Driving Growth

Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Report prepared for the Natural Resources Defense Council, United Auto Workers and Center for American Progress
by Alan Baum, The Planning Edge Daniel Luria, Michigan Manufacturing Technology Center

www.nrdc.org
March 2010

www.americanprogress.org

www.uaw.org

Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

About NRDC

The Natural Resources Defense Council (NRDC) is a national nonprofit environmental organization with more than 1.3 million members and online activists. Since 1970, our lawyers, scientists, and other environmental specialists have worked to protect the world’s natural resources, public health, and the environment. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Montana, and Beijing. Visit us at www.nrdc.org.
About UAW

The UAW is one of the nation’s largest unions with more than 390,000 active members and 600,000 retirees. Members are in over 750 local unions in the United States, Puerto Rico and Canada. Headquartered at Solidarity House in Detroit, the UAW is affiliated with the American Federation of Labor-Congress of Industrial Organizations (AFLCIO), the International Metalworkers Federation (IMF) and the International Trade Union Confederation (ITUC). Chartered 75 years ago as the United Automobile Workers of America, the UAW has since become a union for all workers. While still representing skilled and production workers in the automotive and parts suppliers sectors, the UAW also represents workers in aerospace and defense, heavy trucks, farm and construction equipment, and other heavy and light manufacturing industries. The union’s technical, office and professional sector represents workers in state and local government, universities, hospitals, casinos, media, technical and design centers, libraries, museums, zoos and legal services, as well as free-lance writers and in-home child-care providers. Visit us at www.uaw.org.
About CAP

The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all. We believe that Americans are bound together by a common commitment to these values and we aspire to ensure that our national policies reflect these values. We work to find progressive and pragmatic solutions to significant domestic and international problems and develop policy proposals that foster a government that is “of the people, by the people, and for the people.” Visit us at www.americanprogress.org.
Acknowledgments

This paper was made possible thanks to a generous grant from The William and Flora Hewlett Foundation.

COVER PHOTO CREDIT: REbECCa COOk

Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Table of Contents

Preface

2

I. Economic Opportunity through Efficient Vehicles

4

II. Methodology

7

III. Job Potential and Policy Implications

12

IV. Conclusion

15

Endnotes

16

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Preface
Reducing America’s dependence on imported oil will not only enhance our national security, but it will create substantially more jobs than continuing on our current path of waste and unsustainable resource use. Reengineering the U.S. automobile fleet to use energy more efficiently will require new investments in advanced technology, increasing demand for skilled labor. Instead of presenting a threat to the auto industry, reigning in reliance on oil and cutting pollution from fossil fuels can demonstrably create jobs, accelerate innovation, and increase demand for advanced manufacturing. Yet, while it is clear that increasing America’s fuel economy can create more jobs, which nations will capture the economic benefits of this shift to a more fuel-efficient fleet, has yet to be determined. How Congress chooses to address comprehensive clean energy and climate legislation will strongly shape whether American workers enjoy the good jobs, competitive advantage, and sustained economic growth that will come with the move to a new clean energy economy. This study offers two key insights on the nature of clean energy jobs in the automobile sector, each with profound implications for policy makers and the economy. First, this paper documents that saving oil will create good jobs, not in the abstract, but directly by driving demand for specific additional manufactured components. The move to greater fuel economy means greater labor content per vehicle and higher employment across the fleet. This will include new investment in a host of incremental improvements to conventional gasoline powered internal combustion engines, from new controls for valves and timing, to variable speed transmissions and advanced electronics. It will also include entirely new systems like hybrid drive trains and advanced diesel engines. Together these investments add up. By 2020 this analysis shows that, all things being equal, supplying the U.S. automobile market with more efficient cars could provide a net gain of over 190,000 new jobs from improvements to fuel economy alone. The second finding is equally profound. While it is certain that the production of new technology will create demand for workers, where those jobs locate will be the product of policy choices. Of the over 190,000 jobs anticipated by 2020, the number of domestic jobs created could vary greatly. Fewer than 50,000 jobs might go to American workers, or, with different incentives, more than three times that number, as many as 150,000 U.S. workers, could find employment as a result of new investments in the engineering and production of the technology needed to improve fuel economy. It’s up to us which path we take. Many factors will shape where individual firms decide to produce fuel-efficient vehicles and their key components, and whether this new demand will be met through domestic sourcing or imports. But, it is clear that specific incentives can work to promote domestic production and drive new investment into existing plants and the skills of workers. Strong comprehensive energy and climate legislation will ensure sustained reductions in oil use and carbon emissions. At the same time, it can capture economic growth through specific manufacturing conversion incentives funded through dedicated carbon allowance revenues. Legislation that sets a firm declining limit on global warming pollution is uniquely suited to this task for two reasons. First, it sends a critical message to markets and investors. Secondly, it provides a steady revenue source to drive long term, economic and environmental gains in the domestic auto sector and to assist in retooling assembly lines and retraining workers so that the United States continues to have a globally competitive auto industry that produces advanced clean vehicles. This integrated clean energy and jobs approach can expand opportunities for both U.S. firms and American workers, particularly in hard hit industrial states like Michigan, Indiana, and Ohio. It is also worth noting that while the analysis undertaken in this paper shows substantial positive economic and jobs impacts from pursuing improved fuel economy, many additional benefits of energy independence do not even figure in this calculation. Therefore, as positive as this opportunity looks on paper, the real benefits go further.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Avoided fuel costs put real dollars back in the pockets of consumers, increasing consumption and economic benefits. At the same time, reducing demand for oil helps buffer price volatility, while decoupling the growth of the economy from rising energy imports reduces vulnerability to price spikes and supply disruptions. Further, by pursuing the high efficiency and low carbon emission technology path outlined in this report, U.S. auto makers will preserve access for American made cars to global markets, to serve the rapidly growing consumer demand for cleaner cars. As Americans use less oil to fuel our cars, we can also slow the flow of resources overseas to unstable and undemocratic nations, and invest instead in American jobs. By acting quickly, we can help to make the country less vulnerable to rising prices when global economic growth returns. Clean energy manufacturing can drive the future prosperity of American workers if we creatively engage this opportunity. Our closest economic competitors in Asia and Europe are investing today in diversifying and expanding their manufacturing of clean energy technology. If the U.S. fails to make the same transition, we risk being left behind. However, climate legislation that includes manufacturing conversion incentives could help drive economic recovery and restore American leadership in the global automobile market and the global economy. Which choice we make has yet to be determined. The future remains to be written. — Bracken Hendricks Senior Fellow Center for American Progress

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

I. Economic Opportunity through Efficient Vehicles
The United States recently adopted standards to increase the fuel efficiency of the new vehicle fleet after more than two decades of inaction. The first measure, contained in the Energy Independence and Security Act of 2007, would have increased fleetwide fuel economy to at least 35 miles per gallon (mpg) by 2020. This standard was strengthened in May 2009 through a new program that established national harmonized fuel economy and greenhouse gas tailpipe standards. Under the latter program, the new passenger vehicle fleet will achieve, on average, 250 grams of CO2 equivalent per mile by 2016. This is roughly equal to 35.5 mpg, requiring new vehicle fleet average fuel consumption to fall by 30 percent from 2012 to 2016. Compliance with the regulations now adopted by the federal government will require a substantial deployment of new technology. The new technology represents additional content on each vehicle; content that will require more engineers and more workers to produce. This document identifies existing technologies that will enable automakers to meet the new standards, and uses illustrative combinations of technologies to make estimates of the potential for job creation in the auto industry and the industries that supply it. While the media often equate fuel-efficiency gains with hybrids, wider adoption of more mundane clean-technology packages, many of which are already in use, will be critical. For instance, efficient gasoline engines and transmissions provide excellent fuel economy benefits at modest cost. Similarly, higher fleet fuel economy in Europe and Japan make it clear that clean diesel can play a large role. To evaluate the opportunities to improve fuel efficiency and create clean energy auto sector jobs, the Natural Resources Defense Council (NRDC), the United Auto Workers (UAW), and Center for American Progress (CAP) commissioned The Planning Edge (TPE) and the Michigan Manufacturing Technology Center (MMTC) to model the 2014 U.S. new car and light truck market, considering North American-assembled vehicles, engines, and transmissions. The production forecasts are based on a 2014 market size (U.S. sales) of 15.7 million, substantially higher than the current sub-10-million level, though well below the 1998–2006 average of 16.7 million. This analysis forecasts that 13.3 million cars and light trucks will be assembled in North America in both 2014 and 2020. Nine million of those will be produced in the United States. These levels of domestic and North American vehicle production are comparable to those of model year 2008. This similarity allows a straightforward comparison of auto sector jobs with and without the contributions of advanced vehicle technologies. The results suggest that clean vehicles can provide substantial employment benefits. The question left unanswered is where those jobs will be located—off shore or in the U.S.? Our analysis conservatively assumes that gasoline and diesel prices will remain at today’s level, in real terms. Thus, the mix of sales across traditional segments, i.e., small and large cars, and the various classes of light trucks, is held constant. By holding these factors constant we can ask the question: Other things equal, what existing fuel-saving technologies can be applied widely enough in the same-mix new vehicle fleet to meet the model year (MY) 2016 standard and to sustain a 4 percent annual improvement through MY 2020? In this report, TPE and MMTC evaluate the likely contribution of the commercially available technologies that firms will use to meet the 2016 standard and to make annual improvements beyond 2016. Toward this end, the report examines two benchmark years. First, it assesses clean technology deployment for MY 2014. This year is chosen because TPE’s near-term forecast includes supplier information and automotive business forecasts extending through that time. Second, the report examines technology deployment for 2020. The 2020 technology forecast assumes that manufacturers make annual 4 percent improvements beyond their 2016 performance targets. Taken as a whole, this time frame represents the steady adoption of clean technology as manufacturers work toward, meet, and eventually exceed the existing targets.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Finally, the report assesses the economic benefits, focusing on job creation, associated with growing demand for fuel-saving technologies. Several findings are shown below:
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By 2014, the light-duty vehicle fleet modeled in this study would achieve 31.5 mpg. This will add about $848 to the manufacturing cost of each car and light truck assembled in North America. If this cost is applied across 13.3 million North American assemblies, $11.3 billion more in content will be added to North American-built vehicles. This will create 62,000 additional jobs, of which 20,000–54,000 will be in the United States. Just under 40 percent of these jobs will be in the auto and auto parts sector. The remaining 60 percent will be either in the broader manufacturing supply chain, including raw materials such as steel or intermediate goods (stamped, machined, molded, cast and forged parts), or in nonmanufacturing jobs elsewhere in the economy. Recaptured energy expenditures could provide further economic benefits, though those effects have not been modeled in this study. Achieving 40.2 mpg by MY 2020 would add an additional $1,152 to the manufacturing cost of each vehicle, for a total increase of $2,000 over 2008. The added production of $15.4 billion in vehicle content (a total of $26.6 billion over 2008) across North American assemblies will produce 191,000 jobs beyond 2008, of which 49,000– 151,000 will be in the United States. Roughly 40 percent of the domestic jobs will be in the auto sector, while the balance will be in other industries such as services and the broader manufacturing supply chain. The wide variation in jobs created is due to the unknown potential for the United States to capture the production of these advanced vehicle technologies. The short record so far indicates that policies supporting the domestic manufacture of advanced technology vehicles can be successful. (For greater detail, refer to the section on Lithium Ion Takes Off in the United States.)

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a UaW Local 909 worker assembles transmissions at the General Motors Powertrain plant in Warren, Michigan.

REbECCa COOk

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Lithium Ion Takes Off in the United States Lithium-ion batteries are a key enabling technology in the advancement of hybrid vehicles and are necessary for the market introduction of plug-in hybrids and electric vehicles. This technology was largely developed in the United States, but production is currently dominated by Asian-Pacific nations, especially Japan, China, and Korea. A 2006 study by the National Institute for Standards and Technology (NIST) makes clear that these nations use public policy to encourage the development of the industry, and especially the production of the battery cells themselves.1 These nations realize that if vehicle electrification emerges as the wave of the future, advanced battery production will be a core competency that allows them to maintain or develop from scratch a domestic automobile industry. Were the United States to fail that test, the long-term economic and security consequences could be harsh. In 2007, the Energy Independence and Security Act established incentives for the domestic manufacturer of advanced batteries. The American Recovery and Reinvestment Act of 2009 subsequently funded these incentives. Earlier this year, the federal government announced the first wave of awards under these programs. The results are spectacular—48 projects have been announced to develop and deploy batteries and electric vehicle components in the United States.2 The bottom line is that the United States could emerge as a leading producer of lithium-ion batteries in less than five years because of government policies that lower the cost and risk of critical technology development. That is smart policy for jobs, energy security and carbon avoidance, and shows what well-structured government stimulus policies can achieve.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

II. Methodology
This report illustrates the potentially large economic benefits of advanced-technology vehicle deployment under the right set of conditions: policies that encourage better fuel economy and domestic manufacturing. The sizable benefits underscore the federal government’s critical role in introducing new technology through an appropriate policy combination of regulation and incentives for manufacturers. Such a combination will result in clean and efficient vehicles that are produced domestically. Toward the end of the report, we examine different degrees of economic benefit linked to the level of domestic manufacturing activity. In the scenarios modeled here, MY 2014 vehicles will achieve an average (new definition—see note 3) CAFE rating of 31.5 mpg, as compared to 27 mpg in 2008. As previously mentioned, this will require an additional $848 per vehicle. If fuel economy reaches approximately 40.2 mpg in MY 2020, an additional $1,152 per unit will be required. This fuel economy estimate is chosen for simplicity and reflects a 4 percent annual performance improvement over the MY 2016 standard. It is roughly a continuation of the 2012–2016 fuel economy trajectory already in progress. A determined federal initiative could push fuel economy beyond levels contemplated in this study. The Union of Concerned Scientists estimates that fleet average fuel economy could reach 42 mpg by 2020 if hybrid sales, already undergoing rapid adoption, reach 25 percent of the new vehicle market (rather than the 11 percent in our projection).3 Federal policies that are successful in sufficiently lowering the cost of plug-in hybrids would enable even higher fuel economy. However, such programs are beyond the scope of this report. The analysis therefore makes the fuel economy assumptions listed in the table below.

Table 1. Forecast of Domestic and North american Vehicle Production

Metric
U.S. Car & Light Truck Production North American Car & Light Truck Production Car mpg (new definition)5 Truck mpg (new definition) Overall mpg (new definition)

Model Year 2008
9.7 million 14 million4 31.5 22.2 26.7

Model Year 2014
9.3 million 13.3 million 36.5 24.8 31.5

Model Year 2020
9.3 million 13.3 million 44.1 34.1 40.2

Fuel economy improvements will utilize a broad range of technologies and benefit a diverse set of workers and businesses. TPE considered the expansion or first application of 15 technologies and components as changes and additions from current practice: Hybrid and diesel vehicles:
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Switching from six- and some four-cylinder gasoline engines to four-cylinder diesel engines (“4D”). All 2014 and 2020 diesels are assumed to include after-treatment systems. Switching from eight- and some six-cylinder gasoline engines to six-cylinder diesel engines (“6D”) Switching from eight-cylinder gasoline engines to eight-cylinder diesel engines (“8D”) Switching from conventional gasoline-engine-only vehicles to full gas-electric or plug-in hybrids, in which an electric motor, new controls, regenerative braking, and a lithium-ion battery pack are added and a power-split device replaces the conventional transmission (“full hybrid”) Switching from conventional gasoline-engine-only vehicles to so-called mild hybrids, with added power controls, an integrated starter-generator, and (particularly for Honda) additional features (“mild hybrid”)

n n n

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Four technologies that can be applied to gasoline and diesel engines, often at the same time:
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Direct injection, for both gasoline (“GDI”) and diesel (“DDI”) engines, in which traditional fuel injection is replaced by a more efficient system that improves the combustion of fuel. GDI and DDI are often referred to as “common rail.” Turbocharging (“turbo”), in which additional power is generated from smaller-displacement engines, permitting them to replace larger-displacement engines Variable valve lift (VVL) and timing (VVT), in which new mechanical and electronic controls optimize the position of engine valves for a variety of driving situations Cylinder deactivation (“CD”), in which up to half of an engine’s cylinders are shut down when power requirements drop (e.g., flat and downhill highway driving)

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Three modified automatic transmissions:
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Switching from four- and five- to six-speed automatic transmissions (“A6”) Switching from four- and five-speed to continuously variable transmissions (“CVT”) in nonhybrids Switching from four- and five-speed to dual-clutch transmissions (“DCT”)

Three features compatible with most vehicles (e.g., full hybrids already have Start-Stop):
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Switching to high-efficiency alternators (“HEA”) in order to generate high levels of power at low speeds, thereby reducing the load on the engine and reducing the loss of energy Adding “Start-Stop,” in which the gasoline or diesel engine turns off during extended stops (long red lights, traffic jams) Adding electric power steering (“EPS”), which is more compact than the traditional mechanical system and draws electric power from the engine only as needed

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The table below shows the forecasted North American technology application rates (in thousands of vehicles). As modeled here, fuel economy of 40.2 mpg for 2020 requires that two technologies—high-efficiency alternators and electric power steering—not in use in 2008 become nearly universal, and that dual-clutch transmissions be applied to 30 percent of the U.S.-produced new vehicle fleet. The rest of the technologies are already in use, and nearly all will have at least 10 percent penetration by 2014. Regarding V8 diesels, the technology application rates shown below only include vehicles weighing less than 8,500 pounds. Although heavier diesel vehicles are not addressed in this report, their engines are important because the U.S. facilities that produce them are prime locations for new six-cylinder diesels as well. Smaller diesel engines will share components with larger diesels, allowing these plants production efficiencies at lower volumes. Application rates were achieved by examining every vehicle-engine-transmission combination and deciding which technologies, if any, to apply to each. Those decisions were informed by production logic, e.g., whether it would make sense to apply a technology to a very small number of engines. They were also based upon the particular manufacturers’ strengths and their near- and midterm production plans. Thus, for example:
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The report assumes higher application rates of three technologies to engines with Ford’s EcoBoost design, which combines GDI and turbo and soon will be matched primarily to dual-clutch transmissions. The report assumes faster dieselization of Chrysler vehicles because of Chrysler’s connections to Fiat in North America and Europe. Similarly, it assumes faster dieselization of Honda vehicles, given their advanced designs in this area.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

This report also favors applying technology to engines that have, or are slated to have, complementary features, e.g., adding GDI to engine families with VVL/VVT. Conversely, it is least likely to apply more expensive technologies to vehicle-engine-transmission combinations in the lowest-price vehicle tiers. Buyers of these vehicles are assumed to be the most price sensitive. Production volumes below reflect the number of vehicles assembled in North America that use each of the technologies. These advanced technology components could be produced inside or outside the United States. Production figures, reported in thousands, are for model years (typically October through September).

Table 2. application of Technology in Thousands of Vehicles

Technology
D4 D6 D8 All Diesels Full hybrid Mild hybrid GDI/DDI Turbo VVL/VVT CD A6 CVT, excluding hybrids DCT HEA Start-Stop, excluding hybrids EPS

2008 actual
69 144 130 343 85 5 668 247 2139 1126 1926 747 0 0 0 41

2014 2020
339 297 509 1145 665 52 1807 1132 4125 1032 5944 960 388 8515 0 1170 709 329 534 1572 1442 51 3577 2556 9426 1003 5708 1201 4173 10460 11633 11428

% of 2020 Change, assemblies 2008-2020
5.34% 2.48% 4.02% 11.84% 10.86% 0.38% 26.94% 19.25% 70.98% 7.55% 42.99% 9.05% 31.43% 78.78% 87.61% 86.07% 640 185 404 1229 1357 46 2909 2309 7287 (123) 3782 454 4173 10460 11633 11387

TPE evaluated unit technology costs by averaging data from as many as four sources.6 These estimates inform what might be called the “minimum efficient volume.” From previous work, TPE defines this as roughly 400,000 units for components and 200,000 for complex assemblies such as diesel engines and hybrids.7 Based on widely used engineering cost studies, this study estimates that unit cost would be substantially higher at lower volumes and up to 17 percent lower at higher volumes. The table below expresses the assumed cost-volume relationship. A technology with a unit cost of $500 at 400,000 units has a unit cost of about $700 at 100,000 units and about $415 at 2 million units. There are two exceptions to the rule that production volumes under 400,000 units incur cost penalties: for diesels and full hybrids, 200,000 units constitute an economic module. Unlike many of the discrete fuel-saving technologies, diesel engines and hybrids are more complex, multicomponent assemblies. For components, this analysis uses the following table to adjust unit cost for deviation in application volumes from the 400,000 numeraire.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Table 3. Deviation Cost adjustments

Forecasted Volume
Less than 100,000 100,000 – 249,999 250,000 – 399,999 400,000 - 499,999 500,000 – 999,999 1,000,000 – 1,999,999 2,000,000 or more

Percent of Numeraire
150 130 110 100 96 89 83

Example: $500 Technology
$750 $650 $550 $500 $480 $445 $415

Unfortunately, one cannot determine technology costs by total production. For example, turbochargers are estimated to reach 1,132,000 units in 2014. However, this does not produce a unit cost of 90 percent of its numeraire value of $450. This is because not all of the forecasted 1,132,000 turbochargers will be built by one supplier in one facility. Since there is no precise way to determine how the volume will be divided, TPE divided production volumes more or less equally among three suppliers.8 Thus the 1,132,000 turbos are really three packets of 377,000, so their unit cost is estimated at 110 percent of the $450 numeraire, or $495. The table below depicts the unit technology costs used in this study.

Table 4. Unit Cost and Fuel Saving Estimates

Gross Unit Content Technology Cost at 400,000 Displaced Units
D4 D6 D8 Full hybrid Mild hybrid GDI/DDI Turbo VVL/VVT CD A6 CVT, excluding hybrids DCT HEA Start-Stop, excluding hybrids EPS $3,400 $4,375 $5,700 $4,600 $1,500 $900 $450 $305 $193 $1,020 $1,150 $1,400 $140 $600 $160 A3, A4, A5 A3, A4, A5 A3, A4, A5, A6, CVT Conventional Gas engine Gas engine Gas engine Various Various Conventional

Net Unit Cost Cost at Displaced 400,000 Units
$1,000 $1,200 $1,500 $1,100 $500 $325 $2,400 $3,175 $4,200 $3,500 $1,000 $575 $450 $305 $193 $900 $900 $900 $35 $120 $250 $500 $105 $600 $160

Illustrative Fuel Savings
25.0% 22.0% 20.0% 45.0% 20.0% 16.8% 8.4% 9.8% 8.4% 7.7% 8.4% 13.0% 2.1% 10.8% 2.8%

Data averaged from EPa (2008), MaRTEC (2008), Meszler (2008) and Hammett (2004).

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After determining technology application rates and the net unit costs, TPE and MMTC calculated the total cost of the added technologies across the 2014 and 2020 fleets. These figures, which reflect additional vehicle content, produce a substantial number of jobs. The costs are more than offset by avoided petroleum expenditures. Economic estimates used in this report rely heavily on TPE’s previous research.9 Custom runs by Regional Economic Models, Inc. (REMI) were used to delve into the employment implications of domestic hybrids and advanced diesel production. Using the latest technical coefficient and intra-U.S. trade flow data then available, REMI associated each “packet” of 100,000 traditional U.S.-made vehicles with 21,270 U.S. jobs. REMI’s estimates have proven highly accurate in the past.10 The analysis then makes several downward adjustments to reflect declining labor intensity during subsequent years. First, it slightly reduces jobs per 100,000 vehicles to 20,175, accounting for manufacturing efficiency gains.11 While production efficiency could be expected to cause larger reductions, those losses have been offset by increases in average vehicle content (e.g., airbags, navigation systems, etc.). Similarly, clean vehicle technologies illustrate an environmentally favorable way to balance productivity improvements with robust auto sector employment. However, as shown later, federal policy will play an important role in ensuring that both jobs and the manufacture of vehicle content are located in the United States. Finally, TPE made a second conservative downward adjustment to reflect the recent shift toward transplant facilities. It is possible that these facilities will use lower North American content than their “Detroit Three” counterparts. To that extent, the U.S. jobs-per-100,000 figure was reduced a further 16 percent to about 17,000 for 2014 and 2020. Even under these assumptions, clean technologies deliver significantly more jobs than vehicles without the same features. This conclusion is reached by applying labor intensities to the component cost analysis outlined above. For 2008, J.D. Power & Associates report a median new car and light truck pretax transaction price of $25,594. Based on prior analysis, TPE and MMTC estimate that 20 percent of this amount is attributable to brand marketing, transportation, dealer markup, warranty repair, interest, and other costs that apply to full vehicles but not to their components. The cost to design, manufacture, and test each vehicle averages about $20,000, which is a critical number to the analysis. TPE and MMTC assume that employment is proportional to cost. Thus, a fuel-saving technology that adds $500 to the cost of each vehicle is associated with 2.5 percent of the $20,000 vehicle cost. It is therefore associated with 2.5 percent of the 17,000 jobs per 100,000 units. If the technology is applied to 1 million vehicles, it would create 4,250 U.S. jobs.

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III. Job Potential and Policy Implications
The methodology discussed above shows that efficient vehicle technologies will produce significant net employment benefits. The table below illustrates the jobs associated with TPE’s 2014 and 2020 technology application rates. For 2014 and 2020, unit costs have been adjusted depending on the application rate of the new technology and total volume divided among three suppliers. For 2008, it is assumed that all technologies were produced at numeraire volumes, many of them outside of North America. Not all of the numbers in the chart below are U.S., or even North American jobs. They are total jobs, anywhere in the world, associated with the forecasted technology application on vehicles assembled in North America.

Table 5. Total Jobs associated with Clean Vehicle Technologies

Net unit cost Technology at forecasted volume
D4 D6 D8 Diesels Full hybrid Mild hybrid GDI/DDI Turbo VVL/VVT CD A6 CVT, excluding hybrids DCT HEA Start-Stop, excluding hybrids EPS All Change from 2008 $3,500 $1,000 $552 (2014), $518 (2020) $495 (2014), $432 (2020) $275 (2014), $253 (2020) $212 $107 $275 (2014), $250 (2020) $650 (2014), $445 (2020) $87 N/A (2014), $498 (2020) $176 (2014), $133 (2020) $2,400 $3,175 $4,200

2008 Jobs
1761 4862 5807 12430 3014 46 4085 1182 6938 2311 2458 1986 0 0 0 70 34520

2014 Jobs
6916 8015 18171 33102 19784 443 8479 4763 9642 1860 5406 2244 2144 6297 0 2380 96544 62024

2020 Jobs
14464 8879 19062 42405 42900 434 15750 9386 20271 1807 5192 2552 14720 7736 49242 12919 225314 190794

Potential for New Jobs to be Created at U.S. Facilities Clearly, enhancing the value of cars and light trucks with fuel-saving technologies will result in a large number of additional jobs—62,000 more between 2008 and 2014 and another 128,000 in the subsequent six years. But there is no guarantee that the United States will capture all, or even most of these jobs. Both Europe and Japan have substantial leads in hybrids, diesels, DDI, and turbochargers. Most of these technologies have high value-to-weight ratios, making them eminently shippable. Nearly all of the key components in Nissan, Honda, Toyota, Ford, and Mercury hybrids sold in the United States are made in Japan.

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Even if the major suppliers of these technologies conclude that future volumes justify North American manufacturing, it does not guarantee that such production will occur in the United States. In Europe, when the market for DDI/common rail for diesels spiked, Bosch built a huge new facility in low-wage Romania from which it supplies more than 80 percent of Europe’s demand. The same could happen in North America, with Mexico in the role of Romania. But there are also reasons why the technology needed to meet higher fuel economy standards could be produced in the United States. Most of North America’s high-volume engine and transmission plants are located domestically rather than in Canada or Mexico. The same is true for nearly all advanced vehicle R&D and testing capacity. Many of these technologies “bolt on” to engines, most of which are assembled domestically. While Europe and Japan have a lead in some of them, their focus is on their application in small cars, which do not dominate the U.S. sales or production mix. Thus, it is critical that federal government play a leading role in capturing for the United States the production of these technologies and the attendant economic output and employment. Comprehensive clean energy and climate legislation is the ideal policy tool because it provides support at the scale, predictability and duration needed to fund a meaningful economic and technological transition. Domestic manufacturing incentives funded through steady allowance revenues, could prove crucial in the choices firms make about where to locate production and our economic stake in these emerging trends. The range of possibilities is set out under three scenarios for U.S. production of fuel-saving technologies: 1. 2. 3. Low: U.S. facilities produce only 25 percent of the total technology value and receive 25 percent of the job benefits Mid: U.S. facilities produce 50 percent of the total technology value and receive 50 percent of the job benefits High: U.S. facilities produce 75 percent of the total technology value and receive 75 percent of the job benefits

There are, of course, exceptions to this rule:
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VVL/VVT, CD, and A6 are already substantially produced domestically, and there is no reason to think that the U.S. share of their production will decline. Except for some six-cylinders diesels in Mercedes and BMW models, six- and eight-cylinder diesels are unique to the North American market. This study assumes that 75 percent of these engines will be made in the United States, rather than in Mexico or Canada. Four-cylinder diesels may not be made in the United States until volumes grow more than TPE predicts they will through about 2016. But there is a good possibility that they will be made in at least some gasoline and (larger) diesel engine plants.

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The table below shows the resulting forecast for U.S. jobs. As discussed above, it outlines the low, mid, and high scenarios that could result from different levels of federal commitment.

Table 6. U.S. Jobs associated with Clean Vehicle Technologies

Technology
D4 D6 D8 Diesels Full hybrid Mild hybrid GDI/DDI Turbo VVL/VVT CD A6 CVT, excluding hybrids DCT HEA Start-Stop, excluding hybrids EPS All Domestic Jobs Change from 2008 Domestic Jobs as a Percent of Total Jobs

Estimated 2008 U.S. Jobs 2014 U.S. Jobs
Low 0 3174 5807 8981 301 46 817 473 3469 2311 2458 0 0 0 0 0 18856 0 6011 13627 19638 4946 111 2125 1159 3469 1860 2458 0 536 1574 0 595 38471 19615 59.1% 39.8% Mid 3458 6011 13627 23096 9892 222 4249 2318 4821 1860 2703 1122 1072 3149 0 1190 55694 36838 57.7% High 5187 6011 13627 24825 14838 333 6374 3477 7231 1860 4054 1683 1608 4723 0 1785 72791 53935 75.4%

U.S. 2020 Jobs
Low 0 6659 14297 20956 10725 108 3937 2346 5063 1807 1298 638 3680 1934 12310 3230 68032 49176 30.2% Mid 7232 6659 14297 28188 21450 217 7875 4692 10135 1807 2596 1276 7360 3868 24621 6460 120545 101689 53.5% High 10848 6659 14297 31804 32175 325 11812 7038 15198 1807 3894 1914 11040 5802 36931 9690 169430 150574 75.2%

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

IV. Conclusion
Clearly, the development and production of clean energy technologies in the light-duty vehicle sector represents an enormous opportunity to maintain and create domestic employment. But the size and ultimate realization of that opportunity depends partly on the decisions of U.S. policymakers. Contingent on fuel economy rules, currency exchange rates, incentives for U.S. production (or the lack thereof ), and automakers’ and technology suppliers’ production location decisions, the United States could gain fewer than 20,000 jobs from 2008 to 2014, or nearly 54,000. By 2020, the U.S. job gain relative to 2008 could be as little as 49,000 or more than 150,000. These figures also include jobs in the broader manufacturing supply chain, including raw materials and intermediate goods, as well as nonmanufacturing jobs created elsewhere in the economy. Many of these jobs—especially those in diesels and in transmissions—could be expected to be concentrated in the threestate Michigan-Indiana-Ohio region. This region was home to 55 percent of engine and 85 percent of North American transmission production in 2008. Based on each state’s 2008 employment shares, Michigan could expect to receive 21 percent of all jobs created by auto sector investment. Indiana could receive 5 percent, and Ohio could receive 7 percent. Applying these estimates to the findings above suggests that Michigan could gain as many as 32,000 jobs as a result of clean technology adoption (compared to 2008). Indiana could gain nearly 8,000, and Ohio could gain nearly 11,000 jobs. The remaining jobs would likely be much more broadly distributed across the United States. Locations of existing Delphi, Bosch, Denso, Aisin, Borg Warner, Siemens, GKN, and ZF facilities may be a useful, if incomplete, guide to the likely spatial distribution of fuel-saving technology production in the United States and the rest of North America.

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Driving Growth: How Clean Cars and Climate Policy Can Create Jobs

Endnotes:
1 2 Ralph J. Brood, Factors Affecting U.S. Production Decisions: Why Are There No Volume Lithium-Ion Battery Manufacturers in the United States, National Institute of Standards and Technology, December 2006. U.S. Department of Energy, “President Obama Announces $2.4 Billion in Grants to Accelerate the Manufacturing and Deployment of the Next Generation of U.S. Batteries and Electric Vehicles,” http://www.energy.gov/news2009/7749.htm (November 24, 2009). Jim Kliesch, Setting the Standard: How Cost-Effective Technology Can Increase Vehicle Fuel Economy, Union of Concerned Scientists, 2008. The sales decline in calendar year 2008 resulted in large inventories and a huge drop in production in model year 2009. A more stable market assumed in 2014 and 2020 results in a more “normal” result where U.S. sales exceed North American production by a significant amount because of imports. The new definition of cars and trucks go into effect in model year 2012. This requires that what would have been previously classified as trucks, namely two-wheel drive utilities under 6,000 pounds gross vehicle weight, be considered cars for fuel economy purposes. EPA, EPA Staff Technical Report: Cost and Effectiveness Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon Dioxide Emissions, March 2008; MARTEC, Variable Costs of Fuel Economy Technologies, study prepared for The Alliance of Automobile Manufacturers, as amended December 12, 2008; Dan Meszler, Meszler Engineering Services (MES), unpublished report, fall 2008; Patrick Hammett et al., Fuel-Saving Technologies and Facility Conversion: Costs, Benefits, and Incentives, study prepared for the National Commission on Energy Policy and Michigan Environmental Council, November 2004. Hammett et al., 2004. This assumption, while apparently arbitrary, is surprisingly robust. In component system after component system, the rule that three competitors share the vast majority of the market seems to hold. In North America, Bosch, Delphi, and Siemens split many powertrain components. Delphi, Denso, and Visteon divide much of the HVAC market, though they must share some components with Valeo. Aisin, ZF, and American Axle divide the market for many axle and drivetrain components. Borg Warner, GKN, and Magna compete in many chassis and powertrain areas. Magna, Ogihara, and Budd dominate outsourced frames, subframes, and body panels. In Europe and Japan, such Tier 1 triads are also common. Hammett et al., 2004

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10 At that time, about 45 percent of these jobs were in auto and auto parts, and the other 55 percent in other sectors. Thus, in a year such as 2005 in which 11.5 million light-duty vehicles were assembled in the United States, REMI would have forecasted 2,446,000 U.S. jobs, including about 1,100,000 in auto and auto parts, almost exactly the figure (1,096,700) reported by the Bureau of Labor Statistics. 11 By 2008, the Bureau of Labor Statistics estimate for U.S. motor vehicle and parts jobs had declined to 877,000. The REMI method would have therefore estimated 1,950,000 total U.S. jobs of which 45 percent would have been in the auto sector (this number is now closer to 40 percent). Dividing by 21,270 U.S. jobs per 100,000 vehicles would have predicted production of 9,170,000 units; in fact, 9,666,000 were produced. Thus the 21,270-per-100,000 ratio had declined modestly to about 20,175.

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