California’s Ban on Gas Vehicles is Also Good News for the Grid and the Auto Sector

California Governor Gavin Newsom showed bold leadership in issuing an executive order on Wednesday September 23 instructing the California Air Resources Board to establish rules for phasing out internal combustion engine (ICE) vehicles by 2035. This is a significant step in moving toward the goal of net zero emissions statewide by 2045.

As the first state in the nation to announce its intention to phase out all ICE vehicles, this is a strong signal to the market that the days of emissions-generating vehicles are coming to an end. It will also directly shift a portion of the US market, as California drivers account for about 10 percent of the total miles driven in the United States. We want to highlight why this announcement is good news not just for emissions, but also for both the automobile industry and the electric grid, as it will help drive the market toward the clean, distributed, digital system of the future more quickly.

Initial reactions to Governor Newsom’s announcement claiming that this decision could negatively impact the automobile industry and the electric grid fail to understand the fundamental nature of the accelerating clean energy transformation. As the cost of clean energy continues to fall across technologies including solar, wind, and batteries, the trend toward both electric vehicles and a 100 percent clean electric grid is progressing rapidly.


Who Will Lead the EV Revolution?

The real question is, when will we get there, and who will lead the way? By driving auto manufacturers and grid operators further along this path, California’s new executive order will help ensure that the United States is not left too far behind efforts in the European Union and China.

The world of mobility is being transformed by the very rapid fall in battery costs, which are only continuing to decline. The latest Tesla announcement this week shows an expected cost drop in half within three years, far better than our battery report from 2019 predicted. Along with Tesla, other manufacturers including CATL, Ionic Materials, and Quantumscape continue to make progress.

Electric passenger vehicles are already cheaper than ICE vehicles from a total cost of ownership perspective, and within just a few years they will be cheaper on an up-front basis. And that is even more relevant for fleets, where the total cost of operating the vehicles is key. This is why fleet owners like Amazon and Walmart, that consider the total-cost-of-ownership perspective, are already moving toward purchasing electric vehicles (EVs) for their trucking fleets.

Of course, not only are EVs rapidly becoming the most cost-effective choice, they are also better in many other ways: they are more fun to drive, require less maintenance, and have a longer life. Automotive OEMs who see the writing on the wall in both price and performance are already shifting toward the electric future. They cannot afford to keep both ICE and EV platform development going side by side: look to companies like VW and Volvo in Europe, or GM and Ford in the United States.

These companies see that Tesla has walked away with the luxury car segment and are now racing just to catch up again. By pushing these companies to move faster, and sending the strong signal that demand will increase, Governor Newsom is positioning California to lead the automotive industry of the future, further shifting the focus away from Detroit.


EVs Can Be an Asset for the Grid

But can California’s electric grid handle this influx of electric vehicles? Contrary to some recent media reports, the recent outages in California did not result from electric vehicles or renewable energy, but from a lack of overall electric capacity and errors in operations management of the grid system.

During a period of record high demand and temperatures across the entire western area of the country, there was simply not enough supply available. Adding to this, an operational error apparently sent incorrect instructions that caused a gas plant to shut down, resulting in further capacity shortfall. These localized blackouts really have nothing to do with California’s ongoing efforts to transition to a clean, renewable grid, which will take many years and involve significant investment.

From a technical and economic perspective, there is no reason why the power grid cannot support the full electrification of vehicles, space heating, and other appliances like water heaters and cookstoves. But it will take some careful work to expand the grid’s capacity to accommodate these additional loads over the coming decades and make sure that supply stays in balance with demand. Appliances that can be operated in a flexible fashion, as well as many kinds of distributed energy resources, will also play important roles in the evolution of the power grid.

Taking this longer-term grid perspective, more electric vehicles can be managed as assets that benefit the electric system enormously from a reliability and resilience perspective. If we add more EVs, which are really just mobile batteries, and also make the grid smarter using digital technologies, these vehicles can serve to help balance supply and demand. The new FERC order 2222, which allows distributed energy resources to participate in energy markets, will help to enable this “transactive grid.”

Digital blockchain technologies such as that developed by Energy Web Foundation, which RMI helped create, will allow the grid to understand the capacity available from all distributed energy resources, including electric vehicles. In addition, technologies that monitor emissions in real time, such as those offered by RMI partner WattTime, will allow the grid to calculate the carbon emissions footprint at any location and moment. The grid will therefore be able to balance supply and demand in real time, taking into account the need to optimize for total emissions.

This smart technology element of a transactive grid is right up California and Silicon Valley’s alley. Perhaps this is why Governor Newsom seems to so fundamentally understand where the world of power and mobility is headed. It is like the hockey player that skates to where the puck is going. Or as one of my favorite Dutch soccer players Johan Cruyff would say: you only see it when you get it. Governor Newsom gets it, and he is leading his state forward not just on addressing the climate crisis, but also on dominating the power and mobility industries of the future.