- The California gas car ban outlaws the sale of new gas-powered vehicles in or after 2035
- The rule intends to push the state toward climate-friendlier transportation options and lower the state’s emissions
- Over 15 other states tie their vehicle emissions standards to California’s, though only some are expected to adopt the ruling
On August 25, the California Air Resources Board (CARB) adopted new regulations that effectively ban most gas-powered vehicles by 2035. The ruling aims to stair-step the state off gas-powered vehicles and transition to zero-emissions electric models.
The so-called “California gas car ban” brings the state in line with over a dozen countries curbing gas-powered vehicle sales. Some of the most prominent traveling that road currently include Canada and the UK. Norway is arguably the most successful, with EVs commanding some 90% of its market share.
While governments worldwide have, are, and likely will incentivize driving green, California’s approach takes a harder stance. Instead of handing out rebates and tax incentives to consumers, it’s targeting the industry at the source: automakers.
And thanks to California’s status as the nation’s largest auto market, the ruling could very well become one of the USA’s strongest climate-protection policies.
What is the California gas car ban?
California’s gas car ban sets interim targets to “phase out” new gas-fueled car sales by 2035. By 2026, 35% of new vehicles sold in the state must be zero- or low-emissions. By 2030, that number rises to 68%, and by 2035, 100%. (For reference, 16% of all new cars and light trucks purchased in California in the first half of 2022 meet these criteria.)
While the ruling aims to limit California’s reliance on gas-powered vehicles, it doesn’t ban gas fuel outright. After 2035, consumers will still be able to buy used gas-fueled cars or cross state lines to buy new models.
What counts as a “low-emissions” vehicle?
Zero- and low-emissions vehicles include fully-electric vehicles (EVs), as well as some plug-in hybrids. But there are restrictions: plug-in models can’t exceed 20% of an automaker’s new car sales and must run at least 50 miles on battery power only. Standard hybrids, which require more gas, are excluded.
How does the California gas car ban impact consumers?
Technically, the gas car ban isn’t actually a ban – and on its surface, it’s not aimed at consumers. (Though consumers will be the ones purchasing the vehicles.)
Instead, the rule sets various fines for automakers who fail to meet the state’s outlined targets. Experts note that the penalties are high enough that automakers who can’t afford to avoid the nation’s single largest market will comply.
Is the ruling set in stone?
Governor Gavin Newsom already signed off on the state’s plan. However, the Environmental Protection Agency still needs to stamp its seal of approval. (Which it’s likely to do, given that regulations don’t impact existing vehicles or used car sales.)
Emissions impacts of the California gas car ban
Currently, transportation remains the single largest source of greenhouse gas emissions in California, sitting steamy at 40%.
But CARB projections estimate that the gas car ban will lower greenhouse gas emissions from cars and light trucks 62% between 2026 and 2040. That’s equivalent to nearly 400 million metric tons of greenhouse gas, or burning 915 million barrels of oil.
Similarly, nitrogen oxide emissions – a pollutant linked to severe health drawbacks – will fall 70%. The agency estimates the health benefits alone will add up to some $13 billion by 2040.
Wait, aren’t EVs expensive for the average consumer?
Today, yes – EVs tend to cost more than equivalent gas models, even after tax credits. (Though fuel and maintenance savings, alongside a healthy federal tax credit, have stolen some truth from this statement.)
However, lower EV stick prices is one intended outcome of the California gas car ban.
California is the nation’s largest auto market, commanding nearly 12% of all new vehicles sold. In other words, it’s too big for automakers to ignore – and it knows it.
EVs are largely expected to reach cost parity with equivalent gas models by 2030. But the California ruling incentivizes automakers to produce more EVs faster, all the while innovating to make designs more attractive and efficient.
Encouraging producers to pour resources into R&D while providing a market for the end product is likely to see the sticker price of EVs go down. (And that’s no accident.)
Public reception: A hybrid of its own
The California gas car ban has received mixed ratings so far.
The ruling’s supporters say that the policy will help the U.S. transition to cleaner transportation faster, save consumers money on gas and maintenance and encourage locales to construct EV charging infrastructure. All of these could increase the hype around EVs and bring ownership within arm’s reach for the average consumer.
On the other side, some states and companies (often in oil-related industries) have called the ruling heavy-handed, arguing that strict rules threaten the stability of the U.S. auto industry or their own business models. More nuanced arguments claim that 2035 is too soon for states to overcome the logistical challenges enforcing the policy requires.
Perhaps surprisingly, automakers are generally supportive of the state’s push to pump out EVs. (Ford’s chief sustainability officer called the policy “a landmark standard that will define clean transportation and set an example for the United States.”)
Still, many worry about California’s limited EV charging infrastructure. A handful of automakers and mining companies have also expressed concerns about their ability to obtain enough raw materials to fulfill battery demand.
Links and chinks in the nationwide chain
California’s ruling is significant – and legal – thanks to its relationship with the federal Clean Air Act.
Due to factors like its size, population and agricultural industry, California is allowed to set tougher emissions standards than the federal government. Under the Act, other states may choose between adopting California’s rules or following federal guidelines.
Historically, around 15-17 states usually adopt California’s standards. If all of them follow suit with the recent ruling, the California gas car ban would apply to roughly 1/3 of the U.S. auto market.
This time, that’s not a guarantee.
Several states, including Washington, Oregon, Massachusetts, New York and Vermont are all expected to adopt most or all of California’s ban. A few have opted to hold public forums on the matter, while others have “trigger laws” to opt in automatically.
But a few states have already pumped the breaks on the matter. For instance, Minnesota Governor Tim Walz has indicated the state intends to set its own standards to “lower costs and increase choices” for the state’s constituents.
Similarly, Colorado Governor Jared Polis notes that the state won’t adopt the rule. The Colorado Energy Office supported his position, citing skepticism about “requiring 100% of cars sold to be electric by a certain date as technology is rapidly changing.”
And while Virginia adopted legislation to follow California’s emissions standards last year, Governor Glenn Youngkin has said he will try to repeal the trigger law.
Charging up or sputtering on fumes: How investors zoom ahead
The California gas car ban has dozens of wide-spreading implications for itself and the nation. But the prospect could also help prepared investors – or harm the unprepared.
For instance, oil companies and gas-only automakers stand to lose substantial sums as the world shifts toward EVs. California’s ban could potentially impact 1/3 of the U.S. auto market, eating into their potential profits. Even automakers that make the switch to EVs will lose – at least in the short-term – as they ramp up R&D to meet EV demand.
The gas car ban also stands to produce some heavy-hitting winners. Of course, EV automakers sit atop the heap, as California’s ruling all but mandates they ramp up production to serve California consumers.
Companies that participate in the EV infrastructure chain also stand to benefit, like construction companies that build EV charging stations and miners and refineries that produce battery components.
The ruling may even generate winners in unexpected places. One example could be clean energy companies – like solar panel producers or geothermal well diggers – that may see increased demand as consumers require the ability to fuel up even when the grid goes offline.
Each of these industries stands to benefit from, or be harmed by, the gas ban…at least, eventually. But their impacts may not be immediate or fast-acting. Since the ban sets interim targets extending a dozen years out (and the full ramifications won’t be apparent for 1-2 decades after), the companies involved will have to play the long game.
As an investor, you should, too.
Sure, investing in slow-growing EV stocks, hunting down lithium miners or weaning off gas stocks over the course of a decade or two isn’t exactly exciting. But given California’s influence on U.S. transportation infrastructure, it’s not if the ruling will impact your portfolio – it’s when.
Savvy investors will prepare to jump on this train soon and ride the long, slow wave to the top. Waiting too long could see you left sputtering in the dust.
Unique ways to profit off the California gas car ban
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