Pushing New Technology into the Market: California’s Zero Emissions Vehicle Mandate

Abstract

California’s long-running Zero Emissions Vehicle (ZEV) program represents a unique policy approach for reducing greenhouse gas emissions from the transportation sector. It mandates that manufacturers sell passenger cars and trucks that have zero tailpipe emissions, which in today’s market are electrified vehicles, including battery electric and fuel cell vehicles. The policy, when it was initiated in 1990, was technology forcing because such zero emission vehicles had not yet been produced. We discuss the motivation for such a technology policy and briefly summarize the 30-year history of this evolving program. We examine evidence on the extent of innovation in electrification technologies under the program and trends in battery and vehicle costs and sales. We review the flexibility granted under the ZEV credit-trading program and estimate the value of ZEV credits traded among manufacturers. Finally, given the continuing uncertainty about costs, technology improvements, and consumer acceptance, we argue that there is a need for additional transparency and flexibility if the policy is to continue. One approach we suggest is that regulators build a safety valve mechanism into the credit trading market.