California Reaches Compromise With Automakers on Zero Emission Vehicle Mandate

The state of California is famous worldwide for its Zero Emission Vehicle Mandate: a regulation which requires automakers to produce a specific proportion of zero emission vehicles alongside their gasoline and diesel models in order to avoid tough fines and be allowed to sell cars in the state.

Cars like the FIAT 500e exist purely to satisfy CARB regulations

Cars like the FIAT 500e exist purely to satisfy CARB regulations

It’s that very regulation which helps California have such a large range of plug-in cars for sale. Aside from the handful of automakers who make and sell plug-in cars nationwide — like Nissan, General Motors, BMW, Ford and Tesla — most automakers produce limited number of plug-in cars exclusively for sale in California and the other states which follow California’s ZEV mandate in order to satisfy that mandate. These are colloquially known as ‘compliance’ cars by the auto industry.

Originally focused on high-volume automakers, the minimum ZEV requirement for automakers has slowly risen as the California Air Resources Board (CARB) strives to meet the state’s goal of 1.5 million zero emissions vehicles on its roads by 2025 as well as reduce chronic air pollution in major Californian cities like San Francisco and Los Angeles. In addition, ZEV rules have come into force for mid-volume automakers, requiring more automakers than ever before to produce zero emission vehicles — or buy the appropriate amount of credits from rival automakers with credits to spare.

The latest version of the ZEV mandate — due to come into force on January 1, 2018 —  will require intermediate-volume automakers to produce at least some zero-emission vehicles in order to sell in state. But for some time now, five of those intermediate-volume automakers — Jaguar Land Rover, Mazda, Mitsubishi, Subaru and Volvo — have argued that they should be exempt from the ZEV mandate due to their small research and development budgets.

As Automotive News (subscription required) explains however, those pleas were rejected at a recent May 18 meeting of the Air Resources Board, meaning that each of the five automakers listed above will have to produce some form of advanced fuel vehicles in order to meet the ZEV requirements.

CARB has reached a compromise with intermediate volume automakers allowing TZEV to qualify for ZEV credits.

Yet in a measure that addresses some of the five automakers’ concerns, CARB has offered something of a compromise. Instead of requiring automakers with less than $40 billion in annual global revenue to produce all-electric or hydrogen fuel cell vehicles in order to meet the ZEV requirements, the CARB will allow those companies to produce Transitional Zero-Emission Vehicles (TZEVs) instead.

Under the agreement, cars like the Mitsubishi Outlander PHEV would earn credits.

Under the agreement, cars like the Mitsubishi Outlander PHEV would earn credits.

It’s essentially the outcome suggested back in October last year, when those same five automakers attended an CARB hearing on softening zero-emission requirements for intermediate-volume manufacturers. Now that outcome has been agreed on, those five automakers can concetnrate on making TZEVs instead of full ZEVs. For those unfamiliar with the distinction, ZEVs produce no tailpipe emissions and are therefore powered by either electricity or a hydrogen fuel cell. TZEVs include plug-in hybrids: cars with both a gasoline or diesel engine and a battery pack for limited-range zero emission use.

One of the arguments made at the hearing was that in everyday use, TZEVs operate as electric vehicles, only using their gasoline engines as range-extenders. However a counter-argument to that would be that developing a dual-drivetrain vehicle is as complex — if not more so — than developing a purely electric or hydrogen fuel cell vehicle.

Under the rules that come into force in January 2018, intermediate-volume automakers will have to earn some of their ZEV credits through the production and sale of ZEV or TZEV vehicles. But if they don’t sell enough, they’ll have to turn to other automakers — like Tesla Motors — to buy any remaining credits needed to satisfy CARB regulations.

For Tesla Motors, which sold more than $51 million worth of ZEV credits in the first quarter this year to automakers who weren’t producing enough ZEVs on their own, you’d think that the compromise would be at least a secure revenue stream moving forward.

But as Ken Morgan, director of business development and governmental affairs at Tesla points out, there’s already an oversupply of ZEV credits. And if those credits become cheaper than building and selling ZEV or TZEV models in California, automakers will take the easy choice.

His argument? Even intermediate-volume automakers — all of which are bigger than Tesla — have “billions of dollars in operating profit and cash on hand.”

Essentially, if Tesla can make an electric car, so too can automakers like Mazda and Subaru, argue many advocates. Currently, neither Mazda nor Subaru appear to have any plans for either a plug-in electric or plug-in hybrid model for the U.S.

Tesla argues the compromise isn't exactly fair on those who do make ZEVs.

Tesla argues the compromise isn’t exactly fair on those who do make ZEVs.

Jaguar Land Rover, Volvo, and Mitsubishi meanwhile, do — and we should note that Mitsubishi already sells the low-volume i-Miev electric car, which would qualify it for at least some ZEV credits.

Here at Transport Evolved, we’d rather see more cars with plugs on the roads than without — even if those cars happen to be plug-in hybrids rather than all-electric models. Further, we feel the compromise — which could change again in 2016 during a 2015-2017 mid-cycle CARB review — is indeed better than scrapping the mandate altogether.

But we’re curious. Do you think the CARB should have reached the compromise — or forced those lower-volume automakers to produce fully zero emission vehicles?

Leave your thoughts in the Comments below.


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