One of President Biden’s first executive orders was for EPA to present a proposal for more stringent fuel economy and emissions standards by July. Currently, per the Trump administration’s SAFE Vehicles Rule, automakers must make 1.5 percent improvements in fuel economy each year through 2026, which would require automakers to reach a 40.4 mile per gallon fleet-wide average in sales by 2026. Under the Obama administration regulations, automakers were to increase vehicle efficiency across their fleets sold by 5 percent annually, making the corporate average fuel economy (CAFE) requirements reach 54.5 miles per gallon by 2026. Automakers had complained that the Obama regulation was unrealistic.
But now, automakers have started urging the Biden administration to adopt a California “compromise” deal as a blueprint so that they can operate under one national set of standards, rather than meeting federal and California regulations. In a voluntary agreement, Ford, Honda, Volkswagen, and BMW struck a deal with California to increase fuel efficiency by 3.7 percent each year starting in 2022, reaching a standard of 51 miles per gallon by 2026, rather than the current federal regulation of 1.5 percent and 40 miles per gallon. Despite some disparity among automakers between the two standards originally, most automakers now fall in line with the California deal.
G.M., however, made a pledge to phase out internal combustion engines by 2035, and California and New Jersey have made similar pledges. If other automakers follow suit with G.M. and these states, the concept of miles per gallon of gasoline or diesel fuel vehicles could soon be moot.
Biden Wants Electric Vehicles
Earlier this year, President Biden announced a $2.25 trillion infrastructure bill that would invest in electric vehicle charging stations and subsidize the purchase of an electric car for buyers. Officially called the American Jobs Plan, it calls for point-of-sale rebates when buying a new electric vehicle and includes funding for 500,000 electric vehicle charging stations to be built by 2030.
Today, U.S. buyers can take advantage of a $7,500 federal tax credit for purchasing qualifying electric cars and plug-in hybrid vehicles. But, purchasers do not see the reimbursement until they file taxes the following year—and only if they paid more tax than the credit. Point of sale rebates are direct rebates that would reduce the cost of the electric vehicle for all buyers when they purchase the vehicle. The program is expected to apply only to American-made electric vehicles. But, it appears to include foreign automakers who build an electric vehicle in the United States.
A recent survey in Quebec, Canada showed that the public there is interested in buying electric vehicles if the vehicle is subsidized and the amount of the subsidy is high. Fifty-five percent of Quebecers said they would buy an electric vehicle, but 80 percent indicated it had to be subsidized and of those 44 percent indicate the minimum subsidy should be at least $10,000, and 19 percent indicate the amount should be between $4,000 and $6,000.
In Norway, where electric vehicle sales are the highest—60 percent of all vehicle sales—incentives for electric vehicles abound. In Norway, electric vehicles are exempt from the value added tax (VAT) and receive a 50 percent discount on toll roads and parking fees. Internal combustion engine (ICE) vehicles in Norway are subject to a 25 percent VAT, a carbon dioxide tax, a nitrogen oxide tax and a weight tax, making them more expensive to buy than electric vehicles and 75 percent more expensive to operate. Norway’s electricity is mainly produced by hydropower (97 percent) and its electricity prices are 40 to 70 percent less than European levels as a consequence. Even then, many Norwegian families buy electric vehicles as a second family vehicle. The incentives for electric vehicles are so high in Norway that a full conversion to them would make electric vehicle subsidies the second largest government expenditure behind pensions.
In the United States, electric vehicles only make up 2 percent of vehicles sales—less than the global figure of 4.5 percent.
President Biden is hitting gasoline and diesel vehicles on all fronts as part of his plan to “decarbonize” the nation. By July, he wants EPA to put out revised CAFE standards that will result in higher fuel efficiency than the Trump administration standards. And, Biden is also providing incentives for electric vehicles to encourage their sales by increasing the number of charging stations and providing for direct rebates through his infrastructure bill. Currently, electric vehicles sales are low. Globally, in 2020, the electric vehicle share of vehicle sales was 4.5 percent—up from about 2.5 percent in 2018 and 2019. In the United States, electric vehicle sales account for just 2 percent of the market.