October 5, 2023
Clean cars are the future. Can supply chains, policies, and incentives keep up?
In April, the U.S. Environmental Protection Agency (EPA) announced new proposed federal vehicle emissions standards that will accelerate the ongoing transition to a clean vehicles future.
The new proposed emissions standards, applicable for light, medium, and heavy-duty vehicles for model year 2027 and later, build on the EPA’s existing emissions standards for passenger cars and light trucks but leverages advances in clean car technology to further reduce both climate pollution and emissions.
The proposed standards are expected to accelerate the transition to electric vehicles, with the EPA projecting that EVs could account for 67 percent of new light-duty vehicle sales and 46 percent of new medium-duty vehicle sales by 2032.
Overall, the EPA estimates that the net benefits of the proposal range between a whopping $850 billion and $1.6 trillion. But is the EV sector ready?
“Car manufacturers have all made plans and are ramping up their EV production,” said Steven Rosenstock, Senior Manager of Customer Technical Solutions at Edison Electric Institute (EEI). “They were doing that anyway before the EPA rule in response to what’s been happening in Europe and Asia. Europe has passed some very stringent regulations on vehicles in individual countries, along with countries in Asia like China.”
Europe’s “Fit for 55” climate law calls for reducing emissions by at least 55 percent by 2030, with EU countries working on new legislation to achieve this goal and to make the EU climate-neutral by 2050. And earlier this year, Chinese leader Xi Jinping reaffirmed China’s commitment to reaching a carbon peak by 2030 and carbon neutrality by 2060.
“The global car industry sees rising demand and they are ramping up,” Rosenstock said. “But there’s the caveat that there are always supply chain issues – these looming X factors that could come in and just knock people and industries for a loop.”
In the meantime, EV sales forecasts look good. According to the International Energy Agency (IEA), global EV sales are projected to rise by more than a third this year, driven by ambitious policies in major economies such as the Inflation Reduction Act (IRA) in the U.S. By 2030, the average share of electric cars in total sales across China, the EU, and the U.S. is set to rise to around 60 percent.
“The trend is definitely upward, and I would say that the industry is ready – as long as there are no supply chain traumas or chaos,” Rosenstock said.
Transformer supply crunch
As for the utility industry, many of EEI’s members have established incentive programs for EV and EV infrastructure.
“We’re worried about our infrastructure because of the transformers supply chain. Wait times have gone way up,” Rosenstock said.
Earlier this year, the U.S. Department of Energy (DOE) proposed new efficiency standards for distribution transformers, which would require all distribution transformers to shift from the industry standard grain oriented electrical steel (GOES) cores to amorphous steel cores as of January 1, 2027. This accounts for 95 percent of the domestic distribution transformer market.
While the standards could ultimately lower distribution system energy losses, lower energy bills for consumers, and reduce greenhouse gas emissions, industry organizations, including EEI, have expressed fears around the proposed standards, citing the potential of further disruption to the nation’s supply chain by increasing lead times to procure transformers from months to years.
“If that goes through, it could really restrict the supply of transformers starting in a few years,” Rosenstock said. “All these entities are ready and there’s rising demand, but they’re not totally sure that supply chains are going to be ready to meet all of their needs, whether it’s on the supply side, demand side, or on the infrastructure side. That’s a big question mark.”
In the meantime, electric utilities and manufacturers have been pressuring the Biden administration and Congress to increase incentives for power grid components.
“A lot of utilities have already ramped up their programs and there’s all the federal money as well,” Rosenstock said. “In terms of the IRA money, it’s a matter of, ‘Can we coordinate with that? Is there some sort of symbiotic relationship where it can help us with all of our projects?’”
Driving towards cleaner cars
Last year, California set a new precedent with the Advanced Clean Cars II regulations, expected to rapidly scale down light-duty passenger car, pickup truck, and SUV emissions starting with the 2026 model year through 2035.
The regulations amend the Zero-emission Vehicle (ZEV) regulations to require an increasing number of zero-emission vehicles, and relies on currently available advanced vehicle technologies, including battery-electric, hydrogen fuel cell electric, and plug-in hybrid electric-vehicles, to meet air quality and climate change emissions standards. In addition, the Low-emission Vehicle Regulations were amended to include increasingly stringent standards for gasoline cars and heavier passenger trucks to continue to reduce emissions.
Seventeen states have already adopted California’s previous ZEV regulations, but will need to initiate rulemakings to adopt the new, more stringent regulations.
Will most states sign on? According to Rosenstock, it’s unlikely.
“I don’t think it’ll be a majority of states, but I think it could reach a majority of the population,” he said. “I think they’re already up to approximately 40 percent of the population between California and states on the East Coast like New York and Massachusetts. EV sales in California are at around 25 percent, so they’re leading the way.”
Steven Rosenstock with Spot the Robot Dog
With these kinds of regulations, there is, of course, increased interest in the clean fuels space. Is there a frontrunner when it comes to clean fuels?
“Well, here’s a trivia question: How many definitions are there of clean fuels?” Rosenstock said. “The state laws might say ’clean fuels,’ but the definition of clean fuel varies by state. The federal government has a definition of what they consider renewable fuels or alternative fuels, but a lot of states have their own policies around clean fuels and what is going to be emphasized.”
While clean or alternative fuels can encompass everything from biodiesel and hydrogen to natural gas and propane, most major automakers are all in on electric battery-powered fleets.
“There are lots of pathways,” Rosenstock said. “It’s a matter of how much of a reduction you are looking for, the methodology used, and your baseline, because beyond carbon dioxide, you look at all the other emissions. Gasoline has gotten cleaner over the last 50 years. Fifty years ago, gasoline had lead, and there weren’t any catalytic converters. I’m old enough to remember when the law banning leaded gasoline went into effect and how much of an incredible impact it made to air quality just in the first year. Clean fuels are going to have an impact, but it’s going to be state by state because of the different definitions and the different state policies.”
Impactful policies and incentives – but there are caveats
Federal policies like the Infrastructure Investment and Jobs Act (IIJA) and the IRA have been gamechangers when it comes to incentivizing cleaner cars, but getting those incentives will require some work.
One example are the tax credits for EVs included in the IRA that also provides for increased credits for EV supply equipment. But to receive the full incentive, installers must be paid “prevailing wages” as defined by the U.S. Treasury Department.
Then there are incentives for car manufacturers, which can provide a large percentage of the cost – if labor requirements are met.
“The federal policies are impactful, but they come with so many conditions,” Rosenstock said. “You have to meet the conditions around wage and apprenticeship requirements and a lot more. Treasury is still writing up the guidance, even in terms of what qualifies as a free trade country or an energy community. And there are all these conditions that every customer, their supplier, and consultants have to know about.”
Even something as mundane as filling out a form incorrectly can mean the difference between receiving a tax credit – or not.
“It’s a lot more work than before,” Rosenstock said. “Before, you installed it, you got a tax credit, and just showed the receipt. Now it’s got to be condition A, B and/or C, and you have to provide all the documentation. And, if it’s from a “country of concern,” in one year you might be able to do it, but not in the next year. So, it’s a lot more complicated for people at the federal level.”
State-level policies, however, are more streamlined, with many state agencies taking alternative approaches to those pushed out by the feds.
“I’m seeing states like Colorado and New York and some others put in policies for rebates for infrastructure and EVs,” Rosenstock said. “Massachusetts, for example, is not taking the federal approach. They’re saying you can stack our incentives on top of the federal one, but they are keeping it simpler for people. They don’t have all of the battery requirements – they are letting the feds figure that out. There are grant programs, there’s the NEVI program, and there are all of the DOE programs. I mean, there’s money flying out the door. I just hope that it’s not too complicated for people to work with those programs.”
