially repeals the Corporate Average Fuel Economy standards, abolishing fines for automakers that sell too many gas guzzlers.
A new provision in the Senate reconciliation bill would neuter the country’s fuel efficiency standards for automakers, gutting one of the federal government’s longest-running programs to manage gasoline prices and air pollution.
The new provision — which was released on Thursday by the Senate Commerce Committee — would essentially strip the government of its ability to enforce the Corporate Average Fuel Economy standards, or CAFE standards.
The CAFE rules are the government’s main program to improve the fuel economy of new cars and light-duty trucks sold in the United States. Over the past 20 years, the rules have helped push the fuel efficiency of new vehicles to record highs even as consumers have adopted crossovers and SUVs en masse.
But the Republican reconciliation bill would essentially end the program as a practical concern for automakers. It would set all fines issued under the program to zero, stripping the government of its ability to punish automakers that sell too many polluting vehicles.
“It would essentially eviscerate the standard without actually doing so directly,” Ann Carlson, a UCLA law professor who led the National Highway Traffic Safety Administration from 2022 to 2023, told me.
“It says that, ‘We have standards here, but we don’t care if you comply or not. If you don’t comply, we’re not going to hold you responsible,’” she said.
Representatives for the Senate Commerce Committee did not respond to an immediate request for comment. A talking points memo released by the committee on Thursday said that the new bill would “[bring] down automobile prices modestly by eliminating CAFE penalties on automakers that design cars to conform to the wishes of D.C. bureaucrats rather than consumers.”
Since 1975, Congress has required the National Highway Traffic Safety Administration (pronounced NIT-suh) to set annual fuel efficiency standards for new cars and light trucks sold in the United States. The rules generally require new vehicles sold nationwide to get a little more fuel efficient, on average, every year.
The rules have remained in effect — with varying levels of stringency — for 50 years, although they have generally encouraged automakers to get more efficient since Congress strengthened the law on a bipartisan basis in 2007.
In model-year 2023, the most recent period for which data is available, new cars and light trucks achieved a real-world fuel economy of 27.1 miles per gallon, an all-time high. The vehicle fleet was set to hit another record high in 2024, according to last year’s report.
Opponents of the fuel economy rules argue that the regulations increase the sticker price of new cars and trucks and push automakers to build less profitable vehicles. The Heritage Foundation, the conservative think tank that published Project 2025, has called the rules a “backdoor EV mandate.”
The rules’ supporters say that the standards are necessary because consumers don’t take fuel costs — or the environmental or public health costs of air pollution — into account when buying a vehicle. They say the rules keep gasoline prices low for all Americans by encouraging fuel efficiency across the board.
The strict Biden-era rules were projected to save consumers $23 billion in gasoline costs, according to an agency analysis. The American Lung Association said that the rules would prevent more than 2 million pediatric asthma attacks and save hundreds of infant lives by 2050.
Secretary of Transportation Sean Duffy has targeted the fuel economy rules as part of a wide-ranging effort to roll back Biden-era energy policy. On January 28, as his first official act, Duffy ordered NHTSA to retroactively weaken the rules for all cars and light trucks sold after model-year 2022.
On Friday, Duffy separately issued a legal opinion that would restrict NHTSA’s ability to include electric vehicles in its real-world estimates of the country’s fuel economy rules. The opinion sets up the next round of CAFE rules to be considerably weaker than existing law.
But the new Republican reconciliation bill, if adopted, would render those rules moot.
Under current law, automakers must pay a fine when the average fuel economy of the vehicles they sell exceeds the fuel economy standard set for that year. Automakers can avoid paying that penalty by buying “credits” from other car companies that have done better than the rules require.
The fine’s size is set by a formula written into the law. That calculation includes the number of cars sold above the fuel-economy threshold, how much those cars exceeded it, and a $5 multiplier. The GOP tax bill rewrites the law to set the multiplier to zero dollars.
In essence, no matter how much an automaker exceeds the fuel economy rules, the GOP reconciliation bill will now multiply their fine by zero.
The original CAFE law contains a second formula allowing the government to set even higher penalties if doing so would achieve “substantial energy conservation.” The new reconciliation bill sets the multiplier in this formula, too, to zero dollars.
The CAFE law’s penalties can be significant. The automaker Stellantis, which owns Fiat and Chrysler, recently paid more than $426 million in penalties for cars sold from model year 2018 to 2020. Last year, General Motors paid a $38 million fine for light trucks sold in model year 2020.
The CAFE provision in the GOP mega-bill seems designed to skirt past the Byrd rule, a Senate rule that policies in reconciliation bills must affect revenue, spending, or generally have more than a “merely incidental” effect on the federal budget.
But Carlson, the former NHTSA acting administrator, doubted whether the provision should really survive a Byrd bath.
Zeroing out the fines is “not really about revenue,” she said, but about compliance with the law. “This is a way to try to couch repeal of CAFE in revenue terms instead of doing it outright.”
And more of the week’s top news about renewable energy conflicts.
1. Nassau County, New York – Opponents of Equinor’s offshore Empire Wind project are now suing to stop construction after the Trump administration quietly lifted its stop-work order.
2. Somerset County, Maryland – A referendum campaign in rural Maryland seeks to restrict solar development on farmland.
3. Tazewell County, Virginia – An Energix solar project is still in the works in this rural county bordering West Virginia, despite a restrictive ordinance.
4. Allan County, Indiana – This county, which includes portions of Fort Wayne, will be holding a hearing next week on changing its current solar zoning rules.
5. Madison County, Indiana – Elsewhere in Indiana, Invenergy has abandoned the Lone Oak solar project amidst fervent opposition and mounting legal hurdles.
6. Adair County, Missouri – This county may soon be home to the largest solar farm in Missouri and is in talks for another project, despite having a high opposition intensity index in the Heatmap Pro database.
7. Newtown County, Arkansas – A fifth county in Arkansas has now banned wind projects.
8. Oklahoma County, Oklahoma – A data center fight is gaining steam as activists on the ground push to block the center on grounds it would result in new renewable energy projects.
9. Bell County, Texas – Fox News is back in our newsletter, this time for platforming the campaign against solar on land suitable for agriculture.
10. Monterey County, California – The Moss Landing battery fire story continues to develop, as PG&E struggles to restart the remaining battery storage facility remaining on site.
A conversation with Biao Gong of Morningstar
This week’s conversation is with Biao Gong, an analyst with Morningstar who this week published an analysis looking at the credit risks associated with offshore wind projects. Obviously I wanted to talk to him about the situation in the U.S., whether it’s still a place investors consider open for business, and if our country’s actions impact the behavior of others.
The following conversation has been lightly edited for clarity.
What led you to write this analysis?
What prompted me was our experience in assigning [private] ratings to offshore wind projects in Europe and wanted to figure out what was different [for rating] with onshore and offshore wind. It was the result of our recent work, which is private, but we’ve seen the trend – a lot of the big players in the offshore wind space are kind of trying to partner up with private equity firms to sell their interests, their operating offshore wind assets. But to raise that they’ll need credit ratings and we’ve seen those transactions. This is a growing area in Europe, because Europe has to rely on offshore wind to achieve its climate goals and secure their energy independence.
The report goes through risks in many ways, including challenging conditions for construction. Tell me about the challenges that offshore wind faces specifically as an investment risk.
The principle behind offshore wind is so different than onshore wind. You’re converting wind energy to electricity but obviously there are a bunch of areas where we believe it is riskier. That doesn’t mean you can’t fund those projects but you need additional mitigants.
This includes construction risk. It can take three to five years to complete an offshore wind project. The marine condition, the climate condition, you can’t do that [work] throughout the year and you need specialized vehicles, helicopters, crews that are so labor intensive. That’s versus onshore, which is pre-fabricated where you have a foundation and assemble it. Once you have an idea of the geotechnical conditions, the risk is just less.
There’s also the permitting process, which can be very challenging. How do you not interrupt the marine ecosystem? That’s something the regulators pay attention to. It’s definitely more than an onshore project, which means you need other mitigants for the lender to feel comfortable.
With respect to the permitting risk, how much of that is the risk of opposition from vacation towns, environmentalists, fisheries?
To be honest, we usually come in after all the critical permitting is in place, before money is given by a lender, but I also think that on the government’s side, in Europe at least, they probably have to encourage the development. And to put out an auction for an area you can build an offshore wind project, they must’ve gone through their own assessment, right? They can’t put out something that they also think may hurt an ecosystem, but that’s my speculation.
A country that did examine the impacts and offer lots of ocean floor for offshore is the U.S. What’s your take on offshore wind development in our country?
Once again, because we’re a rating agency, we don’t have much insight into early stage projects. But with that, our view is pretty gloomy. It’s like, if you haven’t started a project in the U.S., no one is going to buy it. There’s a bunch of projects already under construction, and there was the Empire Wind stop order that was lifted. I think that’s positive, but only to a degree, right? It just means this project under construction can probably go ahead. Those things will go ahead and have really strong developers with strong balance sheets. But they’re going to face additional headwinds, too, because of tariffs – that’s a different story.
We don’t see anything else going ahead.
Does the U.S. behaving this way impact the view you have for offshore wind in other countries, or is this an isolated thing?
It’s very isolated. Europe is just going full-steam ahead because the advantage here is you can build a wind farm that provides 2 or 3 gigawatts – that’s just massive. China, too. The U.S. is very different – and not just offshore. The entire renewables sector. We could revisit the U.S. four or five years from today, but [the U.S.] is going to be pretty difficult for the renewables sector.