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May 17, 2023
The Biden-Harris Administration's commitment to accelerating the adoption of electric vehicles was evident in April, as multiple agencies made significant moves towards phasing out gasoline-powered vehicles and incentivizing U.S.- based EV production. On April 12, the U.S. Environmental Protection Agency (EPA) proposed federal emission standards that aim to ensure 67 percent of new light-duty vehicles and 25 percent of new heavy-duty trucks sold in the United States are electric by 2032. In the United States, transportation generates more greenhouse gases than any other sector, making up 27 percent of total emissions. Speeding up the transition to electric vehicles will reduce the emissions of carbon dioxide, methane, nitrogen oxides, particulate matter, and hydrocarbons, helping to improve air quality in communities across the country. The proposed standards are expected to avoid nearly 10 billion tons of carbon dioxide emissions through 2055.
Following the announcement of EPA’s proposed standards, the Treasury Department announced new rules regarding which electric vehicles are eligible for the $7,500 consumer tax credit through the Inflation Reduction Act (P.L.117-169). The rules apply to vehicles placed in service on or after April 18, 2023. In accordance with the law, the full credit is only available for vehicles assembled in the United States and containing battery components and critical minerals sourced from the United States or its trading partners. These requirements will incentivize new U.S.- based production of batteries (likely at the expense of China, which has historically been at the forefront of the EV battery supply chain).
While the EPA cannot control the number of electric vehicles sold by manufacturers, the Clean Air Act gives the agency authority to limit the average amount of pollution generated by each manufacturer's fleet of vehicles. The proposed standards set federal emission targets based on grams of carbon dioxide and other tailpipe pollution emitted per mile driven. The new rules would apply to cars and trucks for model years 2027 to 2032.
The demand for electric vehicles is accelerating across the country. In the first quarter of this year, electric vehicles hit a record number of sales, accounting for 7.2 percent of the new vehicles sold. The proposed standards signal to the private sector and local governments that it will be necessary to invest in charging infrastructure to meet upcoming demand. Projections show that by 2030 there will be 26 to 48 million electric vehicles on the road. Automakers have also begun to set their own goals to transition to electric vehicles. General Motors, for example, aims to phase out the sale of all internal combustion vehicles by 2035.
In 2021, the Biden-Harris Administration announced its goal of ensuring that 50 percent of new vehicles sold would be all-electric by 2030. The proposed standards are even stronger, aiming to ensure electric vehicles account for 67 percent of all light-duty vehicle sales by 2032. Other countries have already enacted regulations to completely phase out gasoline-powered vehicles. The European Union has passed vehicle emission standards that aim to end the sale of carbon dioxide-emitting cars by 2035. Canada and Britain have also proposed similar standards. Phasing out the sale of gasoline-powered vehicles in the United States is crucial to combating the climate crisis and limiting extreme weather events such as flooding, wildfires, and heat waves.
The EPA’s proposed standards follow the passage of two laws that will see extensive investments by the federal government in electric vehicle infrastructure and continued incentives for people to purchase electric vehicles. The Infrastructure Investment and Jobs Act (P.L.117-58) provides $5 billion for the buildout of electric vehicle supply equipment along highways. Additionally, the law provides $2.5 billion in funding for electric school buses and another $2.5 billion for zero- and low-emission buses and their charging infrastructure. The Inflation Reduction Act includes $1 billion for grants and rebates to state and local governments to expand the use of electric heavy-duty vehicles and the $7,500 consumer tax credit for new electric vehicles made in the United States.
The new rules announced by the Treasury Department eliminated nine electric vehicle models from the list of all-electric and plug-in hybrid vehicles eligible for the full $7,500 tax credit. Requiring vehicles to source battery components and critical minerals from the United States or its trading partners made some foreign companies, including Nissan and Hyundai, no longer eligible. There are 16 vehicles that are eligible for the full $7,500 tax credit, including models by Cadillac, Chevrolet, Chrysler, Ford, Lincoln, Tesla, and Volkswagen. A vehicle meeting only one of the law's requirements, such as the Rivian R1S and Jeep Wrangler PHEV 4xe, may be eligible for a credit of $3,750. The list of eligible vehicles is expected to change from year to year, especially as more auto manufacturers open U.S. production facilities. Nissan and Hyundai are already in the process of building battery plants in the United States. The rules are also expected to be modified, as there are currently disputes in Congress over definitions and timelines.
While both the Infrastructure Investment and Jobs Act and the Inflation Reduction Act advance the transition to electric vehicles, there are challenges to implementing the EPA’s proposed guidelines. The Infrastructure Investment and Jobs Act provides $7.5 billion to build 500,000 electric vehicle charging stations along federal highways, but it is estimated that the United States needs more than 2 million EV chargers by 2030. Highway charger stations will need fast-charging capabilities for multiple vehicles simultaneously, which will require grid upgrades in both urban and rural areas. It is also critical that charging stations are built in communities of color and low-income communities that have been historically neglected when it comes to clean energy infrastructure. These are the same communities that have been disproportionately impacted by the pollution from cars and trucks due to unjust policies in the past, so it is critical we ensure the transition to electric vehicles is undertaken in an equitable manner.
The EPA’s proposed standards are expected to be contested in court by a group of Republican attorneys general from oil-producing states. Attorney General Patrick Morrisey of West Virginia has already indicated that the group is ready to fight these regulations.
Author: Madeline Dawson
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