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Getting under the skin of the ZEV Mandate

Vehicle Emission Trading Scheme 

Effective from January 2024, the government’s commitment to end the sale of new ICE cars by 2035 (the Zero Emission Vehicle Mandate) has become law through The Vehicle Emissions Trading Schemes Order.

Vehicle Emission Trading Scheme (VETS) introduces a layered approach to emissions regulation, comprising the Non-Zero Emission Car Registration Trading Scheme (CRTS) and the Non-Zero Emission Car CO2 Trading Scheme (CCTS). These schemes operate alongside each other, creating a comprehensive framework aimed at driving down emissions across the automotive industry. However, could the latter also be able to help mitigate the impact of the former?

Non-Zero Emission Car Registration Trading Scheme 

Most will recognise this as the ZEV mandate. Each year, manufacturers must achieve a minimum proportion of ZEVs (Zero Emission Vehicles) in their total car registrations.

A table to show the years 2024 to 2030 and the percentage increase for minimum ZEV for cars and vans.

How it works

Manufacturers receive allowances based on the volume of non-ZEV cars they sell. Let’s take an example: Manufacturer A sells 50,000 cars in 2024. It receives allowances for 78% of those sales, which amounts to 39,000. The remaining cars it registers must be ZEVs - meaning 11,000 ZEVs are required. If Manufacturer A registers a non-ZEV without an allowance, it faces a hefty £15,000 charge for Cars and £9,000 for Vans in 2024 (rising to £18,000 in 2025).

If Manufacturer A can’t sell enough ZEVs, it has a few options:

  • Buying allowances: Allowances can be purchased from other manufacturers (think Tesla, Polestar, MG etc.). The cost? That is the big unknown — nobody knows currently and it is not clear if a ready market will exist for the credits or they will be traded behind closed doors.
  • Borrowing allowances: Manufacturer A could borrow allowances from future years. However, they can only do this for the next two years, meaning there is massive jeopardy if they get the projections wrong.
  • Earning credits: In the CCTS scheme (see more on this below), manufacturers can earn credits to generate extra allowances. However, there’s a cap at 65% of the required ZEV volume. So, the absolute minimum percentage of ZEVs is 7.7%.

In addition, if the manufacturer exceeds the ZEV target in any year, it can carry forward any surplus for up to 3 years.

Non-zero emission car carbon dioxide trading scheme 

The CCTS focuses on reducing CO2 emissions from internal combustion engine vehicles by establishing a baseline for emissions using 2021 data, calculating the average CO2 emissions per car based on sales data from that year and imposing fines for exceeding allowances. 

If we go back to our trusty Manufacturer A, let’s consider its baseline is 130 grams of CO2 per car (according to 2021 registration data). In 2024, it sells 39,000 cars, giving it a CO2 allowance of 5 million grams of CO2 (39,000 x 130g). If it exceeds this allowance, it faces a fine of £86 per gram. But if Manufacturer A reduces its average CO2 emissions, it can turn the over-achievement into CRTS credits.
In this example, if the target is 39,000 vehicles at 130g (5,070,000) but the actual is 39,000 vehicles at 120g (4,680,000), Manufacturer A will have beaten the target by 390,000g.

As we understand it, this can be traded for CRTS allowances at a rate of 167g = 1 allowance. In this case that would be 390,000/167 = 2,335 extra non-ZEVs it can register without a fine, effectively seeing Manufacturer A’s ZEV target goes from 11,000 to 8,665 (Or from 22% to 17% mix). 

This means manufacturers can turn over-achievements in reducing CO2 emissions into credits, which can be traded for CRTS allowances, providing them with additional flexibility in meeting their ZEV targets. 

The next step

Need further advice on the ZEV Mandate or other automotive-related matters? Please do not hesitate to reach out to Paul Daly on p.daly@uhy-manchester.com or your local UHY automotive expert for support.

This blog is based on our understanding of the information available. It is intended for general guidance only. No responsibility is accepted for loss occasioned to any person acting or refraining from actions as a result of the topics raised in this blog.

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