The Zero Emission Vehicle (ZEV) program is a California state regulation that requires automakers to sell electric cars and trucks in California and 10 other states. The exact number of vehicles is linked to the automaker’s overall gasoline and diesel sales within the state.
The program’s objective is to ensure that automakers research, develop, and market electric vehicles (EVs), which generate fewer global warming emissions than gas-powered cars, and which don’t produce tailpipe pollution (hence the term: “zero emission vehicle”).
The California Air Resources Board (CARB) manages the ZEV program, although it has also been adopted by ten other states (Colorado, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont). By directly requiring that automakers invest in clean technology, the ZEV program is considered one of the nation’s most forward-looking climate policies, and a driving force behind an expanding market with over 40 zero emission models available to the U.S. public in 2019.
What is a zero emission vehicle?
Under the ZEV regulation, three distinct vehicle designs are considered "zero emission," though to varying degrees.
Plug-in hybrid vehicles combine a conventional gasoline-powered engine with a battery that can be recharged from the electrical grid.
Battery electric vehicles run entirely on electricity and can be recharged from the electricity grid.
Hydrogen fuel cell vehicles run on electricity produced from a fuel cell using hydrogen gas.
How the ZEV regulation works
The ZEV program assigns each automaker “ZEV credits.” Automakers are required to maintain ZEV credits equal to a set percentage of non-electric sales. Each car sold earns a number of credits based on the type of ZEV and its battery range. The credit requirement is 7 percent in 2019, which will require about 3 percent of sales to be ZEVs. The credit requirement rises to 22 percent in 2025, which will likely require less than 8 percent of sales to be ZEVs.
There are also restrictions on the amount of credits that can come from ‘transitional’ ZEVs that still have an engine. In 2019, plug-in hybrid vehicles (PHEVs) can only account for 43 percent of credits, meaning at least 57 percent must originate from battery electric vehicles (BEVs) or hydrogen fuel cell vehicles (FCEVs).
For example, an automaker selling 100,000 cars in California in 2018 will need at least 7,000 ZEV credits, with at least 4,000 coming from battery-electric or fuel cell vehicle sales. However, this does not mean they’ll need to sell 7,000 electric cars and trucks to comply, as most ZEVs generate more than one credit per vehicle (see below).
Vehicle credit formula
Automakers earn credits by selling zero emission cars and trucks. The credit per vehicle varies with drivetrain type and electric range. From 2018 onwards, plug-in hybrids—which only partially drive on electricity—receive between 0.4 and 1.3 credits per vehicle sold. Battery electric and fuel cell vehicles receive between 1 and 4 credits, based on range.
For example: the Tesla Model S, which boasts a range of more than 200 miles, is eligible for 3.3 credits, while the 84-mile range Nissan Leaf is credited at 1.8 ZEV credits per car sold.
Because not all vehicles receive a flat 1 credit per sale, the ZEV credit percentage does not directly reflect the EV sales percentage. CARB’s most recent assessment of the ZEV program estimates automakers will need to reach less than 8 percent ZEV sales by 2025 to meet the 22 percent ZEV credit requirement.
Banking and trading
Manufacturers are allowed to carry over excess credits from one year to the next. Called “banking,” the practice has grown since 2012, thanks to extra credits and ZEV sales in California that outpaced the relatively low regulatory starting requirements.
In addition, automakers can purchase or trade ZEV credits from other manufacturers. Because it only sells EVs and has no compliance obligation of its own, Tesla has produced and sold significant numbers of ZEV credits to other traditional carmakers.
As of October 2018, manufacturers had banked over 816,000 BEV/FCEV credits and 251,000 PHEV credits, enough to comply through with the regulation through 2022 with no new ZEV sales.
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“Travel” and “pooling” provisions
For the ten other states that adopted the ZEV regulation, the credit structure for electric vehicle sales remains essentially the same as in California. However, sales requirements in these other states are affected by two provisions in the ZEV regulation that don't apply to California: "travel" and "pooling."
The travel provision, which largely phased out after 2017, allowed automakers to receive credits in all other ZEV states for vehicles sold in California, proportional to the vehicles sales in the states. For example: if a car company sold a ZEV earning two credits in California, they received two credits in a ZEV state that had the same sales as California and one credit in a state with ½ the sales of California. They received the proportional credits in all states that had ZEV programs, despite only selling one vehicle (in California).
As a result of the travel provision, auto companies accumulated sizeable credit banks in states where they hadn’t sold many electric cars or trucks. The provision also created an incentive to concentrate sales of battery electric and fuel cell vehicles in California. As of 2019 the travel provision has phased out, except for fuel cell vehicles. This should increase model availability and sales numbers outside California.
The pooling provision allows automakers to over-comply in one eastern ZEV state and transfer the extra credits to another eastern ZEV state. Unlike the travel provision, pooling avoids the double-counting issue, and still requires that an actual vehicle is produced and sold before credit is rewarded and transferred.
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