The Trump administration’s recent proposal to freeze vehicle emissions standards may be nothing more than a “political distraction” for the electric vehicle market, according to one energy and transportation expert.
Philip Sheehy, technical director at consultancy ICF, called the change a “small political hiccup.” He said there’s little disagreement within the auto industry about whether EV penetration will grow, but there is a difference of opinion about the timeline of “the transitional period.”
Experts suggest the freezing of Corporate Average Fuel Economy standards through 2026 alone likely won’t slow EV growth, but the administration’s proposal to roll back California’s waivers to institute stricter emissions rules and EV mandates could have an impact.
Earlier this month, the administration proposed a revocation of California’s waiver to regulate greenhouse-gas vehicle emissions, as well as an elimination of the state’s authority to set standards for zero-emissions vehicles (ZEVs). Because nine other states use California’s ZEV mandate, according to the Environmental Protection Agency, those standards currently cover about 30 percent of the U.S. market. That proportion has been enough to drive investments in EV growth for the entire country.
If the administration successfully revokes California’s ZEV waiver, it could significantly impact the U.S. market. But because California and 16 other states have already sued over changes to emissions standards, with more legal challenges possibly to follow, the EV industry is now left with uncertainty.
Experts are split on how much of a threat these unknowns present.
“I can’t imagine [automakers] shelving a bunch of electrification plans because the administration is flirting with the waiver revocation,” said Sheehy, referencing California’s federal waiver to set more aggressive targets for auto standards. “I would never bet against California in the courts.”
ICF conducts environmental impact reports on fuel economy standards for the National Highway Traffic Safety Administration, which works with EPA to draft the rules, but is not part of creating the regulation.*
Others, such as Ravi Manghani, director of energy storage at Wood Mackenzie Power & Renewables, think the uncertainty could cause harm.
“We are at a point in the whole EV industry landscape that you want countries or administrations to be supportive of these new technologies and new high-tech manufacturing industries,” said Manghani. “Any kind of policy that’s not only not supporting these industries but is actually making it harder for them to invest and build new plants in the U.S. is only going to make it worse.”
Manghani said automakers have already been reluctant to invest significantly in an EV strategy. Some automakers use EVs to meet emissions efficiency requirements, but he said freezing the standards could encourage disinterest from manufacturers, resulting in less consumer choice and possibly lower EV demand.
Demand may also be pushed down by lower tax credits. Tesla reached its 200,000-car cap in July, meaning the $7,500 federal tax credit available to its customers will phase down. Manghani expects General Motors to hit that cap by the end of the year.
According to John German, a senior fellow and co-leader of the U.S. program at the nonprofit International Council on Clean Transportation, manufacturers have never needed significant numbers of electric vehicles to comply with standards, although investing in EVs did offer automakers credits toward achieving them. If manufacturers were producing EVs to meet emissions targets, German said, that production might slow under the new rule. But if they were doing so to meet ZEV requirements, that strategy could continue as they wait out legal challenges.
“Unfortunately, it’s all hypothetical, because it’s really hard to be privy to inner boardroom decisions like this,” said German.
What’s more, the U.S. auto market doesn’t exist in a vacuum. China is now the world’s largest EV market, accounting for about 40 percent of electric passenger cars on the road in 2017 according to the International Energy Agency. Norway has the highest proportion of EV ownership, with 6.4 percent electric cars.
ICF’s Sheehy noted that auto manufacturers have different strategies outside the U.S., but slowing or stopping developments on technologies like EVs would create an international disadvantage.
“It would put us substantially behind other markets with respect to advanced vehicle technologies,” said Sheehy. “Basically, the United States would be a laggard in the market for technological innovation in that space. Those smarts would be shifted to other production facilities.”
Earlier this month, Doron Myersdorf, founder and CEO at Israeli battery company StoreDot, told the Financial Times that the U.S. government’s proposed tariffs and emissions plan threaten the U.S. industry.
“Production is going to be in China, and they are going to control the world through energy,” he told the paper.
John German, too, noted the pull of international markets as a counterpoint to the proposed policy change.
“If the California ZEV requirement survives, if China keeps pushing hard on electric vehicles, then the manufacturers are going to be responding to those kinds of pushes more than the…greenhouse gas standards,” said German.
Manghani agreed that much of the impact will be decided by the outcome on the waivers, but he said the policy could still read as a risk in a time when the EV industry needs confidence.
“Of course, all this has yet to be seen in terms of when California pushes back and goes to court,” he said. “For the time being, these are not encouraging signs for anyone in the EV industry.”
*Correction: This paragraph has been corrected to reflect comments from ICF. It previously stated the consulting group has not conducted a report on the proposed rule. ICF has worked with NHTSA on a report for the proposed rule.