Even with this overestimate of emissions reductions from EVs, the agencies predict that significantly more emissions reductions over the next five years will be attributable to gasoline vehicles than to EVs. Gasoline vehicles still account for about 86 percent of the total emissions reductions in the model year 2026. The EV market shares may turn out to be higher than the agencies anticipate—considerable uncertainty about the future of EV sales exists, after all—although our own analysis of similar standards comes to similar conclusions. However, if EV sales continue to comprise an increasing proportion of total vehicle sales, then EVs will begin to play a larger role in emissions reductions.
Three key reasons can explain why EPA and DOT predict that the new standards may not affect EV sales all that much over the next few years. First, when automakers increase the fuel economy of their gasoline vehicles, those vehicles become more expensive to produce. The agencies predict that tighter standards will increase average vehicle costs by $1,000 in 2026. But if battery costs fall only modestly between now and 2026, then EVs may continue to be more expensive than comparable gasoline vehicles, especially for popular larger vehicles such as trucks. Automakers may not be able to shift their production to EVs due to this continued disparity in costs.
Second, California and 12 other states implement a Zero Emission Vehicle (ZEV) program that sets requirements for plug-in and fuel-cell market shares in those states. By 2025, the market share for EVs in ZEV states is predicted to rise to at least 6 percent. The Biden administration standards likely will have a small incremental effect on EV sales in those states. Because those states account for one-third of all new vehicle sales, the ZEV standards dampen the effects of federal fuel economy standards on EV sales.
Third, in the proposed standards, EVs earn additional greenhouse gas credits for manufacturers beyond the extent to which the EVs actually reduce emissions relative to gasoline vehicles. This over-crediting creates additional incentives for automakers to sell EVs but also effectively weakens the standards because the overall average greenhouse gas emissions rate will be higher than if the EVs were credited normally. This outcome further dampens the effects of the fuel economy standards on EV sales. The agencies recognize that these incentives may reduce the effective stringency of the standards in the short run, but EPA and DOT believe that the incentives will encourage the broader application of new technologies and lead to lower costs in the long run.