UK’s new Electric Car Grant ties subsidies to manufacturing sustainability, but questions remain

The UK government’s new Electric Car Grant (ECG), launched in July, ties purchase subsidies to how sustainably an electric vehicle is manufactured, shifting the focus from purely incentivising EV uptake to rewarding lower embedded emissions in production.

Under the scheme, eligible models priced at or below £37,000 are assigned to two bands: Band 1 vehicles qualify for a £3,750 grant and Band 2 vehicles for a £1,500 grant. The Department for Transport (DfT) says eligibility is dependent on ‘‘the highest manufacturing sustainability standards’’ and that production emissions are assessed against the carbon intensity of the electricity grid in the countries where assembly and battery production take place. To date the government has confirmed 35 models as eligible, but only two have qualified for the higher Band 1 subsidy. The DfT has not published detailed reasons for each model’s banding.

The government says a minimum requirement is that manufacturers hold verified science-based targets, commitments to reduce environmental impact that are validated by the Science Based Targets initiative. Transport Minister Lilian Greenwood told BBC Radio 4’s Today programme on July 16 that officials do not expect cars assembled in China to qualify for the scheme. The DfT has declined to confirm a blanket exclusion of China-assembled models and has not disclosed the precise carbon-emissions thresholds or country-grid assumptions used to determine banding.

The ECG marks a change from the previous Plug-In Car Grant, scrapped in 2022, by embedding lifecycle emissions into subsidy decisions rather than offering a broad-based incentive to drive EV adoption. The move aims to ‘‘address embedded carbon emissions across a vehicle’s lifetime, as well as tailpipe emissions,’’ the government said, but has provoked confusion among manufacturers, dealers and some buyers about which vehicles will qualify and why.

Automakers and industry analysts note that many manufacturers have long measured and reported lifecycle and supply-chain emissions. Brands such as Volvo and Polestar publish detailed annual sustainability reports and model-specific carbon-footprint assessments. Other global manufacturers, including Ford, Kia, BMW and Mercedes-Benz, also produce sustainability disclosures that include supply-chain emissions, end-of-life recycling plans and targets for raw-material sourcing.

Despite that reporting, the government’s banding decisions have been opaque. Industry sources say the scheme’s emphasis on the grid carbon intensity where assembly and battery production occur will disadvantage models with production stages in countries where electricity remains carbon-intensive. Because battery manufacture is a major contributor to production emissions, the location of battery-making facilities and the source of their power play a large role in lifecycle emissions estimates.

Critics say that approach will leave many lower-priced models out of scope. Observers expect most China-assembled models to be excluded from the ECG. In practice, many vehicles assembled outside China still use parts or battery cells made there, creating further complexity. Electrifying chief executive Ginny Buckley said even cars without a Chinese badge will often contain components produced in China, complicating eligibility.

Battery raw materials and their supply chains have emerged as a central technical and ethical challenge in assessing EV sustainability. Analysts identify four key raw materials for lithium-ion cells: lithium, nickel, cobalt and high-purity manganese. A December 2024 McKinsey report estimated that battery producers used more than 80 percent of global lithium output at that time, a share forecast to rise as EV production expands.

McKinsey and other analysts warn of shifting demand pressures for nickel and cobalt through 2030, even as battery chemistries evolve. Cobalt supply is concentrated geographically: about 64 percent of mined cobalt originates as a by-product of copper and nickel production and much of it is produced in the Democratic Republic of Congo (DRC). Such concentration raises human-rights and environmental concerns that have drawn scrutiny from campaign groups.

Amnesty International assessed 13 automakers’ public disclosures and due-diligence practices for mineral supply chains and found many firms fell short. No manufacturer scored above 51 out of 90 on Amnesty’s evaluation. Mercedes-Benz scored highest; Tesla and Stellantis followed. BYD, the world’s largest EV maker, scored lowest. Amnesty’s report highlighted ‘‘huge risks for people and the environment’’ linked to mineral extraction and pressed manufacturers to use leverage over suppliers and smelters to mitigate those risks.

Producers and some carmakers are responding with changes in cell chemistry and recycling plans. Lithium iron phosphate (LFP) batteries, which use little or no cobalt and less nickel, have risen in market share. The International Energy Agency’s 2024 Global EV Outlook found that LFP chemistry supplied more than 40 percent of EV battery capacity in 2023, a marked increase from 2020. China has been the primary mass producer of LFP cells; two-thirds of EV sales in China now use the chemistry.

European and US carmakers are increasing LFP adoption: BMW has announced LFP use in some models, Volkswagen plans to introduce LFP cells from 2026, and Tesla has used LFP widely since 2022. Research published in 2025 in Scientific Reports estimated that replacing nickel-cobalt-manganese (NMC) chemistries with LFP combined with aggressive recycling could reduce cumulative demand for lithium, cobalt and nickel by millions of tonnes between 2021 and 2060.

Other emerging chemistries aim to reduce reliance on scarce or problematic inputs. Lithium manganese-rich (LMR) cells and GM’s LMR development, for example, use less nickel and virtually no cobalt, shifting volumes toward manganese. Analysts caution that increased manganese demand will itself have environmental and emissions implications if supply grows rapidly.

Recycling is central to the government’s stated aims and to independent assessments of EV sustainability. Transport & Environment (T&E) has argued that EVs are significantly better for the climate across their lifetimes than internal-combustion vehicles, in part because metals used in batteries can be recycled and reused. T&E estimated that an EV would use roughly 30 kilograms of raw materials lost per recycling cycle, compared with the thousands of litres of petrol burned by a conventional car over its life. The European Union’s 2023 Batteries Regulation includes minimum recycled-content targets for certain battery types and recycling efficiency requirements for waste batteries, measures designed to shore up secondary-material supply and reduce dependence on new mining.

Automakers and campaign groups say clearer public standards and transparency will be needed to make the ECG’s sustainability intent operational. Some manufacturers point to corporate programs and industry initiatives that address responsible sourcing, traceability and stakeholder engagement; the Science Based Targets initiative and similar frameworks include guidance on community and Indigenous engagement in supply chains. The Volvo Group, for instance, says its Sustainable Minerals Programme applies strict practices to protect human rights in mineral sourcing.

Environmental campaigners and some industry analysts welcomed the government’s attempt to reward lower-emissions production but called for the DfT to publish the methodology used to assess manufacturing emissions and to explain why so few vehicles qualified for the higher band. Without that transparency, dealers said, consumers will find it difficult to understand why one electric model receives a larger subsidy than another and manufacturers will be hampered in efforts to align production strategies with subsidy criteria.

The ECG represents a policy shift toward accounting for embedded emissions in vehicles’ lifecycles rather than focusing solely on tailpipe emissions. That approach aligns with a broader push in the EU and among some manufacturers to tighten recycling standards, diversify battery chemistries and improve supply-chain traceability. But it also raises immediate political and market questions about which models are supported by public funds and how governments should weigh carbon intensity, human-rights risks and industrial policy in deciding which vehicles count as ‘‘truly green."

The government has framed the ECG as a way to ‘‘back UK and other manufacturers’’ that meet higher sustainability standards. Whether that objective will accelerate cleaner battery production, speed investment in low-carbon manufacturing grids abroad, or concentrate subsidies on a narrow set of higher-cost models depends in part on the DfT’s next steps. Analysts say publication of the assessment methodology, regular updates to eligible-model lists and clearer rules on how overseas production and component sourcing are treated would help manufacturers, buyers and campaigners judge whether the scheme is delivering on its environmental and industrial aims.