Cal-LEV/Cal-ZEV Emission Standards

Reducing emissions is a good idea. Tying Colorado policy to California is not.

Summary

  • Coloradans agree that protecting the environment is an important priority. However, the Governor’s Executive Order committing Colorado to California’s low-emission and zero-emission vehicle standards was misguided.

  • Governor Hickenlooper has a reputation for bringing stakeholders together to resolve differences. Taking such unilateral action, and potentially abusing his authority as governor, on his way out the door hurts his legacy and puts Colorado’s economy at risk.

  • Cal-LEV and ZEV standards were originally intended for smaller vehicles. When California’s standards are applied to Colorado, where the majority of vehicles are in the light truck/SUV category, these regulations will unnecessarily add hundreds of dollars to the cost of the most common vehicles in the state.

  • The clumsy rollout of these regulations will hurt both businesses and consumers.

  • This Executive Order ties our hands when it comes to emission policy, as we will be tied to whatever changes California makes. Because California’s emission standards are part of a federal waiver, this EO effectively delegates our policy making on the issue to another state.

  • Generally, electric car subsidies are inefficient, distort the market, and give taxpayer benefits to the wealthy.

Issue Background

In 1963, Congress passed the Clean Air Act; in 1965 it was amended with the Motor Vehicle Air Pollution Control Act, which placed vehicle emissions under the control of federal law for the first time. Twenty-five years later, in 1990, amendments to the Clean Air Act created a national standard for vehicle emissions. California, however, had standards that exceeded the federally-mandated ones; so Section 177 of the amended Clean Air Act was written to allow the State of California to apply for a waiver to establish their own emission standards, and avoid federal preemption. From that point on, states either had to demonstrate compliance with the federal standards, or sign onto the California’s 177 waiver.   

The 177 waiver allows California not only to establish their own, stricter emission standards, known as Cal-LEV (Low Emission Vehicle) standards, but also a Zero Emission Vehicle program (Cal-ZEV). The ZEV program requires automobile manufacturers to sell a certain number of zero-emission light vehicles in the states that signed on to the 177 waiver, as a percentage of their overall fleet sales. It does this by requiring automakers to maintain an assigned number of “ZEV credits” equal to a set percentage of non-electric vehicle sales. Credits are issued depending on the specific type of zero-emission vehicle and battery range. For instance, Battery Electric Vehicles (BEV’s) and Hydrogen Fuel Cell Vehicles (FCEV’s) earn more credits than hybrid vehicles. The current standard requires that 4.5% of 2018 sales be qualified ZEV, rising to 22% by 2025. Furthermore, the ZEV mandate states that no more than 55 percent of the earned ZEV credits can come from sales of hybrid vehicles; so for 2018, 2% of total vehicle sales must be BEV’s, and that requirement rises to 10% by 2025. Automakers who fail to sell enough ZEV’s to maintain their allotted number of credits must then A) price ZEV’s significantly below market value and sell at a loss, B) purchase credits from company’s who sell more ZEV’s than required and consequently have excess credits, or C) pay a fine of $5,000 per credit. This, of course, amounts to a subsidy for companies like Tesla, who sell predominantly ZEV’s. (Interestingly, Tesla continues to lose about $8 million per quarter, even with the ZEV credits.) 

Any state may elect to sign on to California’s 177 waiver, without seeking EPA permission; but Section 177 requires that the adopting state’s standards be identical to California’s. That means that if California elects to make changes to the LEV or ZEV standards, that all states which signed onto the waiver accepting Cal-LEV or Cal-ZEV standards must also adopt those changes.

In June of 2018, Colorado Governor John Hickenlooper, rather than leaving the decision to the legislative process, signed an executive order committing Colorado to the Cal-LEV standards. While at the time the discussion was centered exclusively on LEV, during an August meeting pf the Colorado Air Quality Control Commission arbitrarily decided to include the ZEV mandate in their considerations for rule-making.

By signing this Executive Order, the Governor effectively ceded all emission control policy-making authority for the state to California – by signing onto the 177 waiver Colorado would be bound to whatever change California decides to make to their standards.

A main part of the problem is that driving and vehicle purchase habits vary considerably between Colorado and California. In Colorado, roughly 75% of vehicles sold are light trucks and SUV’s – in many rural counties that figure exceeds 80% — while in California just over 50% of vehicles sold fit into that category. This means that the ZEV mandate would be particularly costly for Colorado consumers; in 2017, even with generous state and federal tax incentives, BEV’s only amounted to 1.6% of sales. To meet their ZEV quota, dealers would then be forced to drastically reduce the price of BEV’s far below the market value and make up that cost by shifting it onto vehicles that consumers actually want to buy.

Finally, aside from California’s ZEV mandate, there are several federal and state subsidies geared towards lowering the purchase price for electric vehicles (EV’s), as a way to incentivize consumers to purchase more of these vehicles. These include a federal income tax credit of up to $7,500 per consumer for the purchase of an EV. In many cases, combined federal, state, and local subsidies for EV’s add up to $17,500 per vehicle. Not only does this substantially distort the market and replace the impartiality of the free market with the directives of government, but studies and data show that those subsidies benefit mostly upper-income households, as it is generally wealthier individuals who buy electric cars. In 2014, nearly 78% of qualified plug-in electric vehicle tax credits were issued to households whose adjusted gross income exceeded $100,000.

Everyone agrees that clean air is a necessity, and that emission reduction is a good idea; but chaining ourselves to another state’s emission policy is not the way to go about it. Colorado would be at the mercy of whatever decisions were made by a very different state.

The private sector, through innovation and competition, has been far more efficient in reducing emissions than government mandates, without creating market distortions.

Even more concerning is the specter of the Cal-ZEV mandate, which would add thousands to the cost of the types of vehicles most commonly purchased in Colorado. Such decision ought to be left to the proper legislative process, where the consequences can be made subject to greater public review and scrutiny, rather than through arbitrary executive orders which circumvent the legislative process, or agency decisions driven by protests and special interests.  

Governing Principle

Free Markets: Free market capitalism is the greatest creator of innovation and wealth the world has ever seen. Based on the law of supply and demand, along with a limited, stable set of regulations and low taxes, free markets allow entrepreneurs to take risks, companies to hire employees, and societies to flourish.

Limited Government: A limited government provides a stable playing field for economic development and encourages economic growth and innovation. A strong, central government becomes more involved in business activities, through regulations and taxes, and thus both increases the cost of products and services and hurts innovation.

Consent of the Governed: Any power the government has is because citizens have given it that power. No elected official or government employee has the power to make his or her own rules. Government can only do what our elected representatives have empowered it to do.

Solutions

  • Rescind the Governor’s Executive Order tying Colorado to California’s LEV and ZEV standards.
  • Reduce or eliminate subsidies for any particular vehicle type.
  • Reject calls for imposition of California ZEV standard in Colorado.
  • At the federal level, require California to play by the same rules as other states under the Clean Air Act.

Key Statistics

  • The current Zero-Emission Vehicle (ZEV) requirement is for 4.5% of sales to be ZEV, rising to 22% by 2025.
  • Of that, 2% must be BEV (10% BEV by 2025).
  • Only 1.6% of sales in Colorado are ZEV (even with generous subsidies).
  • 75% of vehicles sold in Colorado are light trucks and SUV’s, compared to 53% in California.
  • ZEV could add $4,000 to $6,000 to the price of a new car or light truck
  • Combined federal, state, and local EV subsidies can add up to $17,500.
  • 7% of EV tax credits go to households making more than $100,000 per year.