The High Costs Of Electrifying The U.S. Auto Industry

New proposed EPA emissions targets would require that at least two-thirds of vehicle sales will need to be EVs by just 2032 - less than a decade from now. Powering this massive increase in electrification will require an unprecedented expansion of existing infrastructure and supply chains, and it won't be cheap. 

At the moment, the future of EVs looks bright in the United States thanks to the strict proposed emissions standards, state-level "Advanced Clean Truck" rules, and the major incentives offered by the Biden administration's Inflation Reduction Act, on top of general global trends toward electrification. But in the present tense, the United States is still far, far away from achieving widespread EV adoption. In 2022, EVs made up just 5.8 percent of the country's total auto market. 

Reaching the kinds of targets set by the EPA will be an immense challenge, but it's an essential step toward meeting the nation's emissions goals. At the national level, transportation currently represents the single-biggest source of carbon dioxide emissions. This has a direct bearing on the feasibility of international decarbonization efforts, as the U.S. has the second-biggest carbon footprint in the world, behind China. Related: U.S. Ethanol Producers Seek Sustainable Aviation Fuel Credits

The conversation around decarbonizing the transportation sector is largely focused on trucking. "Although medium- and heavy-duty trucks and other larger vehicles make up less than 5 percent of vehicles on the road in the U.S., they account for nearly 30 percent of the country's total transportation-sector greenhouse gas emissions," Canary Media recently reported. "They also spew air pollution that disproportionately harms people living and working near highways, ports, distribution hubs and other heavily trafficked areas." 

Electrifying the United States car and truck fleet won't just be challenging - it's going to be very, very expensive. Huge investments will have to be made to expand charging infrastructure, prepare the grid for a huge influx of plug-in electricity demand, and shore up supplies of essential primary materials. Much of this onus will fall on utilities, but questions remain about who should actually fund this "make-ready" work. More specifically, the big question is: should the utilities make these massive up-front payments themselves, or should consumers  - and particularly heavy vehicles operators - fund the EV transition?

According to a new report from the Environmental Defense Fund, consumers should foot the bill. But they could do so without suffering higher rates, if the transition is properly managed. Utility customers could indeed pay for these "make-ready" costs without suffering from higher electricity rates. "Utilities can invest in charging infrastructure without having a negative impact on ratepayers," Pamela MacDougall, director of grid modernization at EDF, was recently quoted by Canary Media. ?"It's beneficial for the fleets, beneficial for the utilities and beneficial for the ratepayers - if it's done well."

The EDF's study of two New York state facilities' sales to medium- and heavy-duty electric vehicles (MDHVs) found that "socializing the costs of make-ready and distribution system upgrades necessary to meet New York State's MDHV electrification targets are unlikely to cause ratepayer bills to increase in either of the utility service areas studied, due to being offset by the revenues contributed by MHDVs over the same period."

In layman's terms, the study found that if the utilities continue to charge customers under existing utility tariffs, they will have more than enough revenue to fund the "make-ready" costs. It's a win-win for everyone involved - if everything goes well, that is. Proper planning and careful management will be essential to making sure that consumers and utilities alike benefit from increased charging capacity. This will likely have to include managed charging practices that limit fleet charging during peak periods. 

By Haley Zaremba for Oilprice.com

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