Report: Honda buys $13.8 million worth of plug-in credits from Tesla

Glad you're back, Matt. I found your argument to be pretty reasoned and reasonable. I think you're thinking of "unreasonable" government rules and nobody I know wants unreasonable rules or regulations. The key word there, what constitutes unreasonable. And your use of the construction industry was well stated.

Using your example, however, we see that building codes are changed all the time due to new information. Earthquake safety, hurricane survivability, foundation soundness, and now we have LEED certification, a growing awareness of VOCs and other harmful chemicals used in the construction industry. Since you are in that industry, you have to purchase a new code book almost yearly, do you not? New buildings built each year should be no different than vehicles manufactured during a certain calendar year. When we learn new stuff we need to improve the rules that products (and buildings) need to conform to. So your statement that they should be able to churn out 1999 models until the end of time would be making special rules for the auto industry that your industry does not have.

Now we have the auto industry that has been 100% successful in buying off politicians at every level (hello, CARB board) in order to remove any possibility of changes to regulations.

Your statement: "I don't think the auto industry should be treated any differently. If the feds want to change the rules, fine, change them." -- Matt.

So let's take that statement as your true opinion. So the feds have changed the rules, they've added new treatment under the law for the CO2 emitted by vehicles. This sounds like rules for toxic chemical offgassing in construction materials, no? These products are putting out stuff into the atmosphere we all share and the government has every right to change the rules in an effort to reduce the emissions or to limit the harmful effects of same. The auto industry should not be treated any different but since buildings offgas all their hazards within the first year or two an automobile has the same effect as a building that gets torn down and constructed again each year -- continual offgassing of chemicals into the air that belongs to all of us. New safety and environmental rules are proper and it's ok for the government to change them each and every year.

Now to the trading of credits and whether it will accomplish any darn thing I echo Nick and GoodCheer here. If there is a price attached to your products' harmful emissions then you have an incentive to make your products cleaner over time. And at the same time giving some economic help to electric vehicle makers helps them to overcome the anti-competitive forces caused by subsidies to the oil industry. Both have a positive influence on the industry, reducing the average level of polluting emissions.

It turns out that, based on your very words, you agree with me that being able to sell these credits would allow the "free market" to bring about positive change in the auto market. Without these carbon credits trading the only option left is to have more government regulation.

Ok, I'm back. Balls hit, pins missed, the world is fine.

I think my comment was taken WAY out of context, so I'll do something unusual and analyze my own comment, line by line.

1. "This is a free market?" The obvious answer is, no. This statement was made to point out that worldcitizenUSA's comment "But what about the "free market" that so many people seem to love [sic]. I guess that's only when it doesn't benefit electric vehicle manufacturers." was factually incorrect, and he/she should not have blamed the free market for the faults of this transaction. In a free market this transaction would never have occurred.

2. "You mean regulations mandating a certain amount of zev's be sold or they have to buy credits from someone else that met the quota at an exorbidant price is a free market? Interesting." This comment merely reinforced my conclusion that this transaction had nothing to do with a free market.

3. "Here I was under the impression that a free market was one where the government didn't impose arbitrary limits... A thing that left the planet long long ago." My loose definition of a free market.

What part of my post stated that zero government oversight was the answer to all of the world's construction and toxic waste issues? Did I advocate anarchy up there?

I do believe government has a place, and I'm glad you chose the construction industry to prove your point because as it turns out, I'm a civil engineer turned construction estimator, and am VERY familiar with the topic. We'll start with my favorite part:

"We didn't want to use the "expensive" components that the engineers called for in the plans. We saved a bunch of money by using cheap "knockoff" structural members from a foreign country. It helped my company make a 1% higher profit last quarter! " - wcusa

I think what you're getting at here is that building codes (which vary from city to city) are there for our safety, and ignoring them could lead to unsafe structures. You're right! Building codes are generally well intended regulations that keep our structures up to modern safety standards. If we take this example and compare it to what has happened here we could say that your company CAN in fact build a crappy structure with the wrong components, and it's OK so long as you pay a competitor for the buildings he has constructed correctly. Now we have one good building and still one shotty one.

Fortunately, the way building codes work, they apply to everybody, and you can't (well, you probably can) pay your way out of them... legally. Generally they give us a warning if something major is going to change, and any ongoing projects will be grandfathered in to the codes from the time they started (barring any life/death issues). I don't think the auto industry should be treated any differently. If the feds want to change the rules, fine, change them. Honda can continue selling the 2009 Pilot from now until eternity, but the next new model to come out has to meet the regulations (again, barring any life or death safety issue that should obviously be changed immediately).

I'm not an extremest... I don't think. I just don't like arbitrary numbers pulled out of some politician's hat to be mixed with workarounds that simply transfer cash without FIXING the problem. Geeze.

This is a free market? You mean regulations mandating a certain amount of zev's be sold or they have to buy credits from someone else that met the quota at an exorbidant price is a free market? Interesting. Here I was under the impression that a free market was one where the government didn't impose arbitrary limits... A thing that left the planet long long ago.

The problem with carbon credits is that they are a fictional commodity. They don't exist - it's a made up financial instrument.

They are more susceptible to price-fixing and manipulation than our other previous commodity bubbles, such as housing (mortgages) and oil - at least they were physical commodities. Carbon credits do not represent CO2 emissions - they represent an estimation of a corporation's lack of CO2 emissions. An anti-commodity, or even a coupon, if you will. This will not end well.

very telling of Honda's doucheness that they would rather pay very dearly than actually make electric cars.
they must be really afraid of something new still

But what about the "free market" that so many people seem to love. I guess that's only when it doesn't benefit electric vehicle manufacturers.

Cap and Trade will be a win for the green industries and the carbon polluters as well. One gets much needed money to expand and the carbon market will encourage more companies to go green so they can sell carbon credits as well. The other gets to temporarily reduce compliance expenses so they can save up enough to improve their technology and / or practices to decrease their emissions; without going bankrupt while doing it.

Your idea of the "free market" left the planet - IN SHAMBLES - long ago.

You honestly think that companies should be able to do anything they want no matter the cost to someone else? Well, let me ask you a question. Are you ok with my company dumping toxic chemicals onto your living room rug? You should, after all that is what my company wants to do; it will save me thousands of dollars in proper disposal costs. You won't mind that these toxic chemicals are known to cause cancer.

My company wants to buy the lot next to your home and turn it into a garbage dump. Making a "real" garbage dump would cost me too much money. I'm sure you won't mind if I just save a BUNCH of money by doing that, right? That's the "free market" at work.

My company wants to remove all the pollution control equipment off the factory in your town. This will make the air in your neighborhood so smoggy that it will actually hurt your eyes. And do you have kids? Sorry, but the harmful particulates my factory puts out will cause them to develop asthma. I hate to break the news to you but asthma can be fatal. You don't mind, though, because I'm a big business and we really want to maximize our profits.

You know that building you live in? Well, my company built it. We didn't want to use the "expensive" components that the engineers called for in the plans. We saved a bunch of money by using cheap "knockoff" structural members from a foreign country. It helped my company make a 1% higher profit last quarter! Aren't you happy? Oh, sorry that your building fell down and killed your dog.

The idea of carbon credits would work if....

the system was static and in a vacuum. Meaning that every adult in the U.S. was allocated only one car. And every car built, MUST be sold.

That way, if automaker X produced a car that was cleaner than automaker Y... the carbon credit can be traded. Because the buyer (who is only allowed one car) does not have a choice. The cleaner car would be sold... at the expense of the dirtier model not being sold (and must wait for the next person turning 18, or an immigrant).

The problem is that the sale of a Tesla Roadster does NOT translate into an ICEV "not being sold". Roadsters are usually second cars.

Matt has a good point, the exchange didn't eliminate any emission.......however the high expense shall act as an incentive for Honda to develop clean vehicles on its own.

And yes, I believe that if automakers were left to take all their decisions without regulation, we'd be driving 12mpg cars with no end in sigh for our oil dependency.

Sort-of. I see any given model produced as a single project. Let's use BMW as an example, since unlike Honda and many others, they use the same chassis for a very long time. The E90 (latest body style of the 3-series) has been around for a few years, and will continue to be produced for a few more. If BMW designed that car to the 2005 regulations, then it should abide by the regulations in place at that time until the model is updated. If BMW is smart, they will eventually update the car. If they determine they can not meet the regs, fine, but they'll be selling the same tired 2005 design in 2020 and their market will dry up, going for the latest technology and the best innovations. I don't hate regulation, I hate regulation that doesn't work, and I feel like being able to "buy time" is crap. Does anyone honestly believe that Honda doesn't have the wherewithal to build an electric vehicle? If you can build a FCEV, you can build a BEV. What's more, they probably made $18M on Tuesday, so they probably didn't even blink when the funds transfered. But let's take this a step further; if you can build a coal-fired power plant, you can install solar panels! I think cap and trade is very hit and miss as to who can benefit, but is very broad as to who can suffer. Why should Tesla turn a profit from it and not Sanyo or Panasonic? Who decides how much credit you get for one BEV anyway, and why does it offset a certain amount of anything? Not-doing is not the opposite of doing. The opposite of doing is un-doing, doing in reverse. That may be hard to follow, but suffice to say, no carbon was returned to the ground in this process. I think it's arbitrary, and I think there are better ways to spend a dollar.

Efficiency, in practice and in policy. How does the world become better with a check written to Elon Musk? Personally, I think it'd be better written to Sharp Solar.

Wow, I didn't say anything like what you said. I just pointed out that this is not a free market. Hey, I'm golfing right now, but I'll reply later. Check back, I'll read your novel about asthema and building codes and tell you what I think. That's what blogs are for, right?

I don't want to start a big discussion about this, but my opinion is that the whole carbon credit system is a racket. The "I didn't pollute, so you can" philosophy has some big holes in it. That said, I feel like $37,500 per car to offset emmissions is rediculous. First of all, no emmisions have actually been lowered in that transaction (tesla already made the cars and Honda will continue to make theirs the same way). That money could have been spent making their own vehicles that much better. Secondly, it's a lot of money per car just to say they have .0000000001% less emmisions as a company. I think the system is bad and does nothing to stop pollution. 368 cars with "zero" so Honda doesn't really have to meet the regulations... That makes since.

Why do you say "that sucks"? I didn't think they would find a buyer for these credits much less get that much. But I think this is great news as it generates much needed income for Tesla and proves this is a valid resource for other EV manufacturers.

Did any of you take the time to look at the SEC filing?

1. " We enter into contracts with third parties to sell ZEV credits generated from the sale of our Tesla Roadsters. We did not recognize revenue from sales of ZEV credits until June 2008. For the years ended December 31, 2008 and 2009, we earned revenue from the sale of ZEV credits of $3.5 million and $8.2 million, respectively, and for the three months ended March 31, 2010, we earned revenue from the sale of ZEV credits of $0.5 million."

2. " We have entered into contracts for the sale of ZEV credits with TWO separate automotive manufacturers. Our current agreement with American Honda Co., Inc., or Honda, provides for the sale of ZEV credits that we earn from the sale of vehicles that we manufacture through December 31, 2011.
As of March 31, 2010, we had sold credits for 368 vehicles related to this agreement and Honda has an obligation to purchase additional credits earned from the sale of any remaining vehicles that we manufactured in 2009 but sold in 2010 and from the sale of up to 287 additional vehicles manufactured in 2010 and 2011 prior to the expiration of the agreement.
To the extent we have additional ZEV credits available for sale, we may enter into new agreements with Honda or other manufacturers to sell such credits.
We previously had an agreement with a different purchaser for ZEV credits related to vehicles sold in the year ended December 31, 2008, some of which ZEV credits were recognized in the year ended December 31, 2009." (Quotes from Tesla filing, p. 69)

1. The sales of ZEV credits happened from 2008 to Mar 31, 2010, i.e. more than two years. The total of sales amounted to about $12.2m (actually $12.1m), not $13.8m as reported.

2. Not all credits were sold to Honda. There was an unidentified buyer other than Honda in 2008. And how much ($ sales amount) was sold to the unidentified buyer, how much was sold to Honda were not disclosed.

3. The total number of ZEV credits (in number of vehicles) sold is also not disclosed.
Therefore, it's impossible to calculate the sales amount per vehicle credit.

My company agrees with you, Matt. These unnecessary government rules and regulation are real dumb.

We want government out of our affairs. We want total freedom. You know your neighbor who works for us? Well, it was too expensive for us to provide safety guards on our production line equipment. Your neighbor is coming over tonight to tell you that, because there were no safety rules, his arm got caught in the machinery and now he's losing his house. Oh, and that is going to lower the property values of YOUR house too. I figured you wouldn't give a flying fig about your neighbor so I gotcha with the reduction of your home's value.

You love that car you drive, dontcha? Yeah, my company made it. Hope you never get into an accident because there are no "pesky" government regulators to actually test cars to make sure they don't kill you and your family in a crash. So that sucker will fold up like an accordian. And then it will catch on fire... with you trapped inside. Too bad. I don't care because I want to make more profit. And you don't care because you don't want any government getting in the way of businesses.

Enjoy whacking your b@lls with a stick, Matt.

When you reply make sure you explain why you feel my comments are unconnected to your statement:

"Here I was under the impression that a free market was one where the government didn't impose arbitrary limits."

It seems like you don't know the meaning of your own words.

Matt: I think you have to look bigger picture, i.e., longer timeframe.

If every EV you sell is worth $40,000 in credit to the market due to a ZEV requirement, then the price of EVs to consumers can be dramatically lower than the production costs, which should stimulate the market.

The high market price right _now_ simply reflects the fact that it is a supply constrained market, which by itself will drive producers to enter it.

The idea is (I assume) that once the market has had time to adjust to the regulations and mature, then the equilibrium price of a ZEV credit will roughly match the benefit to society of driving an EV.

*note:

The estimate emissions for the Nissan Leaf is based on the Average US Grid Mix (50.4% coal, 20% Nuclear, 18.3% Natural Gas)

Leaf 4.5 miles per kwh (22 kwh usable and 100 mile range) 7.24 kilometers per kwh

Average U.S. Mix (1.35 lbs CO2 per kwh) 612 gramsCO2/kwh
http://www.eia.doe.gov/cneaf/electricity/page/co2_report/co2emiss.pdf page6

Leaf = 84.5 gramsCO2/km

If assuming only 4 miles per kwh (6.44 km/kwh)...
Leaf = 95 gramsCO2/km

If both only 4 miles per kwh AND running on 100% coal (2.1 lbs CO2 per kwh or 953 gramsCO2/kwh)...
Leaf = 148gramsCO2/km for the WORST CASE SCENARIO in West Virginia!

And is about equal to those 110gramCO2/km cars after you add the Well-to-Pump emissions (~31%).

------------

So, the WTW emissions of an EV across the whole US will probably be around 90gramsCO2/km while an ICEV in the same class (not an ultra small compact) would average about 160gramsCO2/km

In places like California, Texas, Florida, the Northeastern states, the Northwestern states, etc... the grid is much cleaner using much less coal and much more Nuclear (NE states), Hydro (NW states), Natural Gas (CA, FL, TX), or Wind.

Since the EVs tend to be sell more in cleaner states, I would put the average EV somewhere around 70 gramsCO2/km.

Come on L.,
that myth has been debunked for over 2 Years.
Even powered by 100% coal EVs are cleaner than gas.
Electric motor is 90% Efficient.

Currently, gasoline cars are counted only for Pump-to-Wheels emissions (gramsCO2/km)
8.8 kg/gallon of gasoline

If they were to include the emissions of gasoline's total life cycle emissions
..... for a total of 11.5 kgCO2/gal.... Carbon Credits would need to increase by ~31%

So even those low emission cars at 100gramsCO2/km will ACTUALLY be 131gramsCO2/km... or the 89gramsCO2/km Prius is ACTUALLY 117gramsCO2/km.
When using the full Well-to-Wheels emissions.

And EVs such as the Nissan Leaf are estimated to have 110gramsCO2/km using the full Well-to-Wheels emissions.

http://www.docstoc.com/docs/25912821/Calculations---Pacific-Institute-Research-for-People-and-the-Planet
http://www.transportation.anl.gov/modeling_simulation/GREET/index.html

What if your utility gives the option of having your energy supply being renewable. Where I live my utility gives me the option of having my energy coming from wind and solar.

What's the alternative. Socialism? That never created anything, except universal
debt.

Socialism begets debt. Hmmm.

Ireland has the highest debt to GDP ratio in Europe. But they're not socialist! Wait a minute. Ireland gives tax breaks to the rich, entertainers, corporations, etc. Why that's the very definition of our former discredited fantasy-economic theory (aka Republican give-money-away-so-more-can-come-back economic theory).

Government spending in Finland, Denmark and Sweden is highest per-capita but their debt is less than average. Hmmm. Sounds like your theory is shot to hell.

So many things wrong with it. Epic bullcrap.

It's our government doing the greenwashing. Give one company 'green credits' that they can sell to a company that is struggling to meet our parameters. One company remains complacent and sells tens of thousands of cars, the other is a huge money loss and sells a dozen or so cars a month.

This works against us, we end up with less green cars on the road and more dirty ones that we didn't want in the first place.