Shifting Gears: The EPA’s Emissions Rule and the Legal Battle Over Vehicle Choices By Mike Roman
So, what are consumers saying? McKinsey recently published data suggesting that 46% of Americans who now own BEVs will revert to ICEVs for their next vehicle purchase.
Shifting Gears: The EPA’s Emissions Rule and the Legal Battle Over Vehicle Choices
By Mike Roman
August 08, 2024
Given the focus on the impact of climate change, the debate surrounding how to best balance environmental protection and individual freedoms is understandable. In the realm of transportation sector, which contributes about 30% of greenhouse gas (GHG) emissions, the Environmental Protection Agency’s (EPA) light-duty and medium-duty vehicle emissions standards for model years 2027-2032, has resulted in significant controversy. The rule, which just went into effect on June 17, effectively restricts the types of vehicles automakers will be manufacturing and making available to consumers, limiting their potential choices past 2032 to mostly battery electric vehicles (BEVs). In response, more than two dozen Attorneys General and industry groups such as the American Petroleum Institute, National Corn Growers Association, American Farm Bureau, along with numerous auto dealers, have filed a lawsuit in the D.C. Circuit Court of Appeals challenging the EPA’s rule and authority. The rule sets emission standards that could result in nearly 60% of all vehicle production to be battery electric vehicles in 2032.
Automakers and dealers are urging caution as pathways toward BEV transition take time to mature. In fact, the National Automobile Dealers Association and Alliance for Automotive Innovation agree that the rule presents significant challenges by reducing consumer choice and running the risk of pushing automakers into non-compliance with seemingly unachievable requirements.
A range of testimony and comments previously submitted to the EPA collectively note that their actions overly prioritize EVs without considering the feasibility of EV transition timelines and the financial and resource challenges for automakers and their supply chains that are associated with a forced shift to EVs. Understanding the need to address the complexities associated with achieving GHG reductions, the Transportation Energy Institute published a study in 2023, which was conducted by Stillwater Associates, entitled: “Decarbonizing Combustion Vehicles – A Portfolio Approach to GHG Reductions.” (https://www.transportationenergy.org/research/report). The study evaluates the viability and emissions reduction potential of a portfolio of vehicle technology and fueling options It notes that waiting for the market to transition to BEVs, without seeking available and concurrent solutions directed at the nearly 300 million internal combustion vehicles (ICEVs) that will continue to operate in the U.S. for decades, ignores the substantial GHG reductions that could be achieved if all options were on the table.
According to a May 2024 research report by Goldman Sachs, sales momentum for BEVs is slowing globally, and hybrid technology, including plug-in hybrids, are proving more competitive than first thought. Toyota has been a long-time proponent of an "all of the above" vehicle technology strategy focused on the end objective of reducing emissions, preserving consumer choice across platforms, and allowing all technologies to play a role. The pragmatism in their approach is embodied in what they refer to as the 1:6:90 formula. In a world currently dependent on external supply chains for essential battery elements, the raw materials needed to make one 110kWh BEV could instead be used to make 6 plug-in hybrid vehicles or 90 hybrid vehicles. Toyota’s math would suggest that over their lifetime, those 90 full hybrids would achieve 37 times greater emissions reductions than a single BEV would over its lifetime. And if you add into the mix policies that encourages the production of lower emission fuels – the emissions reductions could be even greater.
So, what are consumers saying? McKinsey recently published data suggesting that 46% of Americans who now own BEVs will revert to ICEVs for their next vehicle purchase. The challenge is that EPA regulations will likely make the ICEV and hybrid options less accessible to consumers. Therefore, the question is how will emissions reductions policies continue to progress if consumers do indeed retreat from BEVs? In the spirit of Toyota’s approach – small changes across large numbers – what about setting standards to reduce the carbon intensity of fuels? Instead of regulations aimed only at the tailpipe, a better, more holistic approach would establish a national low carbon fuels standards in conjunction with lifecycle-based standards for vehicles. Together these would work in tandem with hybrid technology, and an evolving transition to BEVs to attain GHG reduction targets faster, at a lower cost to consumers, and in a technology-neutral way.
Recent data from the Oak Ridge National Laboratory shows that 20% of today’s ICEVs will still be on the road in 20 years or more, underscoring the urgency to look at every way possible to reduce transportation-sector emissions. The key is to look beyond the vehicle and consider more comprehensive policies that treat transportation as an integrated system. Technology neutral policies that keep all options in play – both for vehicles and fuel types – is a shift in gears that will work.
Mike Roman is Senior Fellow, American Council for Capital Formation, and he is President, CertainPoint Strategies, L.L.C.