latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/us-agencies-try-to-boost-natural-gas-not-electric-vehicle-sales-in-final-rule-57822975 content esgSubNav
In This List

US agencies try to boost natural gas, not electric, vehicle sales in final rule


Insight Weekly: SVB fallout limited; US rents up; renewable natural gas investments flow in


Master of Risk | Episode 1: Discussion with Natalia Hunik, CRO, Cubelogic


A Cloud Migration Plan for Corporations featuring Snowflake®


Investor Activism Campaigns Hit Record High in 2022

US agencies try to boost natural gas, not electric, vehicle sales in final rule

Electric utilities were skeptical of the Trump administration's initial bid to freeze Obama-era vehicle standards, and they outright opposed its proposal to strip California of its authority to set its own tougher rules.

At the same time, they saw an opening to push for measures that would encourage U.S. automakers to build more electric vehicles when the U.S. Environmental Protection Agency and National Highway Traffic Safety Administration unveiled a joint proposed rulemaking in August 2018.

In the end, natural gas-fueled vehicles, which are no longer being made, won out over EVs.

In proposing its Safer Affordable Fuel-Efficient Vehicles, or SAFE, rule, the EPA requested comment on whether it should extend certain multiplier incentives for advanced technologies such as electric vehicles. The EPA allows automakers to use those multipliers when calculating their fleetwide carbon footprints under the agency's CO2 program for vehicles.

The Edison Electric Institute, a trade group representing the nation's investor-owned utilities, responded by urging the EPA to increase and extend an EV multiplier established in 2012 by the Obama administration. A final rule that includes compliance flexibilities focused on EV deployment will deliver "significant emissions reductions in a cost-effective way," the trade group told the agency in public comments.

The California Air Resources Board, which is now engaged in multiple legal battles with the Trump administration over the auto rules rollback, also recommended a national zero-emission vehicle multiplier to ensure those vehicles were being produced for sale beyond the 10 states that follow its own program.

But those calls were rejected in the final rule released March 31. The final SAFE rule requires automakers to reduce fleetwide CO2 emissions for cars and light-duty trucks by 1.5% annually through 2026 instead of meeting an average 5% annual reduction through 2025 under the previous Obama-era standards. And after contemplating both extending the existing EV multiplier and more than doubling it from 2 to 4.5 in the final rule, the EPA decided instead to let it lapse after 2021. The agency also created a new multiplier for natural gas-powered passenger vehicles that runs from 2022 to 2026.

SNL Image

'Game-changing technology'

Creating an EV multiplier for model years 2017 to 2021 originally represented a slight sacrifice in short-term emissions reductions for potentially dramatic CO2 cuts over the long-term, said Jeff Alson, a senior engineer and policy advisor in the EPA's Office of Transportation and Air Quality from 1978 to 2018. Alson wrote the section of the 2012 rule that covered multipliers for EVs.

The tradeoff allowed automakers to build higher-emitting vehicles such as pickup trucks and SUVs and then offset those emissions by counting zero-emitting EVs more than once under the EPA's CO2 program for vehicles.

"The reason we justified it was because this is a technology that, if it keeps getting better and the utilities keep cleaning up the grid by making more and more renewable electricity, that combination makes EVs what we called in the rule back in 2012 a potentially 'game-changing' technology," Alson said in an interview.

Despite the availability of an EV multiplier in the current regulations, sales of EVs have yet to take off in the way many clean transportation advocates would have liked. Although the U.S. is now the world's third-largest EV market after China and Europe, EVs still only accounted for less than 3% of U.S. market share in 2018 with 361,000 new vehicles sold that year, according to the International Energy Agency.

"Sales have not been as high as I would have hoped back in 2012," Alson said. "Extending the multiplier makes a lot of sense, and the fact that they didn't is a disappointment to me and I think to anybody that wants to see EVs have a better chance to compete."

In explaining its decision not to extend the EV multiplier, the EPA said in the final SAFE rule that it determined the existing suite of flexibilities "generally provide ample incentive ... to develop and apply advanced technologies and technologies that produce fuel savings and/or CO2 reductions that would otherwise not count toward compliance."

The agency also noted that the final rule departs from the Obama-era standards by exempting carmakers from accounting for upstream emissions associated with the electricity used to fuel EVs.

Meanwhile, Anna Stefanopoulou, director of the University of Michigan's Energy Institute, said many companies can meet the required 1.5% annual increase in stringency through the use of off-cycle credits. Those credits allow automakers to claim credit for efficiency gains demonstrated outside of the regularly scheduled lab testing the EPA conducts at its Ann Arbor, Mich., facility to measure CO2 emissions and fuel economy.

"The bottom line is manufacturers can use these off-cycle credits alone to comply with the rule," Stefanopoulou said in an interview.

'We're going backward'

The EPA's new multiplier for natural gas-powered passenger vehicles, or NGVs, also confounded clean transportation groups that count utilities among their members.

"It's been very clear that both utilities and the [automakers] are not interested in NGVs for a variety of reasons," said Philip Jones, executive director of the Alliance for Transportation Electrification. Investor-owned and community-owned utilities make up about 60% of the group's membership.

"Electric vehicles have been winning the case from both an economics standpoint and from a policy standpoint for years," Jones, who previously served as president of the National Association of Regulatory Commissioners, said in an interview.

Sen. James Inhofe, R-Okla., was one of the few commenters during the rulemaking process to press the EPA to extend its NGV multiplier.

"Even if all current incentives for EVs are eliminated, EVs still have a compliance advantage going forward," said Inhofe, who previously employed EPA Administrator Andrew Wheeler as a Senate aide. "I respectfully ask you not to give NGVs preferential treatment, but to level the playing field to allow the marketplace to determine the future of NGV adoption and not the federal bureaucracy."

In justifying its new NGV incentive, the EPA said in the final SAFE rule that it "continues to believe that NGVs could be an important part of the overall light-duty vehicle fleet mix, and such offerings would enhance the diversity of potentially cleaner alternative-fueled vehicles available to consumers."

The EPA acknowledged, however, that Honda Motor Co. Ltd. ended production of a natural gas-powered Honda Civic at the end of model year 2015, leaving consumers with zero NGV offerings since then.

Margo Oge, former director of the EPA's Office of Transportation and Air Quality, noted in an interview that the European Union has a CO2 standard for passenger vehicles that would require automakers to achieve 76 miles per gallon in fuel efficiency by 2030. Those standards include generous EV multipliers for European automakers, Oge said.

"Domestic companies, if they want to survive in a global marketplace, have to invest in electrification," Oge said. "Unfortunately, the U.S. government is not helping them make those investments. We're going backward."