What impact will the "over-compliance" rule – some would say loophole – in the California Air Resources Board's recent changes to the Zero-Emission Vehicle (ZEV) Mandate have? The short and obvious answer is that only time will tell, but one can make the case both that it's a good thing and that it's a bad thing. Odd, but true.

Before we get too far into this, a primer on the ZEV Mandate changes and what the over-compliance rule actually is is important. The basic idea is that CARB wants to reduce the amount of CO2 and other pollutants in the air that come from transportation. Zero-emission vehicles – whether they be plug-in or hydrogen powered – will do this, so CARB decided that at least 15.4 percent of all the cars sold by a major automaker in California needs to be either an EV, a plug-in hybrid or a hydrogen fuel cell vehcile by 2025. To go along with this new rule, some automakers asked for – and got – an over-compliance rule that will "allow manufacturers who systematically over comply with the proposed LEV III GHG fleet standard to offset a portion of their ZEV requirement in 2018 through 2021 model years only."

Some argue that the over-compliance rule will lead to a smaller environmental benefit from ZEVs because, quite simply, there will be fewer ZEVs on the roads than there would be without the rule. This is true. It's also true, as others will argue, that what matters most is lowering the amount of nasty pollutants and emissions from the air, so who cares if this happens because there is a true ZEV driving around or a much-improved (read: cleaner) gas-powered car that emits fewer greenhouse gases than today's vehicles?

We didn't want to try and answer that question. But we did think it made sense to try and capture the landscape of the recent battle over the rule, and so we asked some of the involved automakers and other concerned parties for their opinions. We put together a list of responses after the jump.

Hyundai Motor America's Derek Joyce told AutoblogGreen, "we definitely support the 'over-compliance' position. In fact, we played a major role in its development!" Nissan, too, was supportive. Toyota's environmental communications manager, Jana Hartline, told AutoblogGreen:

Per Mike Love, national manager of regulatory affairs, Toyota was neutral on the GHG over-compliance provisions (i.e.: neither for or against). We expressed to the Board in written comments that while we support flexibility in regulations, the Federal GHG requirements were very aggressive and we don't foresee being able to use the over-compliance offset provisions.



American Honda's senior manager in the product regulatory office, Robert Bienenfeld, wrote a letter to CARB about the ZEV changes. You can read the entire letter below, but this is the section that pertains to over-compliance:

Honda is very supportive of the flexibility inherent in the GHG Over Compliance proposal. Simply put, by achieving a national fleet average significantly lower than the standard, it is as if that OEM met the fleet standard and took a significant number of vehicles off the road and out of circulation. The vehicles that are virtually "off the road" provide a similar benefit to putting ZEVs on the road, and thus are "virtual ZEVs." The GHG Over Compliance option allows an OEM to treat these virtual ZEVs as if they were actual ZEVs, and thus help fulfill their overall ZEV obligations.
This flexibility does not allow an OEM to eliminate its ZEV obligations, only to reduce the number of actual ZEVs it must build and place into service. This is an important distinction; an OEM that avails itself of this option will still need to develop fuel cell, battery electric and plug‐in electric vehicle technology, and market them in very significant volumes. The option, however, allows an OEM to allocate compliance costs between the two programs in such a way as to maximize the advantage to consumers without sacrificing environmental benefits or technology progress
.

We'll let readers decide for themselves how strongly this indicates Honda's desire to minimize the numbers of pure electric vehicles it has to make, but we will link to this.

Plug In America is extremely disappointed that CARB Board Chair Mary Nichols would not even allow a vote by the Board on the GHG Overcompliance provision.

On the activist/outsider front, the Union of Concerned Scientists released a statement praising the ZEV Mandate changes, calling the whole package "robust, zero-emission vehicle standards" (the full release is reproduced below). UCS did call the overcompliance rule "controversial" and something that will "require close scrutiny in the coming years to ensure they do not undermine the promise of the program for putting over 1 million electric cars on the road in California." Plug In America, too, remains against the over-compliance rule. PIA's legislative director, Jay Friedland, told AutoblogGreen:

While the Advanced Clean Cars ruling by CARB is a significant milestone in getting to more plug-in cars, Plug In America is extremely disappointed that CARB Board Chair Mary Nichols would not even allow a vote by the Board on the GHG Overcompliance provision. Several Board members had asked for at least consideration of moving from 2g/mile to 5 g/mile, Ms. Nichols dismissed the issue and indicated she would not even consider it. This provision allows an automaker to cut the number of pure electric-drive vehicles by as much as 50 percent over the 2018 to 2021 timeframe in exchange for just 2 g per mile GHG overcompliance. This will result in a gaping loophole which will cause the loss of hundreds of thousands of plug-in cars in California. Honda, Hyundai, and Toyota are once again trying to game the system. CARB has let them off the hook just we see the great progress being made by Nissan, GM, Ford, Mitsubishi, Tesla, Coda, and other OEMs truly committed to building a sustainable business around electric vehicles. The GHG overcompliance provision is a bad deal for California and for the United States.



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CALIFORNIA ADOPTS ROBUST PLAN FOR CLEANER CARS
BIGGEST CHANGE TO ZEV PROGRAM IN 20-YEAR HISTORY


BERKELEY, Calif. (Jan. 26, 2012) – The California Air Resources Board (ARB) today approved a historic package of vehicle polices that will reduce air pollution and the adverse public health impacts of cars and trucks while accelerating the market for electric car technology.

"California is putting the pedal to the metal on electric cars and healthier air by strengthening its clean-car standards," said David Friedman, deputy director of the Union of Concerned Scientists' (UCS) Clean Vehicles program. "With these new standards, California will give car buyers a real choice between the fuels of the past and the clean cars of the future."

The newly approved standards address two of the most important environmental and public health threats facing the state by significantly reducing or eliminating heat-trapping emissions that drive climate change from cars and trucks, and contribute to unhealthy levels of smog and particulate pollution.

The package of initiatives will save Californians $22 billion through 2025, according to ARB analysis. By 2025, the program will create 21,000 new jobs across the state as consumers spend less on gasoline and shift that money to more productive parts of the economy. Individual consumers will save $4,000 over the life of the typical car sold in 2025, even after paying for clean car technology. The added cost of the technology improvements would be fully recovered from fuel savings within the first three years of owning the vehicle.

One key improvement to California's clean car standards is the most significant change to the Zero Emissions Vehicles (ZEV) program in its 20-year history-requiring battery, fuel cell, and plug-in hybrid electric vehicles to account for up to 15 percent of California's new vehicle sales by 2025. Overall, the program will result in more than 1 million such vehicles being sold in the state between 2018 and 2025.

"These robust, zero-emission vehicle standards will provide the market assurance automakers and the energy industry need to transform the electric vehicle in to a mass-market success," said Don Anair, senior engineer with the UCS Clean Vehicles program. "This landmark initiative will strengthen California's emerging electric vehicles industry, creating jobs and making zero-emission vehicles more affordable for consumers.

Ten other states have already adopted California's ZEV program, nearly tripling the impact of California's program on the electric-car market.

"A successful electric-car industry will further California's legacy as a leader in economic and environmental innovation," said Anair.

As part of the broad package, the ARB included several controversial measures in the ZEV program that will allow automakers to lower their sales of pure electric vehicles-vehicles that run exclusively on electricity or hydrogen. One measure allows automakers to reduce their sales of electric cars by just slightly over-complying with greenhouse gas standards. This provision could cut an automaker's requirements by up to 40 percent from 2018 to 2021.

Another allows vehicles with a small gasoline engine and at least 75 miles of all-electric range, typically considered a range extender hybrid, to get the same credit as a pure battery electric car. This provision could reduce an automaker's pure electric vehicle requirements by up to 50 percent.

"These provisions will require close scrutiny in the coming years to ensure they do not undermine the promise of the program for putting over 1 million electric cars on the road in California," said Anair.

Other complimentary measures adopted by ARB include:
• Clean Fuels Outlet (CFO) rules that require oil companies to install hydrogen refueling stations as automakers ramp up sales of fuel-cell vehicles, ensuring consumers have access to fuel for these vehicles. The rules also require California to study infrastructure needs for vehicles that recharge from the electric grid.
• A 75 percent reduction in smog-forming emissions from the tailpipes of new cars and light trucks, the near elimination of evaporative emissions, and a reduction in toxic particulate matter, all by 2025.
• Global warming standards for vehicles built between 2017 and 2025 that require a reduction in a vehicle's emissions to 166 grams per mile-about half of current levels and a 34 percent reduction from 2016 requirements. These new global warming pollution standards are part of a coordinated effort between California and federal agencies to establish a single, nationwide set of global warming pollution and fuel efficiency requirements for automakers. If federal global warming pollution standards remain on course, California will accept those standards as an alternative to its own. The state will still, however, maintain its separate vehicle smog, particulate, ZEV and CFO requirements.
"With this new, stronger clean cars program, California continues to be a model for the rest of the country," said Friedman.


The Union of Concerned Scientists is the leading U.S. science-based nonprofit organization working for a healthy environment and a safer world. Founded in 1969, UCS is headquartered in Cambridge, Massachusetts, and also has offices in Berkeley, Chicago and Washington, D.C. For more information, go to www.ucsusa.org.

###

January 25, 2012
To: Mary D. Nichols, Chair
John R. Balmes, MD
Sandra Berg
Dorene D'Adamo
Hector E La Torre
Ronald O. Loveridge
Barbara Riordan
Ron Roberts
Alexander Sherriffs, M.D.
Daniel Sperling
Ken Yeager

Re: Comments on Proposed 2012 Amendments to the Advanced Clean Car Regulations

Dear Chairman Nichols and Members of the Board:

On behalf of American Honda Motor Co., Inc., I am writing to share our views on the proposed 2012 amendments to the ZEV regulation. Honda has been a leader in high fuel economy, low emission vehicles for three decades in California. We were the first automaker to introduce advanced battery electric vehicles to consumers, and the first to market a hybrid vehicle in the United States. We are committed to a robust, portfolio approach that is actively advancing a broad range of technologies. Today we have launched or are launching programs to market Plug‐In Hybrid Electric Vehicles, Battery Electric Vehicles and Fuel Cell Electric Vehicles in California.

Honda would like to thank the staff for their efforts to reach out to stakeholders during the development of the Advanced Clean Car Regulations. We hope it is clear that, like you, Honda supports the ultimate purpose of these programs: significant reductions in CO2 and smog‐forming pollutants generated from transportation. Taken together, the Advanced Clean Car regulations are setting significant goals and presenting important challenges to automakers: over 70 lower greenhouse gas emissions, and a dramatic ramp‐up in ZEV volumes, from today's very limited levels by a few OEMs to millions of vehicles on the road by 2025.

Honda fully participated in and supports the comments made by the Large Volume Manufacturers and Global Automakers, both submitted to the board under separate cover. Here, Honda only seeks to speak for itself and to focus on four key points: item #1 is a request for a change, and items #2 ‐ #4 are comments in support of staff proposals.

Honda's Request to the Board for Changes

1. Phased‐In Credits for ZEVs and TZEVs
The staff proposal dramatically reduces the credit values for vehicles between 2017 and 2018. A 2018 Plug‐In Hybrid vehicle with 20 miles electric range (PHEV20) receives approximately 1/3rd (one‐third) the credit value that the identical car receives the year before. A 2018 Battery Electric Vehicle with 100 miles range (BEV100) receives 1⁄2 (one‐ half) the credits that the identical car receives the prior year. All other things being equal, this requires OEMs to triple their PHEV volumes and double their BEV volumes between one year and the next.

Honda strongly urges the Board to consider phasing in these dramatic, single year credit changes over a short, three year period. Simply put, we would keep the 2018 and later formulae for BEVs and PHEVs but add a multiplier that would phase‐out over three years. Our proposal is to multiply the new credit values by 1.7 in 2018, 1.5 in 2019 and 1.3 in 2020. This concept has the sanguine effect of phasing‐in the credit reductions by 30 in 2019 and 70 reduction in BEVs and ‐8.5% for PHEVs) over the 2018 – 2025 period of this program. Considering that the CARB staff proposal will obligate OEMs to build millions of vehicles over the same period, this relatively small phase‐in of credits seems reasonable to us, worthy of the Board's support.

Honda's Support for Key Staff Recommendations
2. GHG Over Compliance
Honda is very supportive of the flexibility inherent in the GHG Over Compliance proposal. Simply put, by achieving a national fleet average significantly lower than the standard, it is as if that OEM met the fleet standard and took a significant number of vehicles off the road and out of circulation. The vehicles that are virtually "off the road" provide a similar benefit to putting ZEVs on the road, and thus are "virtual ZEVs." The GHG Over Compliance option allows an OEM to treat these virtual ZEVs as if they were actual ZEVs, and thus help fulfill their overall ZEV obligations.

This flexibility does not allow an OEM to eliminate its ZEV obligations, only to reduce the number of actual ZEVs it must build and place into service. This is an important distinction; an OEM that avails itself of this option will still need to develop fuel cell, battery electric and plug‐in electric vehicle technology, and market them in very significant volumes. The option, however, allows an OEM to allocate compliance costs between the two programs in such a way as to maximize the advantage to consumers without sacrificing environmental benefits or technology progress.

3. Section 177 State Compromise
Honda, together with other OEMs, has been working closely with the Section 177 states on addressing both the states' and the automakers' concerns with respect to the 2012 Amendments to the ZEV regulations. As a result, Honda supports the "New Optional Section 177 ZEV Compliance Path" document as proposed by Staff. The main features of this optional compliance path are that if an OEM produces additional, non‐traveled ZEVs in 2016 and 2017, that OEM will qualify for: a) phased‐in ZEV and TZEV volumes, and credit pooling for ZEVs and TZEVs. The features of this option meet the concerns of both OEMs and Section 177 states. We urge the Board to support this direction.

4. Infrastructure
Infrastructure development for both Battery Electric Vehicles (BEVs) and Fuel Cell Vehicles Electric Vehicles (FCEVs) are important aspects for the success of these technologies as it supports the market by making the vehicles more attractive to customers. While not as critical for BEVs, since home charging is possible, for FCEVs, public infrastructure is a critical issue. OEMs are investing very significant resources in the development of FCEVs. Without the availability of conveniently located refueling stations and reasonably priced hydrogen, FCEVs will not be able to develop into a market technology. Honda is committed to work with government agencies, including CARB, and energy providers to support this goal through the development of a voluntary agreement. However, as FCEVs are a key technology and an important part of ZEV compliance, the LVMs support the CARB CFO revisions in order to provide a "backstop," or certainty, to a voluntary agreement.

Conclusion:
The ZEV program ranks as one of the more ambitious regulations anywhere in America. It is pushing the limits of automobile manufacturers, technology, and markets. As such, it is important that the CARB staff pay close attention to technology, costs, and market acceptance in the years between more formal regulatory reviews. Market signals to consumers will also be important as we all seek to influence positively the choices that consumers are making with respect to their transportation needs.

Honda believes that the 2012 ZEV Amendments will be strengthened by the addition of phased‐in credit values between 2018 and 2020. Additionally, Board support for flexibilities like the GHG Over Compliance Option and the New Optional Section 177 ZEV Compliance Path will make the program more feasible for OEMs. Finally, Support for the CFO Amendments will help create the infrastructure for the FCEV market.

Regards,
Robert Bienenfeld
Senior Manager, Product Regulatory Office American Honda Motor Co., Inc.


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