Will America’s Clean Car Policies Persist?

Four ambitious clean-car policies are driving a major transformation in the United States. Will they survive legal and political threats?

The American automotive sector is bracing for a major transformation in the coming years, largely driven by four ambitious clean-car policies to phase out tailpipe emissions. What are these four cornerstone policies, and will they survive legal and political threats?

Policy 1

This year, new regulations issued by the Biden administration are projected to increase the market share of electric vehicles in new-car sales to 56% by 2032, up from about 8% in 2023. An additional 16% of new vehicles are likely to be plug-in hybrid electric vehicles (PHEVs). The projected gasoline equivalent of this new-vehicle fleet in 2032 translates to an average fuel economy of 58 miles per gallon.

The rule is part of a broader policy effort to transition the U.S. auto industry towards zero-emissions vehicles (ZEVs). However, achieving that goal will require a revolution in manufacturing processes and heavy investments in EV production and infrastructure.

The Environmental Protection Agency (EPA), which sets strict emissions limits for passenger cars and light-duty trucks, such as SUVs and pickup trucks, is behind these regulations. These rules do not directly ban gasoline cars, but in practice car manufacturers will have to sell large numbers of electric vehicles to meet these standards or risk paying hefty fines.

Automakers have invested heavily in EV technology and appear to be on board with the final regulation. They call it a stretch goal but nevertheless feasible, and United Auto Workers agrees.

Policy 2

Taking aim at another significant source of tailpipe pollutants, the EPA followed up with complementary regulations targeting emissions from heavy-duty vehicles, such as commercial trucks, delivery trucks, and school buses.

The goal is that by 2032, 25% of all new long-haul trucks and 40% of all medium-duty trucks sold in the U.S. will be ZEVs. Heavy trucks are among the biggest contributors to greenhouse gas emissions and local air pollution, particularly in low-income communities along trucking routes. The EPA projects that, by 2055, the new truck tailpipe limits could offset about one billion tons of greenhouse gas emissions and deliver an annual net benefit of $13 billion in public health, positive environmental impacts, and fuel cost savings.

As with the clean-cars rule, the EPA largely allows truck manufacturers to decide which technologies to use to meet the standard. Understandably, the rule has drawn criticism in the trucking industry over the infrastructure needed to change the fleet, including the lack of charging stations capable of serving heavy trucks.

Policy 3

At the state level, California is leading another initiative in the clean energy transition with its Advanced Clean Cars II regulation. The rule mandates that all new passenger cars, trucks, and SUVs sold in California be zero emissions by 2035. To achieve this, the California Air Resources Board (CARB) outlined a bold zero-emissions pathway, projecting that new ZEVs and PHEVs must be 35% of sales in 2026, increase to 68% by 2030, and reach 100% by 2035. 

For automakers, most of these sales must be battery-electric vehicles (BEV), with an allowance of up to 20% for PHEV sales, provided their electric range is at least 50 miles. The regulation also includes provisions to increase the access and affordability of ZEVs, such as rebates and funding for charging infrastructure. California’s approach is gaining national traction: 17 other states have adopted similar standards, representing more than 35% of the national vehicle market.

Policy 4

The historic Inflation Reduction Act, signed into law in August 2022, provides up to $7,500 in tax credits for new EVs, making electric cars more affordable for buyers. At the same time, increasingly strict domestic sourcing requirements for this credit will make it difficult for many of the popular EVs to qualify because they are either produced abroad or contain battery minerals produced in China or other non-favored trading partners. While these changes may initially dampen the surge in EV sales as car manufacturers switch to U.S.-based production, the Biden administration argues that they will boost American production long term and create a domestic supply chain for EV manufacturing. 

A Clean Car Future 

In 2021, an International Energy Agency report warned that the sale of new gasoline vehicles would need to be phased out by 2035 to keep global temperatures from rising above 1.5°C.

These four policies set the stage to transform the U.S. automotive industry. But such a fundamental and rapid transition requires careful navigation. The package of clean-car policies is not a done deal yet; even what’s outlined could be rolled back.

The major threats to these policies are legal and political. Fossil-fuel companies and attorneys general from Republican states are widely expected to challenge the rules in court. In addition, Republican politicians have already announced they will roll back the rules if they win the 2024 Presidential Election.

California’s ZEV rule might also come under pressure. California has been granted a waiver from the EPA to set emissions standards that are stricter than federal rules under a provision in the Clean Air Act. However, new EPA leadership may consider revoking that waiver.

Another hotly debated issue is whether the Inflation Reduction Act will survive in its current form under a new administration.

While a change in these policies is unlikely to end the rapid transition toward clean vehicles, a complete overhaul of the package is a different story. We live in times of tremendous regulatory uncertainty, although it is good to remember the dot on the horizon. As John Bozella, the president of the Alliance for Automotive Innovation, which represents automakers, said, “The future is electric.”

Arthur van Benthem

Associate Professor of Business Economics and Public Policy
Arthur van Benthem is an expert in environmental and energy economics, exploring the economic efficiency of energy policy. He is a faculty fellow at the Kleinman Center and an associate professor of Business Economics and Public Policy at Wharton.
M. Danial Syed headshot

M. Danial Syed

Research Analyst, Wharton
M. Danial Syed is a researcher in energy and environment economics at the Wharton School’s Mack Institute of Innovation Management.