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Proposed US automotive GHG regulations call for one-third CO2 emission levels by 2032

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The US EPA published proposed vehicle GHG emission regulations for the 2032 model year on 12 April 2023, the day before yesterday. These regulations were introduced during the Obama administration to reduce greenhouse gas emissions and are equivalent to the EU’s vehicle CO2 regulations, which called for 100% emission reductions (i.e. zero emissions, i.e. zero CO2 emissions) as part of the Fit-for-55 policy Although not as stringent as the EU, by the 2032 model year GHG emission reductions are regulated on a company average basis, but the EPA estimates that the required GHG emission standard is 82 g/mile in 2032 model year (industry average), with an average annual reduction rate of 13% over the period covered. Incidentally, the current performance is a 2021 model year industry average of 238 g/mile and an average annual reduction rate of 2% over the past 10 years.

As part of its climate policy, the Biden Government requires car manufacturers to achieve a 50% BEV ratio by 2030, and Ford, GM and Stellantis’ Detroit 3 have announced commitments accordingly. Many European and Japanese brands have also officially announced more than 40%, even if there are differences. Based on such OEM commitments and the policy penetration of the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Act, we estimate that 67% of light-duty vehicle sales in the US will be EVs by 2032. Although this figure seems somewhat overstated, it is the basis for the reduction requirement. If only a commitment is made, there is no economic downside even if it is not achieved, but if it is incorporated into the GHG regulation, compliance will eventually take the form of purchasing credits from other companies that exist in the system, which will have a negative impact on business profitability.

Looking at the status of compliance with GHG regulations, Honda and Subaru have been in the leading position after Tesla for several years, while Ford and Toyota have improved their performance by increasing sales of BEVs and PHEVs. GM and Stellantis, on the other hand, are underperformers (2021 model year), as GHG regulations are met by the sales mix of all products, so developing an advanced technology BEV product like GM cannot be achieved without sales results. When this different level of federal GHG regulation is added to the California ZEV regulation, it becomes essential for the US market to have a successful BEV business for the 2030s.