The Biden Administration on Wednesday officially unveiled its proposal to ratchet down the carbon dioxide pumped out by petrol-burning cars and trucks through 2032 and boost electric vehicles towards a two-thirds share of the U.S. new vehicle market by 2032.
The text of the EPA proposal is here. In this case, believe the hype: If this proposal is adopted, the changes in the U.S. auto sector – from factory floor to showroom – will be profound.
The rule is part of what my Reuters colleague David Shepardson describes as a three-way squeeze on internal combustion engines.
The EPA’s proposed vehicle CO2 standards for 2027-2032 are part one. The EPA proposal doesn’t require specific technology. But the proposal’s overall target of reducing CO2 emissions from new vehicles 56% by 2032 amounts to a requirement for the industry to sell a lot more electric vehicles.
The administration plan foresees the electric vehicle share of the U.S. new light vehicle market rising to 67% by 2032 from 7% last year.
The 67% EV share goal is also well north of the 50% target the Biden Administration set in 2021. The difference between 50% and 67% market share translates to roughly 2.5 million vehicles in the U.S. market – or about eight factories worth of cars and trucks.
The emissions rules are a stick laid on automakers. The hundreds of billions of dollars in incentives for consumers and businesses to buy EVs (and automakers to produce them) that are provided by the Inflation Reduction Act are designed to be a carrot.
The EPA’s view is that economics and consumer choice will drive the surge in EV sales. By 2032, new EVs could cost $1,200 more to buy than a comparable combustion vehicle, but owners would save $9,000 to $13,000 in operating costs over the vehicle’s life, the EPA estimates.
The auto industry has numerous concerns, outlined Wednesday by John Bozzella, head of the Alliance for Automotive Innovation:
- Will EV charging infrastructure be adequate to support the administration’s goals?
- Will consumer interest in EVs grow if federal purchase subsidies are being cut?
- Why isn’t the EPA acting to reduce the carbon intensity of liquid fuels (in other words, put pressure on Big Oil, too.)
- Why is the industry still confronting multiple state and federal tailpipe pollution regulations?
The proposal worries some climate action advocates, too. In theory, a Detroit automaker could keep selling petrol-fueled pickup trucks without making significant reductions in their pollution output. The company would just sell fewer of them, alongside a larger fleet of EVs to balance out the average.
“The draft rule fails to require any improvement in the tens of millions of new gas guzzlers, and even the strongest option falls well short of the 75% pollution cut necessary to protect our planet,” Dan Becker of the Safe Climate Transport Campaign wrote Wednesday.
Part two is a proposal by the Department of Energy to sharply reduce the Miles Per Gallon equivalent, or MPGe, ratings for EVs. That would give automakers less credit under the government’s emissions scorekeeping systems for EVs they sell, effectively compelling them to deliver more EVs to offset big, fossil-fuel burning trucks and SUVs. Breakingviews has an analysis of the impact of this shift.
Third, the Biden administration is ramping up the fines it levies on companies that miss federal CO2/fuel economy targets.
To sum it up:
The administration pro-EV moves are important both as industrial policy and political strategy, and they present risks in both dimensions.
First the political challenges. Voters concerned about climate change – many of them Democrats – want the administration to get tougher on the transport sector – the largest source of greenhouse gas emissions. Going too easy on the automakers risks a backlash from a core constituency.
At the same time, many voters are concerned that EV technology and infrastructure don’t meet their needs. Republicans, such as House Speaker Kevin McCarthy, started bashing the EPA proposal went public. One line of attack is that shifting to EVs gives more power to China, which dominates EV battery production and materials.
As industrial policy, the administration is making a bet that EV demand in the U.S. vehicle market will leap nearly ten-fold from current levels by 2032.
Forecasts on future U.S. EV demand vary. Moody’s this week reckoned EV market share will rise to 35% to 40% in the United States by 2030 and could hit 55-60% by 2035.
“Risks for this carbon transition are high, if not very high, for the industry, because electrification will require further substantial investments into new BEVs, battery technology, supply chain and manufacturing capacity, and charging infrastructure,” wrote Matthias Heck, Moody’s Vice President and Senior Credit Officer.
The impact on jobs will be a central question. The United Auto Workers is concerned a rapid shift to EVs will put thousands of jobs at risk. Beryllis, a consultancy, estimates a third of combustion vehicle capacity could become redundant by 2030.
UAW members are a key constituency in Michigan and other Midwest election year swing states.
And what if EV sales fall short? Automakers could be pushed into profit-destroying price wars to duck fines – and avoid writing off billions invested in EV factories and vehicles. Another down-side risk is that drivers could hang on to aging combustion vehicles even longer than they do now.
A final wild card could be the outcome of future Presidential elections. When the White House changed hands in 2017, automakers appealed to the new Republican administration to roll back emissions rules agreed with the prior Democratic White House.
What will happen? Maybe Arnold Schwarzenegger will travel back from the future in an electric BMW to tell us.
