The transportation industry has been a large contributor to the global emissions crisis and overall climate change concerns. For decades, businesses within the transportation industry have been working hard to reduce their emission output through the introduction of electric and hybrid vehicles. The Environmental Protection Agency (EPA) has played a key role in these efforts and has taken various measures to formalize emission reduction over the years. Just this week, the EPA proposed its most significant reduction plan to further protect the environment from dangerous greenhouse gases. On Wednesday, April 12th, 2023 the EPA announced its proposal to reduce emissions for new cars and trucks by an annual rate of 13%. This is the most aggressive plan the US has proposed and, if finalized, will change the future of the automotive landscape.
The EPA rolls out new emission regulations every so often to ensure that manufacturers are playing an active role in protecting our environment. The current regulations, which apply to 2023-2026 vehicle models, require vehicles to reduce their emissions by 5-10% each year. This plan would mean all new models would achieve a minimum of 40 miles per gallon by 2026. Under these regulations, the EPA projected carbon dioxide pollution from cars would reduce from 166 grams per mile to 132 grams per mile by 2026. At the time of its finalization, this was considered an aggressive approach to emission regulation.
The new proposal, which applies to 2027-2032 vehicle models, would require an annual emission reduction of 13% and would achieve an overall 56% emission cut by 2032.
The EPA projects these rules would cut more than 9 billion tons of CO2 emissions through 2055, which totals more than twice the emission output in the US in 2022 alone. The new regulations also propose higher emission standards for medium to heavy trucks. While these standards are strict, and more highly regulated than prior proposals, lawmakers say that urgency is needed to combat the ongoing climate crisis. The proposal is set to be finalized by 2024.
The new EPA regulations are significantly stricter than prior ones, and the automotive industry will see a lot of changes over the next decade if the proposal passes. Firstly, due to the high annual emission cut regulation of 13%, experts project that the automotive industry will produce 60% of electric vehicles by 2030 and 67% by 2032. The current administration is aiming for two-thirds of every new passenger car sold to be electric and one-fourth of heavy trucks. Last year, only 5% of new vehicles were electric and fewer than 2% of trucks were fully electric. While the industry is already investing quite heavily in the production of electric vehicles, these mandates would put more urgency on allocating resources to the cause. There will certainly be pushback from organizations who feel the proposal is too strict, and the proposal may see multiple versions until its officially finalized.
These changes wouldn’t be felt entirely by the general public for years, since the start of the regulations won’t begin for another 4 years, and will progress annually. However, fleet owners and manufacturers would need to make immediate changes to their processes and resource allocation to meet standards by the proposed timeline. The automotive industry would also need to create enough electric infrastructure to support the increased amount of EVs.
The companion rule to the new EPA regulations that require heavy-duty vehicles, including eighteen-wheeler big rigs, to be all-electric by 2032 is by far the most unprecedented. With many heavy-duty vehicles currently not having any electric components, it would call for a total shake-up of current businesses and manufacturers. Some worry the strict standards and short timeline would lead to job and profit losses. However, those pushing for the regulations say it would both strengthen our environment and our economy in the long run.
The new EPA regulations cannot mandate how many electric vehicles are sold; only how many new models are manufactured. Additionally, the regulations do not require 100% of vehicles on the road to be electric. Fleets will be allowed to have non-electric vehicles on the road, but any new vehicle purchases and any significant mechanical fixes would require electric components. However, since the proposal includes potential emissions standards for large fleets and heavy-duty vehicles, older vehicles with high emission output could fail inspection. The same goes for passenger vehicles. Older, gas cars will still be able to be sold and driven, but new models will have a different set of standards.
In general, electric vehicles tend to be more expensive than standard gas vehicles to purchase. Maintenance can also be expensive, as there aren’t the same number of resources available at this time. As cars shift to predominantly electric, the automotive industry will be more equipped to handle maintenance, so prices should even out in time. According to the Alliance of Automotive Innovation, the proposal would cost roughly $1,200 per vehicle per manufacturer, but save an owner $9,000 on average on fuel, maintenance, and repair costs over an eight-year period. It’s more cost-effective to drive an electric vehicle in the long term, and the initial increase for manufacturers should level as the industry continues to shift.
Passenger electric vehicles will require new insurance policies, and fleet managers with electric vehicles will require changes to their insurance as well. Fleet managers who have vehicles with partial electric components may require changes to their insurance depending on current coverage. Currently, the average electric vehicle costs about 15% more to insure than a standard gas car. This is mostly due to higher-cost vehicles, and most electric vehicle damage is replaced rather than repaired. It’s important to keep in mind that many current passenger vehicles that are electric are luxury, and more standard model EVs will be rolled out with lower price points. Over the next decade, as manufacturers become better equipped to repair and replace EVs, insurance costs could potentially decrease. Additionally, with the long-term cost of driving an electric vehicle saving drivers up to $9,000, insurance costs could prove to be a minimal issue.
If you’re a business owner or operator in the automotive industry, the new EVP proposal could have a significant impact on your company in the coming years. Even if you’ve begun to operate electric vehicles as part of your fleet, the new proposal may require further changes in your business. To protect your businesses from financial losses and business interruption, it's essential to ensure that your new vehicles have adequate coverage. At ECBM, our agents have expert knowledge of auto insurance, trucking insurance, and EV insurance. For more information on how we can support you through these industry changes, contact one of our agents today.