California’s Evolving Zero Emission Vehicle Program: Pulling New Technology into the Market

California’s Zero Emission Vehicle (ZEV) program is one of the key state-level policies for reducing greenhouse-gas (GHG) emissions from the transportation sector. Since its inception nearly 30 years ago, the original goal of the program was to reduce local air pollution caused by gasoline vehicles, but it evolved to also target reduction of GHG emissions. The ZEV program represents a unique policy approach to achieving these goals—to require sales of vehicles with new technologies that have zero emissions. We review the history and performance of the ZEV program and evaluate prospects for the new, more stringent phase of the effort. We document numerous and significant changes to the design and stringency of the program. We also estimate values of ZEV credits traded among manufacturers. Our review leads to suggestions for improving the economic efficiency of the program. In particular, our review suggests that the program should provide manufacturers with additional compliance flexibilities—such as a safety valve—to prevent the need to ratchet back stringency levels.

• The development and commercialization of new ZEV technology has been slower and more difficult than expected. After initially setting ambitious goals for sales of ZEVs, the California Air Resources Board (CARB) has often had to backtrack on requirements that were not feasible due to high technology costs.
• Nevertheless, the program has had some successes, in creating incentives for the development of vehicle electrification technologies through the early years, and more recently in bringing electric vehicles to the market at commercial scale.
• Recent major changes to the requirements are intended to greatly increase ZEV sales requirements over the next six years. These rules will double the number of manufacturers who have to comply with the program and increase the number of ZEVs that automakers need to sell each year. The costs associated with these changes are uncertain, as ZEV technologies must expand into new consumer markets.
• Greater flexibility and consistency in the regulations could help automakers to comply with the ZEV program more cost-effectively. For example, better information about ZEV credit prices and expanded use of the ZEV credit market would lower the cost of industry-wide compliance. Additionally, a “safety valve” that gives automakers the ability to purchase credits from the state at a set price would set an upper limit on costs and prevent the kind of backtracking on the stringency of the requirements we have seen in the past.

Note: In 2021, this paper was published in the journal Review of Environmental Economics and Policy.