New US Electric Vehicle Rule Would Speed Supply Chain Changes

A Biden administration proposal would force U.S. automakers to sharply increase their production of electric cars and trucks over the next decade, lending greater urgency to the effort to build raw material supply chains that reduce the industry’s dependence on China.

The Environmental Protection Agency on Wednesday announced a proposed rule that would place stricter limits on the average tailpipe emissions of vehicles built in the United States. The proposal would reduce the allowable limit by so much that automakers would have no way to comply unless about two-thirds of the vehicles they produce by 2032 are emission-free electric vehicles.

Automakers have generally recognized that EVs represent the future of the industry, but Wednesday’s proposal would greatly accelerate the trend. The proposal, which will be open to public comment before it is finalized, would greatly reduce a leading cause of air pollution in the U.S., as well as the greenhouse gases that contribute to global warming.

“By proposing the most ambitious pollution standards ever for cars and trucks, we are delivering on the Biden-Harris administration’s promise to protect people and the planet, securing critical reductions in dangerous air and climate pollution, and ensuring significant economic benefits like lower fuel and maintenance costs for families,” said EPA Administrator Michael Regan.

The proposal, which would apply to new light-duty vehicles made in 2027 and beyond, would be the strictest environmental standard the federal government has ever applied to automobiles. If it does force the industry to make EVs account for two-thirds of production, it could also exceed President Joe Biden’s previously articulated target of making 50% of new cars either plug-in hybrids or completely emission-free by 2030.

Supply chain questions

Well before the EPA released its proposed rule Wednesday, the Biden administration had been moving to strengthen the EV market in the U.S. and to build a pipeline for raw materials that would reduce the auto industry’s reliance on China for key raw materials.

Accomplishing that reduction will be no small task. According to an analysis by the International Energy Agency last year, China produced three-quarters of the world’s lithium-ion batteries, the key component in the majority of EVs on the road.

China also has a dominant hold on much of the market for the components of those batteries, including lithium, cobalt and graphite. According to the IEA, more than half of the world’s capacity for processing and refining those materials is located in China.

According to the IEA, as of last year, the U.S. accounted for only 10% of EV production worldwide, and just 7% of production capacity for batteries.

Infrastructure projects

Last year’s passage of the Inflation Reduction Act, which contained hundreds of billions of dollars in climate-related spending, included the creation of large tax breaks restricted to EVs made at least partly in the U.S. The tax breaks are meant to extend over several years, but the restrictions become tighter as time goes on, creating incentives for manufacturers to “onshore” production to the U.S.

Tax breaks specific to the batteries used in EVs require that the raw materials used to assemble them come from domestic sources or from countries with which the U.S. has existing trade agreements.

Other pieces of legislation meant to spur investment in the U.S., including a major bipartisan infrastructure bill and the CHIPS and Science Act, also contain money and incentives that will help build out electric infrastructure in the U.S.

Achievable goals

Luke Tonachel, senior director for clean vehicles and buildings with the Natural Resources Defense Council, told VOA that building an EV supply chain centered on domestic production and imports from friendly countries is ambitious, but achievable.

Tonachel said the necessary raw materials are available from U.S. allies, but that the capacity for processing them needs to be built domestically. He said the creation of that capacity is already underway.

“There are robust incentives for building out that battery manufacturing and supply chain here in the U.S.,” he said, adding that he believes the administration’s time frame is feasible, especially now that the new standards have created certainty about future demand for EVs.

“It is realistic,” he said. “These are technologies that are known. We can certainly get more economies of scale as we ramp up production.”

Automakers tentative

Industry representatives said achieving the administration’s goal will require that a lot of disparate efforts be successful at the same time, not all of which are under their control. For example, a nationwide network of charging stations and the increased capacity to meet new demand for power will be essential to driving customer demand.

“It’s aggressive, and a lot of pieces have to work perfectly together,” Genevieve Cullen, president of the Electric Drive Transportation Association, told VOA. “Aside from the technology piece, the market piece has to work, and supply chain speed is part of that. Consumer incentives are working to help bring them into the equation, and we need to keep expanding infrastructure at a pace that meets, and perhaps exceeds, the needs in the beginning so that people feel the confidence that they need to switch to battery electric.”

John Bozzella, president of the trade group Alliance for Automotive Innovation, said in a blog post Wednesday that the administration’s plan is “aggressive by any measure” and that its success would depend on more than just automakers being able to ramp up production.

“To some extent, the baseline policy framework for the transition has come into focus,” Bozzella said. “But it remains to be seen whether the refueling infrastructure incentives and supply-side provisions of the Inflation Reduction Act, the bipartisan infrastructure law, and the CHIPS and Science Act are sufficient to support electrification at the levels envisioned by the proposed standards over the coming years.”
…