Power play: How governments are spurring the electric vehicle industry
Modernizing vehicle regulations for electrification
This briefing summarizes existing practices and develops design principles related to adapting vehicle efficiency and CO2 standards in the 2020–2030 time frame to enable a long-term transition to zero-emission vehicles (ZEVs). Regulations so far have been developed almost exclusively for incremental efficiency improvements. The analysis fills gaps in the prevailing regulatory analysis regarding emission trade-offs from regulatory incentives, how targeted ZEV regulations could accelerate the shift to electric for light-duty vehicles, and how electric vehicles change the fundamental math on incremental percent-per-year CO2 standards. The focus of the briefing is on the markets of China, Europe, and the United States, which represent 90% of the world’s electric vehicle sales and have regulatory frameworks to further drive the market.
Regulatory frameworks around the world are playing catch-up on all the bullish electric vehicle developments. Automakers do not proclaim they will substantially surpass future emissions standards, but they do increasingly make electric vehicle announcements that outpace existing regulatory requirements. The figure shows electric vehicle deployment to comply with 2020–2025 regulations, along with a tally of company electric vehicle statements by 2025. The policy projections shown are the strongest under consideration. These sum to global annual sales of more than 3 million vehicles in 2020 and about 10 million by 2025. The auto industry announcements, at more than 15 million annual electric vehicle sales in 2025, are about 50% greater than the regulatory requirements. Targeted ZEV regulation translates these announcements into enforceable requirements to ensure mass production and ensure all automakers, beyond those in the figure with stated targets, commit to zero-emission vehicles.
This briefing on principles for integrating electric vehicle requirements in CO2 standards and the rationale for considering targeted ZEV regulations leads to two high-level policy conclusions.
Efficiency standards are essential but insufficient to launch a mainstream electric vehicle market. Governments in most major auto markets have set efficiency and CO2 standards based on incremental efficiency. The strongest possible policies under consideration will deliver up to 5% electric share in the United States, 11% in Europe, and 20% in China by 2025. This results in less than one-tenth of the world’s vehicle sales being electric in 2025, with about half in China. Meanwhile, regulations elsewhere are being challenged. Although these developments will expand electric vehicle model availability and reduce costs, this does not equate to a tipping point, to profitability beyond a few market leaders, or to an inevitable transition. Ensuring the transition to electric by 2050 means much bolder efficiency standards or direct electric vehicle requirements are needed. Many governments aim for decarbonization by midcentury, but their regulations are not yet steered in that direction. By the mid-2020s, regulations will have to pivot from using artificial electric vehicle incentives—for example, multipliers—to using electric vehicles to drive greater emission reductions and put markets on a path toward decarbonization. With electric vehicles becoming cost-effective from 2025 on, much more rapid gains are possible.
The transition to all zero-emission vehicles by 2050 entails a 12%–14% annual CO2 improvement in new vehicles from 2020–2040. This means regulations would need to roughly triple the historical CO2 improvement rates or include targeted ZEV regulations to drive the transition to a zero-emission fleet. Although much bolder efficiency standards and ZEV regulations can be functionally equivalent, ZEV regulations provide greater assurance in launching the electric market, because automakers’ innovative efforts to meet lower test-cycle emission levels with combustion technology keep it in the market.