Regulations can makes strange bedfellows – or new sub markets – as in the case of automakers beginning to comply with updated California mandates to sell a quota of Zero Emission Vehicles (ZEVs), or at least buy credits from those who do.
A “ZEV” can include an all-electric vehicle, plug-in hybrid or hydrogen fuel cell vehicle and automakers will be mandated to sell an increasing number year after year through to 2025 and beyond.
Under California Air Resources Board (CARB) rules, each ZEV sold garners a certain number of clean-air credits. The rules presently affect the six top automakers doing business in California, with quotas varying according to market share, and 11 other states are also
signed onto these California guidelines as well.
Automakers that fail to meet these CARB rules face an unpleasant choice of paying stiff penalties, possibly even having in-state selling privileges limited.
Nonetheless, some automakers have not been able to fully comply with their respective ZEV sales quotas, so as a fail-safe, the rules allow them to purchase ZEV credits from fellow automakers that have surplus credits to sell.
According to Automotive News, an emerging market has thus been coming online for the CARB-mandated ZEV credits.
In 2010, for example, Tesla Motors sold a quantity of ZEV credits to Honda for $13 million, and similarly, Nissan, the enthusiastic purveyor of electric vehicles and maker of the Leaf, is looking into selling its excess credits for some side profit.
“We are in a fortunate position of having positive credit, so that’s obviously something we are able to look at,” said Andy Palmer a Nissan vice president to Automotive News yesterday in Japan. “We are exploring some plans, but we haven’t announced anything yet.”
More such sales of convenience are expected as the ZEV quotas ramp up in a yet-limited plug-in car market, and with some affected automakers late or resistant to getting their ZEV research, development, and sales going.
While things were heating up already, this year, updated ZEV rules are beginning to take affect in California and in the 11 states also abiding by them.
The total number of ZEVs mandated to be sold by six top automakers in the 12 states between this year through the end of 2014 is 60,000 in all. By 2025, 1.4 million ZEVs are mandated to have been sold.
Beginning in 2018, this ZEV credit hoop automakers will have to jump through will include the top 12, including Volkswagen, BMW, Hyundai, Kia, and Mazda.
A major question now is how the ZEV market will really take off even though it is being mandated, and there is some market demand present.
As a rule, plug-in cars cost more than comparable conventional cars, and consumers have shown reluctance to buy them in high volumes, although month after month, things are accelerating as automakers offer them with varying degrees of enthusiasm and effectiveness.
As alluded to, some automakers like Ford and even more so, Chrysler, have been said to be dragging their heels. In Ford’s case, it is just rolling out its CARB-compliant Focus Electric and has more ZEVs coming, but sales are still a trickle. Overall, Ford got started later than GM with its Volt, or Nissan with its Leaf, for example.
As for the number of credits a respective ZEV may generate, this varies according to how quickly the vehicle’s battery recharges and its total range. A Nissan Leaf or Ford Focus Electric will garner 3 credits under the CARB rules, and a Tesla Model S is worth 7.
Starting this year, the ZEV credits became “durable,” meaning they do not expire year after year, thus can be accumulated into a stockpile by over-achieving ZEV sellers.
Already the value of this side market has been seen in the aforementioned Tesla-Honda sale. When it was still selling its Roadster, Tesla sold Honda surplus credits from 2008-2010 which Honda needed because it had not met sales quotas with its hydrogen-powered FCX Clarity.
Reportedly, Toyota has the biggest ZEV monkey on its back – that is, it has the largest California market share, and so must sell the most ZEVs – or pay penalties or buy credits from others who may have credits for sale. In descending order, the pressure is also on Honda, Ford, GM, Nissan and Chrysler.
ZEV credit selling automakers are not required to disclose the price they charge per ZEV credit. Market price appears to be a supply and demand driven equation – albeit perhaps capped by the worst-case scenario – cost of potential penalties that would have to be paid for not selling enough ZEVs amounting to many thousands of dollars.
For its part, California’s Air Resources Board said the intent of its ZEV mandates is wholly positive.
“This is a way to address California’s unique air-quality issues and reduce greenhouse-gas emissions,” said Dave Clegern, a spokesman for the California Air Resources Board, which runs the ZEV program. “We think there’ll be growing demand for the vehicles and it’s a framework to get them to customers.”
We shall see whether this proves to be the case, but in any event the pressure is increasing, and a side market for ZEV credits appears to be growing besides.