The US Environmental Protection Agency (EPA) recently proposed greenhouse gas (GHG) emissions standards for passenger vehicles that would go a long way toward meeting the Biden administration’s objective of reducing GHG emissions. Passenger vehicles account for about 15 percent of US GHG emissions; between 2026 and 2032, the proposed standards would cut in half the average GHG emissions rates of new vehicles. EPA estimates that the standards would reduce US GHG emissions by about 10 percent by midcentury and yield benefits for consumers, air quality, and climate of approximately $48 billion to $120 billion per year.
How Much Do Regulations for Fuel Economy and Emissions Incentivize the Production of Larger Vehicles?
In April, the US Environmental Protection Agency (EPA) proposed greenhouse gas (GHG) emissions standards for passenger vehicles, which would cut the emissions rates of new vehicles by about half between 2026 and 2032. Since 2012, manufacturers have faced GHG emissions requirements that depend on the mix of vehicles sold; a manufacturer that sells larger vehicles and light trucks rather than cars faces less stringent requirements for GHG emissions. This regulatory structure incentivizes manufacturers to shift their product offerings to avoid strict GHG requirements, which potentially increases emissions. Just how strong are those incentives?
Can State-Level Regulations Help Reduce National Emissions from Passenger Vehicles?
Two major policies have reduced fuel consumption and greenhouse gas emissions from US passenger vehicles: federal standards for fuel economy and greenhouse gas emissions, and California’s Advanced Clean Car regulations. In California and in the 14 states that participate in California’s program, a minimum percentage of vehicles that manufacturers sell have to be plug-in or fuel cell vehicles. (Plug-in vehicles include both fully electric plug-ins and plug-in hybrids that use gasoline and electricity.) In 2022, California adopted regulations that require all new passenger vehicles sold in the state to be plug-in or fuel cell vehicles by 2035, and other states are deciding whether to adopt California’s new regulations, as well.
At the same time, vehicle manufacturers have to achieve federal standards for fuel economy and greenhouse gas emissions; the California standards are nested within the federal standards. The US Department of Transportation (DOT) and US Environmental Protection Agency (EPA) have set these standards for fuel economy and emissions through 2026, and the agencies are proposing post-2026 standards. The policies implemented by both the federal government and California aim to transform the new vehicle market: by 2026, the federal standards will have roughly halved the average rate of greenhouse gas emissions in new vehicles since 2012, and California effectively has banned sales of new vehicles that run purely on gasoline or diesel by 2035.
Given this nesting of the policies, how do the federal standards and California’s standards fit together? In a new paper, I show that California’s passenger vehicle standards may reduce overall US greenhouse gas emissions—despite what might be assumed from a traditional economics point of view.
Insights Gained from the Past Decade of Federal Standards for Passenger Vehicle Fuel Economy and Greenhouse Gas Emissions
Note: This post is co-authored with Benjamin Leard (University of Tennessee) and Katalin Springel (HEC Montreal)
The US Department of Transportation (DOT) and the US Environmental Protection Agency (EPA) have been jointly regulating passenger vehicle fuel economy and greenhouse gas (GHG) emissions standards for over 10 years. Last year, the agencies set standards through 2026, and sometime this spring, the agencies will propose post-2026 standards. We expect that the standards will continue to get tighter over time, which would help the Biden administration achieve its economy-wide GHG emissions targets and its goal of getting zero-emission vehicles (including battery electric, plug-in hybrid, or fuel cell electric vehicles) to account for half of all new vehicle sales by 2030.
As DOT and EPA prepare to set new standards, now is a good time to ask: How well have the standards worked so far? Between 2012 and 2022, the standards tightened by about 33 percent, which has reduced fuel consumption and GHG emissions. Is society better off? Who has enjoyed the benefits and paid the costs of these standards?
What Are the Benefits of Electric Vehicles for Climate, Air Pollution, and Health?
Note: This post is co-authored with Daniel Shawhan (Resources for the Future)
In the United States, plug-in electric vehicles (EVs) have been gaining ground on gasoline vehicles. The share of plug-in vehicle sales relative to all new vehicle sales has grown from close to zero to about five percent over the past 10 years. Some of the main factors that have been driving consumers to consider electric vehicles are the climate and air-quality benefits of the vehicles. Policymakers and vehicle manufacturers say that these benefits underpin their desire to transition from gasoline vehicles to EVs in the coming years.
Getting Electric Vehicle Tax Incentives Right: Why Market Power Distortions Matter
Note: This post is co-authored with Jeronimo Callejas and Jevgenijs Steinbuks, and it is published on the World Bank blog.
Passenger cars account for 45% of global greenhouse gas emissions from transport while greatly harming air quality in major cities. Transitioning from gasoline and diesel-powered to battery electric vehicles is a promising option to decarbonize passenger transport worldwide. Some countries have recently made impressive pledges to fully phase out sales of new gasoline and diesel vehicles over the coming decades—the growing list includes not only high-income countries like England and France but also some emerging economies such as China, India, Costa Rica, and Ghana. Read more
Is There a Trade-off Between Equity and Effectiveness for Electric Vehicle Subsidies?
Plug-in electric vehicles (EVs), combined with a decarbonized electric power sector, may offer the best opportunity for dramatically reducing greenhouse gas emissions from US passenger vehicles and meeting the Biden administration’s climate objectives. After passing the infrastructure package—which includes billions of dollars in subsidies for public charging stations—Congress continues to deliberate over whether to increase subsidies for purchasing EVs in the Build Back Better Act. At the same time, many states (including California and New York) are considering whether to extend or increase their subsidies for EVs. Added to all this is a growing concern over the possibility that these types of subsidies may largely benefit high-income households.
In a new working paper, I analyze the cost-effectiveness of subsidizing EV buyers, and I ask whether a trade-off exists between equity and cost-effectiveness. If there’s no trade-off, then policymakers can design subsidies that are more effective than the current subsidies at boosting sales while favoring low-income buyers. The working paper integrates insights from a couple of my previous blog posts about EV subsidies, backed up with more rigorous modeling that allows me to consider how the subsidies affect vehicle prices and entry of new EVs into the market.
Subsidies for Electric Buses and Trucks in Build Back Better
This blog post is coauthored with Wesley Look (Resources for the Future) and Cole Martin (Resources for the Future).
The bipartisan infrastructure bill that President Joe Biden signed late last year includes some provisions to cut greenhouse gas emissions from the transportation sector; for example, funding for electric vehicle charging infrastructure. And the Build Back Better Act, also known as the budget reconciliation bill, includes subsidies for a vast array of clean energy technologies. Together, the two laws could transform the transportation sector, although the fate of the Build Back Better Act is highly uncertain.
A lot of reporting has covered subsidies for electric passenger vehicles and investments in charging infrastructure and public transportation—but what has gotten substantially less attention is that Congress may create entirely new subsidies for electric trucks, as well. The Build Back Better Act would create a first-ever electric vehicle tax credit for commercial vehicles, including medium- and heavy-duty vehicles (MHDVs). A diverse class of vehicles, MHDVs include vehicles like large pickup trucks, garbage trucks, and long-haul freight vehicles—and MHDVs could be a crucial component of the Biden administration’s decarbonization goals, as these vehicles produce about 23 percent of all US transportation sector emissions.
Why Are Sales of New Electric Vehicles So High in Many Chinese Cities?
Last year, China accounted for nearly half of all electric vehicles (EVs) sold worldwide. China has offered generous subsidies for EVs and has invested heavily in charging infrastructure. Those policies would seem to explain the popularity of EVs in China, but lately those subsidies have been phasing out. Many large cities have moved to a different approach: giving preferential treatment to EVs in the allocation of new license plates. In those cities, consumers have to wait several years to buy new gasoline-powered vehicles, but they can often buy EVs much more quickly. A new paper by PhD candidate Yujie Lin shows that this approach is the most important policy driving EV sales in Beijing and Shanghai. Now, one might expect that this type of policy would be costly, but in this case the benefits of lower pollution outweigh the costs.
Fuel Economy Standards Will Help Speed the Deployment of Electric Vehicles, But May Not Be Enough to Achieve the 2030 Target
This blog post is co-authored with Benjamin Leard (University of Tennessee) and Virginia McConnell (Resources for the Future)
On August 5, 2021, the Biden administration announced a target that 50 percent of new vehicles sold in the United States by 2030 will be all-electric, plug-in hybrid electric, or fuel cell. Within a week of that announcement, the US Environmental Protection Agency (EPA) and the US Department of Transportation (DOT) announced new fuel economy standards and greenhouse gas standards that cover new vehicles through model year 2026. Automakers can meet the standards by increasing the fuel economy of the gasoline-powered vehicles they sell. The standards also incentivize automakers to sell more electric vehicles (EVs), which include all-electrics like the Tesla Model 3 and plug-in hybrids like the Chevy Volt.