Background. As part of the 2012 Advanced Clean Car (ACC) rulemaking (earlier post), which included the ZEV regulations, ARB changed the definition of an IVM. The ZEV Regulation previously defined an IVM as any manufacturer with California sales between 4,501 and 60,000 new light- and medium-duty vehicles. The 2012 amendments reduced the California sales upper bound to 20,000 vehicles per year beginning with the 2018 model year.

The amendments concurrently changed the IVMs’ ZEV obligations from being able to meet the mandate with super clean conventional partial zero emission vehicles (PZEV) to transitional ZEVs (TZEVs or plug in hybrids). At the hearing for the 2012 amendments, the Board directed staff to review how the regulation affects IVMs transitioning into large volume manufacturer (LVM) requirements in the 2018 model year and to return to the Board by 31 December 2014, with a recommendation regarding more fair treatment of these manufacturers, ensuring all manufacturers are successful in commercializing ZEV technologies.

In October 2013, ARB staff proposed minor modifications to the ZEV Regulation. Those modifications included clarifying the Section 177 state optional compliance path provision; defining how caps apply to a manufacturer’s ZEV requirement; and excluding battery swapping as a “fast refueling” technology.

At that Board Hearing, five IVMs—Jaguar Land Rover, Mazda, Mitsubishi, Subaru, and Volvo—presented their proposal for changes to the ZEV regulation that would provide them with adjustments they felt necessary to allow them time to come into the advanced technology vehicle market. Their proposed changes included:

• very small demonstration quantities of ZEVs through 2025;

• large credit multipliers for any ZEVs produced;

• travel and pooling of both ZEV and TZEV credits in ZEV states;

• extended service credits for cars offered for sale or extended leases; and

• three years to make up ZEV credit deficits.

ARB staff continued to work with the IVMs.

The most significant difference between the position of IVMs and LVMs regards the amount of revenue available to IVMs for research and development (R&D). The IVM5s’ global revenue is approximately one-quarter to one-third that of those IVMs who are transitioning to LVM requirements based on California sales. It is an even smaller proportion of the revenues of current LVMs. Revenue constraints limit an IVM’s ability to: (1) commit to the same level of R&D as an LVM, and (2) market ZEV products. In recognition of these revenue constraints, the ZEV Regulation was crafted to allow IVMs to meet their pre-2018 model year ZEV obligations solely with PZEVs. The PZEV provisions were intended to ease the burden on IVMs in comparison to LVMs since PZEVs are much easier to market, as compared to the ZEVs required under the ACC provisions for LVMs.

The ZEV Regulation then requires the IVMs, in 2018 and subsequent model years, to begin delivering ZEVs. However, again in recognition of the lesser R&D capabilities of IVMs in comparison with LVMs, the ZEV Regulation allows an IVM to meet its entire ZEV obligation with TZEVs. The TZEV provisions were intended to ease the burden on IVMs in comparison to LVMs but in effect, they make it extremely difficult for an IVM to meet its ZEV percentage requirements. For example, a typical LVM can meet its 2025 ZEV obligation with a combination of ZEVs and TZEVs representing approximately 22 percent of its sales. For an IVM to meet its 2025 ZEV obligation with TZEVs, the TZEVs would need to represent greater than 40 percent of its total product sales. An IVM with sufficient revenue could offer both a ZEV and a TZEV model to decrease the percent of sales that would have to be met with advanced technology vehicles, but being that each of the IVM5 automakers offers only 3 to 4 passenger car models that means a greater percentage of their vehicle offerings would have to be higher-cost advanced technology models (in contrast LVM automakers offer, on average, 12 passenger car models). In other words, under the existing regulation the IVMs’ ZEV models needed to comply with the ZEV Regulation would constitute a greater proportion of the IVM’s total model offerings.

—ARB Staff Initial Statement of Reasons (ISOR)

Based on this and other differences, staff determined that it was appropriate to introduce changes that improve competitiveness and provide IVMs the flexibility needed to successfully commercialize ZEV technologies.

The proposed modifications to the ZEV Regulation have the potential to reduce California ZEV deliveries by less than two percent in the 2018 through 2025 timeframe, ARB staff noted in its ISOR. However, ARB does not anticipate any loss in emissions reductions because other ARB regulations would prevent backsliding. For example, vehicles produced for the ZEV regulation are counted in the LEV III criteria and GHG fleet average standards. Any loss of emissions reductions resulting from changes to the ZEV Regulation are required to be made up through increased emission reductions from the LEV III fleet.

The proposed amendments modify seven components of the ZEV Regulation and:

1. Establish a global revenue test, in addition to the existing California sales threshold, for IVMs transitioning to LVM status. Staff is proposing a global revenue threshold of $40 billion, calculated from the average of the three consecutive fiscal years immediately preceding the determination. The global revenue test is only available to IVMs for the 2018 through 2020 model years. Beginning in the 2021 model year, a manufacturer exceeding the 20,000 vehicle threshold will need to prepare to bring ZEVs to market per the LVM requirements; the ARB expects most IVMs will make ZEVs available for sale by the 2026 model year.

2. Provide IVMs transitioning to LVM status additional time before having to deliver advanced technology vehicles. Staff is proposing to extend the lead time to 5 three-year averages commencing once the first three-year average exceeds 20,000 vehicles. This provides IVMs a minimum of 5 years and a maximum of 7 years to bring a vehicle to market. This lead time is similar to the lead time provisions established for IVMs that transitioned to LVM status prior to 2018 in ZEV regulation versions prior to the 2012 amendments.

3. Decrease the ZEV credit percentage requirement for IVMs so that their advanced technology vehicle deliveries, as a percentage of sales, are similar to that of LVMs. ARB staff is proposing to adjust downward the total ZEV credit obligation for IVMs in the 2018 through 2025 model years. Specifically, the proposed obligation would be set at a credit level equivalent to the entire LVM optional (maximum) TZEV obligation plus one-fifth of the LVM pure ZEV obligation. This results in an IVM having an advanced technology vehicle sales percentage (based on a likely compliance scenario) more closely aligned to that of the LVMs.

4. Provide IVMs the ability to pool ZEV compliance in Section 177 states.

5. Adjust the ZEV credit deficit provisions to provide manufacturers three years to make up the deficit.

6. Clarify the fast refueling definition; and,

7. Correct grammatical errors.

Resources

• Staff Report: Initial Statement Of Reasons (ISOR) For Rulemaking Proposed 2014 Amendments To The Zero Emission Vehicle Regulation