Facing the world together: the role of Great Lakes states and provinces in developing Canada-United States energy.

• Author: Teitelbaum, Benjamin
• Position: Conference: US and Canadian Energy Relationship

Session Chair--Chris Sands

Canadian Speaker--Benjamin Teitelbaum

United States Speaker--Kim Hill

INTRODUCTION

Chris Sands

MR. SANDS: Good morning. We have rung the bell in the Henry King tradition and we want to start our program. Thank you all for coming on a Saturday morning. This is always a little tough, especially when there are a lot of other things--like sleeping in--on your agenda. But we have a really terrific panel. Yesterday we talked, among other things, about energy and climate change; what kept coming up, as you probably recall, was the transportation sector. We ended up talking about cars and the amount of energy that transportation takes up, whether it is fossil fuels or other fuels. This morning's panel will focus on the transportation sector in two very important ways, both freight transportation and vehicle transportation. We have a terrific panel this morning to give us two very important perspectives.

Our first panelist is Kim Hill. Kim is the Director of Sustainability in Economic Development Strategies at the Center for Automotive Research in Ann Arbor. (1) He is part of the Automotive Communities Partnership, an important initiative which takes a look at how communities are adjusting to changes in the automotive sector. (2) He brings with him a perspective of what this looks like from the people who make cars, the people who are involved in the supply chain, as well as the communities themselves and the impact the vehicles have on them.

Following Kim, we will have a presentation by Benjamin Teitelbaum. (3) Benjamin is someone I have known for quite a while, and I am very pleased to have him here. He is with the Commission on Environmental Cooperation ("CEC") that is part of certain North American Free Trade Agreement ("NAFTA") institutions. He is a special assistant to the CEC with responsibility in the last few years for looking at sustainable freight transportation, which all three NAFTA governments have worked on. (4) But most importantly, the CEC is bringing a lot of new ideas to the issue, so we are looking forward to hearing from both of them. With that, let me turn it over to Kim.

UNITED STATES SPEAKER

Kim Hill

MR. HILL: Thanks, Chris. Dan gave me a great vote of confidence yesterday.

As Chris alluded to, there was a big elephant in the room yesterday with the climate change and the use of energy in the transportation sector. A lot of folks point to the transportation sector as either part of the solution or the cause of the problem. (5) You know, as all of you got here one way or another, we cannot do without transportation. And I would guess that, again, eighty-five percent of you could not get here without your car.

Therefore, what I am going to do is to give you a view from the automotive sector and in this region--make no mistake about it for those of you who are not from around here--the auto sector is the main driver of the economy. (6) Without automotives, Cleveland would not be here. (7) A lot of other towns would not even exist. (8) So if the auto sector goes offshore or somewhere else, we have a lot of problems.

I was struck by a lot of things that were said yesterday, and there were certainly a lot of pithy comments, and by the time the day wore on most of my comments had been covered. But I did have one comment that kind of shines through, and in the work that we often do, it strikes me that there is a political element to something that should be very market-driven. I can see where the politics get involved: needing policies and the like to help people make some decisions. But I am struck that, and hold on to your seats, politicians are not the smartest group of people when they get together. These are the folks who said, "We will solve the budget problem." They said, "We are going to take a lot of money out of the budget." And, in fact, what they ended up doing was slashing a lot of money out of the budget that was not going to get spent anyway. I do not know if you have been following the budget news recently but there are billions of dollars where politicians said, "We can make these cuts but we were not going to spend it on the census anyway." (9)

So what does strike me is a very easy solution. I hear this from folks in the car companies, folks who I work with, and a lot of you folks have already said it. The solution is to put a price on carbon. Do not call it a tax because that is a bad word, apparently. Again, these are people who are sent to Washington to make some sort of change, and they cannot start a conversation on what seems to be a no-brainer to everybody who steps back from this--which is to make the price of gasoline a certainty. The auto industry and the consumers will respond.

Right now, Exxon and British Petroleum are the ones who are setting our energy policy. (10) So as I see it, you first put a fee on carbon, then take the revenue from the fee, and pump it back into the companies that can most use that research and development money to help people avoid the initial fee. So if you tax gas and put the tax money back into research and development to make vehicles that can get better mileage, then you are giving people a means of avoiding that tax. It seems like a no-brainer. It seems very simple. I know a lot of you folks in the room would say it is not that simple, but it is a premise and we need to start talking about it.

One of the things I participate in is the Center for Automotive Research and our organization is based in Ann Arbor. (11) The Center for Automotive Research ("CAR") is a non-profit independent research organization focused, obviously, on the auto industry, what is going on in the industry, and how it affects all the stakeholders in that industry. (12) So we do some of our work for the automotive companies but a lot of work for state and local governments, foundations, and a lot of folks who want to understand where the industry is going. (13) People want to know what the industry will look like two, three, four, five, ten years from now. And so in connection with that, I direct a program at CAR called the Automotive Communities Partnership, and it is in its tenth year now. (14) We have communities and companies working together on enhancing the automotive endowment and helping the economy of this region. We have widespread participation from Ontario all the way to Illinois, including thirty-five and counting regional economic development organizations representing fifty counties, as this map signifies. (15) We have cooperation from utility companies, automobile companies, suppliers, just a lot of different folks and organizations, like the Canadian Consulate, are actively involved in our program. (16)

We provide a lot of analyzes and objective advice. (17) We point out best practices when we see them. (18) We provide forums on topical issues and actions, we help provide communities with needed industry information, and most importantly we try to get the communities to collaborate on that common mission. (19) It has been a great run and it works out very well. The reason it works out very well is because the industry is highly integrated throughout the region. (20) Each one of those dots is connected to every one of those other dots. You cannot build a motor vehicle in a vacuum. You need parts and supplies and people from across the region to make sure that an automobile gets assembled. (21)

So one of the points of this Conference regarding energy, climate change, and the like, as I see it at the moment, is to examine three main energy issues that sort of interweave with the auto sector. (22) One is energy efficient transportation. We are seeing investments from the private and public sources. (23) The second issue is the industry's energy demand and where that energy source comes from. Third, we look at things like greening the manufacturer supply chain (and I think my colleague on the panel will be talking a little more about the supply chain as well) and then experiencing a supply chain disruption, as seen most notably in Japan's earthquake. (24)

There were issues with the supply chain: the spread of it, the transport costs, and the fuels and risks inherent in it well before a major event like this happened. (25) So now we are questioning: what are the lessons from the earthquake? Are we going to rethink globalization?

I would like to look at this manufacturing process chain in three sections. One is vehicle efficiency. Two is the manufacturing process chain, if you will, and all the materials, services, supply chain goods, and where the vehicle is actually manufactured. Third, overlaying all of that, is the transportation sector, the movement of goods and people, in addition to the energy the industry demands to make the vehicles and to be able to drive them.

Just a couple of little graphs that I would like to point out. This is what we commonly call an inverse relationship. The price of gas goes up. Traditionally, it went down, and it is correlated highly significantly over time. (26) Every time you would see a spike in gas--you get to the late 1970s and I know a lot of you were around then--but the late 1970s was when the imported vehicles first started really showing up en masse market share. (27) The Detroit Three went from making up close to ninety percent of the market in the 1970s to less than fifty percent today. (28)

That is an astounding drop in market share. One, because the competition was out there, but two, when you look at a graph like this, it is a non-response to market signals that the auto companies were not prepared for a number of times. (29) We think they are prepared this time.

So what have they been doing? They have been working on energy efficient vehicles. (30) We know we had a big price shock a couple years ago and then the economy tanked, but a couple of years ago the price of gas hit four dollars a gallon, and now we are right back there. (31) However, in the last couple of...