Last week, the U.S. Department of Transportation (DOT) released stricter fuel economy standards for automobiles, known as the Corporate Average Fuel Economy CAFE) Standards. The new CAFE standards require that the average new vehicle in the United States get 49 miles per gallon of gasoline by 2026. The new standards will require an increase in fuel efficiency of 8 percent annually for model years 2024 to 2025 and 10 percent annually for model year 2026. They will increase the estimated fleet-wide average by nearly 10 miles per gallon for model year 2026 compared to model year 2021. The National Highway Traffic Safety Administration (NHTSA) estimates the rule’s total costs for automakers at over $200 billion through 2029 and it will increase the average cost of a vehicle industry-wide by $1,087. The total cost for Detroit’s Big Three automakers is estimated at more than $100 billion for General Motors Co, Ford Motor Co, and Chrysler-parent Stellantis.
This CAFE standard is a slight variation to the proposed new standards released by NHTSA last August that would increase fuel efficiency by 8 percent annually for vehicle model years 2024 to 2025 and increase the estimated fleet-wide average by 12 miles per gallon for model year 2026 compared to model year 2021.
Prior to the Biden administration taking office, DOT and the Environmental Protection Agency (EPA) released a single set of standards for CAFE. However, last year, in a set of parallel rules, EPA released standards that would require passenger vehicles to achieve an average of 55 miles per gallon of gasoline by 2026—an increase over the 38-mile per gallon rule that is currently in place. Under President Trump’s standard, called the SAFE rule, President Obama’s standards were reduced to ensure safer and more affordable vehicles by reducing automakers’ costs for lighter and more expensive technology.
The Push for Electric Vehicles
The Biden administration’s efficiency standards for vehicles are designed to promote electric vehicles. By increasing the required mileage of new vehicles sold, the standards require that more and more electric vehicles be sold as well, or manufacturers will be in violation of the law. There are about 280 million cars and trucks on the road today, of which only 3 percent are electric. Americans typically buy 16 to 17 million cars every year. So, it would take 16 to 17 years of electric vehicle-only sales to completely replace all of the gasoline cars currently on the road if gasoline cars were banned by federal authorities or if automakers no longer produced gasoline vehicles.
Last year, President Biden signed an executive order directing the federal government to spend billions of dollars to purchase electric vehicles and recently he invoked the Defense Production Act to increase domestic production of minerals used in making electric vehicles, such as nickel, lithium and cobalt. Currently, the United States is 100 percent dependent on imports of 17 key minerals and over 50 percent dependent on imports of another 29 minerals. China is a significant source for half of those 29 minerals and it dominates the supply chain for electric vehicle batteries. Chinese chemical companies accounted for 80 percent of the world’s total output of raw materials for advanced batteries in 2019.
The irony of the situation is that President Biden has done everything he can to not promote domestic mining. Last June, he indicated that he wants to import these critical metals instead of producing them domestically. And, in January, the Biden administration revoked the federal leases for the Twin Metals mine in Minnesota that contains copper, nickel, cobalt, and platinum-group elements. There are numerous other examples of the Biden administration hampering the development of critical metal mines in the United States.
An electric car includes huge amounts of graphite, copper, nickel, manganese, cobalt and lithium compared to conventional cars. For example, a typical electric car requires six times the mineral inputs of a conventional car. Since most developed countries are trying to transition to renewable energy and electric vehicles, most of the world will be competing for those minerals.
To replace all of the United Kingdom’s nearly 32 million cars with electric vehicles would use about twice the cobalt, nearly all the neodymium, 75 percent of the lithium, and 50 percent of the copper produced in the entire world in 2018. Clearly, those numbers point out that there is not enough cobalt, neodymium, or lithium being mined and refined in the entire world today for Britain to meet its green transition goals in the next generation. Given that Britain has 67 million people—one-fifth of the population in the United States—and the world has nearly 8 billion, it is unlikely that the minerals needed will be insufficient supply to meet the goals of the politicians that rule these countries. This is especially true in light of the long lead times it takes to develop mining and processing facilities and opposition by Greens to these projects.
The World Bank estimates that, over the next 25 years, the world would need to mine the same amount of copper mined over the past 5,000 years, largely because of the push for renewable energy and electric vehicles. The International Energy Agency sees demand in 2040 for lithium soaring 4,200 percent, graphite 2,500 percent, nickel 1,900 percent, and rare earths 700 percent.
Wood Mackenzie, an energy research and consulting firm, estimates that electric vehicles will make up 18 percent of new car sales by 2030—far less than Biden’s goal of 50 percent—but a large enough percentage that the demand for batteries would increase by about eight times as much as factories can produce today. To achieve such sales estimates, industry needs to make batteries cheaper, and those factories must be built and funded. Batteries for a midsize electric car cost around $15,000—about double the price they need to be for electric cars to achieve mass acceptance. Growing demand, however, could push up prices for raw materials like lithium, cobalt and nickel and cancel out some of the efficiency gains that can be gained. Further, the auto industry is competing for batteries with electric utilities and other energy companies that need them to store intermittent wind and solar power which are also being pushed by promoters of electric vehicles, which will further increase demand.
President Biden’s goal that 50 percent of new car sales by 2030 be electric is not likely to be achieved, but nonetheless, his administration is pushing CAFE standards to a level to ensure that electric vehicles be abundantly produced. Unfortunately, the push for electric vehicles means that the United States will be dependent on unreliable foreign nations for the critical minerals needed to produce these vehicles. In fact, U.S. dependency will be much greater than it ever was upon the Middle East for oil imports. And, studies show that the level of production and availability of the critical metals needed are unlikely to be available, which will push their costs up as is typical of supply and demand economics when shortages exist. Americans should realize that the Biden administration’s policies are increasing costs, not making them less expensive as his administration tries to tell us when they quote savings that are to come from lower fuel costs for electric vehicles.