The U.S. President and administration will be going through a change soon, and it is sure to bring some drastic changes for U.S. automotive companies. Among the many differences Trump and Biden have on trade, energy, public health, and other issues, environmental policies will prove to be the most significant presidential decisions for automotive companies.
The most critical policy item on the Biden administration’s agenda to be potentially pursued would be a reversal of the relaxation of fuel economy/emissions standards under the Trump administration. We can expect the Biden administration to quickly rejoin the Paris Climate Accord through executive order and issue new emission standards aligned with the Paris commitment.
Understanding the differences between the two administrations and the potential outcomes under the new incoming presidency is vital for automotive companies to build smart strategic plans that match U.S. environmental regulations’ ambition.
From Trump to Biden
When Donald Trump took office in 2017, he promised to reduce and reverse automotive regulations set by the Obama Administration and lighten the compliance requirements for the Corporate Average Fuel Economy (CAFE) and Green House Gas (GHG) programs.
In August 2018, through the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA), he followed through on that promise by proposing new regulations for model years (MY) 2021 to 2026, which would essentially freeze the incumbent legislation at current standards and significantly reduce future targets. This change would have made compliance three times less challenging for automakers, slowed the push to battery electric vehicles and new technologies, and set the United States far behind other global economies in GHG reduction technologies.
The NHTSA and EPA also set out to revoke the California Air Review Board’s (CARB) Zero Emission Vehicle (ZEV) waiver, which requires a specific percentage of each manufacturer’s sales to be made up of zero-emission vehicles. The program has already been adopted by 12 additional states (California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington).
The Future with Biden
When Joe Biden takes office, we can expect to see the relaxed fuel economy standards under the Trump administration reversed. The reversal would, at minimum, reinstate emission targets initially established by the Obama administration.
Under this scenario, by 2025, passenger car vehicles would be expected to reach a 54-mpg fuel economy standard, and passenger trucks will progress from a current 31 mpg to 39 mpg. Assuming the same steady 4.4-percent annual reduction from 2025 to 2030, the industry would need 2.8 million battery electric vehicles (BEVs) by 2025 and 3.9 million in 2030 to reach compliance.
The new administration is also likely to nix efforts to remove California’s right to set ignition standards and potentially align the rest of the nation with similar measures.
The Paris Agreement
Another thing we can expect from the new administration is to rejoin the Paris Agreement. The President-Elect has already announced that he plans to reenter the agreement through an executive order on his first day in office and rejoin the joint commitment to fight climate change.
However, signing the agreement is just one part of participating in the international climate change response agreement. Many countries across the globe have announced ambitious environmental goals this year. They will expect the U.S., the world’s second-largest emitter of carbon, to follow suit with aggressive targets and innovative actions.
What the “Green New Deal” Could Mean
One of those proactive measures may very well be the introduction of a “Green New Deal,” a comprehensive bill that will take firm actions against climate change. The legislative proposal is expected to push beyond any previous standards. It speeds up the timeline to battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV)’s, and other clean vehicle technologies.
Understanding exactly how the Green New Deal will play out will depend on whether Biden leans in favor of the proposal presented by presidential candidate Elizabeth Warren or the slightly more moderate proposal by candidate Pete Buttigieg.
Assuming he will lean in favor of Buttigieg’s proposal—a plan to reach 100% zero-emission status by 2035—we would see more aggressive measures for model year 2025 to 2030 vehicles than we did with Obama-era legislation. This proposal is very similar to California’s bill just a few weeks before the election and could align with the EU’s 2030 goal, which is equivalent to 92 mpg in CAFE measures.
Under a “Green New Deal,” we forecast the production of 3 million BEVs in 2025 and 5.2 million, or 32% of total vehicle production, in 2030. We could then expect 50% of all vehicles produced by 2035 to be full battery-electric like China has recently announced.
Again, this industrial policy would align with what other large global economies are doing in terms of new technology investments, including the EU, Korea, Japan and China.
Government Assistance for an Electric Transition
Full transition and adoption of BEVs will require significant investments and dramatic shifts for the automotive industry, some of which we are already seeing come to play. Biden has campaigned to assist in the process and speed up the transition by investing in technology and company incentives.
Biden has proposed to install 500,000 EV charging stations nationwide and invest an additional $400 billion in advancing battery technology and automobile infrastructure. He has also pledged to convert the entire federal vehicle fleet to electric cars and trucks.
Building Strategies with Compliance-based Forecasting
While domestic U.S. mandates are expected to undergo a sweeping change, the new targets are not much different from what we witness in the rest of the world.
Automotive companies need to be thinking ahead on how their company will transition to the inevitable switch to BEVs and compete in the new automotive market and build strategies based on current and expected trends.
At Paul Eichenberg Strategic Consulting, our team has developed compliance-based forecasting to understand the mix and volume of electric vehicles necessary to comply with legislation worldwide. We use this forecasting system to provide automotive companies with valuable insights and help them make smarter decisions about how and when to scale their business for the transition.
For example, measuring the aggressive legislation set forth by Europe, we can forecast that pure battery-powered electric vehicles will grow in the EU from about 1.7 million units annually to 3.6 million by 2025, and 6.7 million, or 35% of total EU vehicle production, by 2030.
Using this same compliance-based forecast, we can examine the potential scenarios under the new Biden administration and develop predictions about how many electric vehicles we can expect to see hit the U.S.’s automotive market in the next 10 years.
