We introduce a notion of embedding codimension of an arbitrary local ring, establish some general properties and study in detail the case of arc spaces of schemes of finite type over a field. Viewing the embedding codimension as a measure of singularities, our main result can be interpreted as saying that the singularities of the arc space are maximal at the arcs that are fully embedded in the singular locus of the underlying scheme, and progressively improve as we move away from said locus. As an application, we complement a theorem of Drinfeld, Grinberg and Kazhdan on formal neighbourhoods in arc spaces by providing a converse to their theorem, an optimal bound for the embedding codimension of the formal model appearing in the statement, a precise formula for the embedding dimension of the model constructed in Drinfeld’s proof and a geometric meaningful way of realising the decomposition stated in the theorem.