California Accelerates Clean Transportation Policy, Sets Historic Target Of 500,000 Electric Trucks By 2040
- Jul 1, 2020 12:00 pm GMT
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California just shifted the electric trucks market into high gear.
On June 25th, the California Air Resources Board (CARB) approved the Advanced Clean Trucks rule, which would require about 60 percent of new medium- and heavy-duty trucks sold in the state to be zero-emission vehicles (ZEVs) by 2035. The rule is America’s first electric vehicle standard for trucks, creating a market for up to 500,000 electric trucks by 2040.
Tesla TSLA’s stock price recently jumped to more than $1,000 per share on news the company would rev up production of its long-haul Class-8 tractor—an indication of growing investor confidence in electric truck economics.
But while Elon Musk’s statements grab headlines, the bigger story is CARB’s clean trucks rule, which will be viewed by clean transportation historians as a landmark policy.
Energy Innovation and the Energy Defense Fund recently evaluated the proposed clean trucks rule using the California Energy Policy Simulator (EPS), finding it could create $7-$12 billion in savings for fleet operators, on top of at least $9 billion in public health benefits across the state. And, macroeconomic analysis indicates the clean truck rule will create thousands of new jobs.
Public Health and Climate Benefits
The clean truck rule is first and foremost a public health measure, aimed at improving air quality for millions of Californians. The Golden State has the nation’s worst smog, much of it due to diesel trucks that release hazardous pollution like nitrogen oxides (NOx). California EPS modeling shows the proposed clean trucks rule would decrease NOx emissions by 60,000 tons and prevent 17.6 million metric tons of carbon dioxide equivalent (CO2e) emissions.
California’s progress on clean electricity means electric trucks reduce CO2e emissions about 75 percent compared to diesel trucks today. This climate advantage for electric trucks will increase over time as the state builds toward its commitment to a carbon-free electricity supply by 2045. Trucks last 15 to 25 years or even longer, meaning most of the trucks sold by 2030 will still be on the road by 2045. This slow capitol stock turnover and the state’s goal of achieving carbon neutrality by 2045 requires accelerated transportation electrification.
The estimated climate benefits do not account for emission reductions due to the effects of California’s leadership in other places. Precedent shows the clean trucks rule will likely speed up the zero-emission trucks transition in China and elsewhere. California’s ZEV sales requirements for light-duty vehicles served as the template for China’s policy requiring increasing sales of light-duty vehicles, and the clean trucks rule could boost the ambition of the European Union’s freight truck regulation, which is up for review in 2022.
Economic Opportunity in Electric Trucks
The clean trucks rule will generate several billion dollars in savings, primarily due to reduced fuel expenditures. In simple terms, electric miles are more economic miles. Electric vehicles have long been more efficient than internal combustion engines, and are less expensive to drive per mile
Technological innovation in batteries has been a game changer, opening up new cost saving opportunities. Battery electric vehicle storage costs have plunged 87 percent since 2010, and forecasts point to continuing cost reductions. As a result, electric cars and SUVs are now expected to cost less than conventional vehicles by the mid-2020s.
CARB’s analysis assumes a five-year delay before cost reductions in the light-duty vehicle market lead to corresponding cost reductions in batteries for electric trucks. When using the same battery cost assumptions, the California EPS estimates cost savings due the proposed clean trucks rule of $7 billion by 2040. This result is similar to the $6 billion in savings found in CARB’s analysis, reflecting financing costs for vehicle purchases in the government’s modeling not included in the California EPS.
Existing battery cost reductions in the passenger electric vehicle market will likely create faster cost reductions for truck batteries. We tested the implications of lower costs by reducing the time lag to a more probable two-year delay, where lower battery costs save $12 billion through 2040.
This economic opportunity derives from the existence of major market distortions preventing the “invisible hand” from spontaneously generating benefits. Petroleum fuels have built up a market dominance that systematically blocks evolution to more advanced technologies like electric vehicles, creating a type of technological lock-in.
Electric vehicle charging infrastructure is the linchpin of this lock-in. Electricity and non-petroleum fuels have to overcome the inherent advantage of a near-ubiquitous petroleum fueling system. Overcoming the accumulated advantage of petroleum fuels is a collective action problem solvable only through government coordination. Unleashing the electric trucking revolution will ultimately require several complementary policies, including zero-emission fleet rules also under development in California.
Managing Transition Costs
Electric trucks are currently more expensive to purchase than their conventional counterparts and will remain so for at least several years. While California adopted the clean trucks rule without delay, the state also needs to institute electric vehicle policies to address the transition costs. Policymakers should counter up-front costs through direct incentives and financing support.
Discussing government expenditures may raise questions about where the money will come from, but future state budgets may have more space to consider clean energy initiatives, providing time to develop measures to smooth out transition costs since the requirements for increasing ZEV sales begin in 2024.
Financing support, such as government guarantees of privately funded loans, which can greatly lower interest rates, is a low cost way for policy to make a big difference in the cost of emerging advanced technologies. The U.S. Department of Energy’s Loans Program Office provides evidence of this cost effectiveness. Its offerings have generated interest and fee payments exceeding portfolio losses by more than $1 billion.
In other words, the program has been revenue positive for the federal treasury. In 2011, federal loan guarantees helped to build the first five utility-scale solar power generation plants built in the U.S., and their repayment is on schedule while the industry is thriving. Since those first government-backed projects, purely private capital has stepped in to fund 45 additional utility-scale solar projects.
Environmental Justice Matters
Medium- and heavy-duty trucks are a major source of California’s worst-in-the-nation smog, and local pollution levels are correlated with areas of heavy truck traffic, such as near ports or major freeways.
As a result, historically disadvantaged communities that suffer disproportionately from air pollution could benefit the most from the clean trucks rule. Further research would be needed to evaluate this hypothesis because the California EPS evaluates policy impacts on a statewide basis, not at a community-level.
Turning to economic justice, the state should carry out a finer grained evaluation of the clean trucks rule’s economic effects with the goal of spurring job and income growth in areas near the ports and other disadvantaged communities that have historically borne the brunt of diesel truck pollution. Embedded in overall job increases are some job losses in occupations related to selling, servicing, and fueling diesel trucks. These displaced workers should be connected to training programs and other support to smooth their transition.
Cleaner Air and Economic Growth from Electric Trucks
Technology innovation has opened up a new era in which the drive for cleaner air, improved health, and greater strides toward carbon neutrality overlap with economic opportunity. Evaluation of the Advanced Clean Trucks rule demonstrates this, joining a growing body of evidence. The transition to zero- emission trucks will involve new challenges and it would be a mistake to minimize the work ahead. An even bigger mistake would be to underestimate the advantages of going forward with the clean trucks rule. Original post.