California (Sort-of) Banned Small EVs When it Banned Gasoline Cars
How regulations can steer innovation in strange directions.
California’s so-called gasoline car ban has many features that have been overlooked or underappreciated. These include the fact that there appear to be giant loopholes for used cars and for cars sold across the border in neighboring states. One feature that has really flown under the radar is that the new regulations require a battery-electric vehicle to have at least a 200 mile range to qualify as a “real” zero-emissions vehicle (ZEV). Such a requirement may effectively kill off any potential niche for lighter EVs with small to mid-sized batteries.
Sorry: the ARB says this is not a real EV. I will have to eat you now.
To explain this, one needs to start with the fact that the gasoline car “ban” is not really a ban but rather a rapid acceleration of the current ZEV mandate framework. This framework, a form of intensity (or performance) standard, requires that auto manufacturers “sell” a certain number of zero-emission vehicles (ZEVs) to offset the sale of additional internal-combustion (ICE) vehicles. I put sell in quotes because the obligation is tradable, so a manufacturer can comply by purchasing excess ZEV credits from companies like Tesla, who don’t need them for their own compliance, because they don’t sell any ICE vehicles. These regulatory credits have been a significant source of revenue for Tesla over the years.
The ZEV mandate works like a tax on the sale of ICE vehicles and offsetting subsidy for EVs. For example, currently, for every nine ICE vehicles a company sells, it must also sell about one ZEV. So, for Ford to sell 9 F150 pickup trucks it must also sell 1 F150 Lightning EV pickup, or buy an equivalent EV credit from another company that has extras to sell. If the industry overall finds it costly to sell enough EVs to meet this ratio, then the credits become more valuable. Effectively, that pushes up the cost of selling each ICE and creates an additional revenue source (i.e., subsidy) for each EV sale. If a credit goes for $4500, then that is a $4500 subsidy to every F150 Lightning and a $500 tax on each of the 9 ICE F150s that it allows Ford to sell. This ratio will rise steadily after 2025, rapidly increasing the cost of selling a gasoline vehicle in California until it would be arguably prohibitive to sell any more ICE, except for maybe these.
This kind of mechanism has a long regulatory history. We see variants of it in low-carbon fuel standards and renewables portfolio standards. The general idea is you require firms to make (or buy) a certain amount of “good stuff” in order to be able to make (or buy) some “bad stuff”. Economists, with the exception of some performance standard fanboys, generally have an uncomfortable relationship with intensity standards, viewing them, at best, as a sometimes politically necessary second best to carbon taxes.
One of several problems with intensity standards, however, is you have to define what the “good stuff” is, in order to force firms to make it. This can lead to some alice-in-wonderland incentives, like paying people to drive around in EVs. In the case of the ZEV mandate, the question has been “what should count as a ZEV?” It’s an important question because each ZEV sale earns the right to sell some more gas cars. The operating assumption is that each ZEV sold means a gas car not driven – but what if the ZEV is a golf cart, or an electric yugo?
The California Air Resources Board (ARB), which implements the ZEV mandate, has tried to manage this problem with a complicated formula that determined how many ZEV credits each type of ZEV can generate. Teslas with big batteries count for multiple credits, plug-in hybrids only a fraction of one. The formulas were both complicated and opaque. With the new gasoline car “ban,” the formula has been simplified: to count as a real ZEV, a car has to go at least 200 miles on a battery. Section 1962.4 of the Final Regulation Order gives the details (page 10).
(d) Requirements for ZEVs. ZEVs must meet the following requirements:
(1) Certification Range Value. Minimum certification range value greater than or equal to 200 miles, determined according to the “California Test Procedures for 2026 and Subsequent Model Year Zero-Emission Vehicles and Plug-In Hybrid Electric Vehicles, in the Passenger Car, Light-Duty Truck and Medium-Duty Vehicle Classes”, dated August 25, 2022, incorporated by reference, referred to henceforth in this regulation as the “2026 ZEV and PHEV Test Procedures.”
From one perspective, this makes sense. If we are assuming that a ZEV is displacing a gas car, it should be an acceptable substitute, and range is part of that. From another perspective, though, this highlights the perverse incentives this kind of regulation can create. There has been a growing chorus of concern over the ever-increasing size and weight of ZEV offerings in the U.S. While the tailpipe emissions of these cars may be zero, these super-sized EVs still use a lot of energy and impose other negative externalities, like road damage and crash fatality risk, on other drivers.
9,600 lbs., now that’s an EV!!!
One of the facts that is frequently raised when range anxiety of ZEVs is brought up, is that the vast majority of trips are very short. Most people just don’t drive that many miles in an ordinary day. Given this, one could easily imagine a valuable market niche for a less expensive, lower mileage ZEV. Selling such “ultra-zero emissions” vehicles in California, however, would earn no regulatory benefits under the state’s signature clean vehicle program.
This rule nicely illustrates the shortcomings of a focus on subsidizing “clean” over raising the cost of “dirty.” The operating principle behind the subsidy approach is that the new clean-tech will crowd out the old dirty tech. This in turn can require regulators to make calls on what kind of technologies are good enough to qualify for the count as clean. Maybe there would never be a market in the US for an EV with a mid-size battery anyway, but we may never find out if small EVs are forced to compete with their more heavily subsidized bigger siblings.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Bushnell, James, “California (Sort-of) Banned Small EVs When it Banned Gasoline Cars” Energy Institute Blog, UC Berkeley, April 3, 2023, https://energyathaas.wordpress.com/2023/04/03/california-sort-of-banned-small-evs-when-it-banned-gasoline-cars/
This isn’t quite right for a couple of reasons.
First, the “200-mile range” is the certification range, which is not the same as the label range that consumers see. According to the Initial Statement of Reasons rulemaking document, this requirement translates to a 150-mile real world range requirement.
“Staff is proposing to increase the minimum electric range requirements for ZEVs from 50 miles UDDS range to 200 miles 2-cycle test range (which translates into a 150-mile real world range). Staff is proposing to shift from UDDS-only range to a 2-cycle test range to provide a better correlation with real world range.”
Second, the range requirement doesn’t provide an incentive for large, inefficient vehicles like the Hummer shown. If anything, the range requirement means that an automaker wanting to make an inexpensive ZEV would want to design an efficient vehicle to minimize the capacity of battery required, therefore reducing the component costs.
Finally, the initial range requirement of 150 miles (real-world) is important not just to ensure new EVs displace new gasoline cars, but also to have used EVs that still meet drivers’ needs. There will be some degradation of capacity over time and it’s important that a 10-year old EV still have enough range to displace gasoline vehicle use.
“Most people just don’t drive that many miles in an ordinary day. Given this, one could easily imagine a valuable market niche for a less expensive, lower mileage ZEV. Selling such “ultra-zero emissions” vehicles in California, however, would earn no regulatory benefits under the state’s signature clean vehicle program.”
On the one hand, exempting EVs with a range under 200 miles from “regulatory benefits” can be categorized as a “loophole.” On the other hand, it may be a “best bang for the buck” calculation. In late 2019, CARB ruled that ZEVs costing more than $60k and plug-in hybrids with less than 35 miles of all-electric range would no longer qualify for the Clean Vehicle Rebate Program. (I’m not aware if these numbers have changed since then.) This was done mainly with the goal of increasing equity in the rebate distribution and decreasing the program’s oversubscription problem. I’m not sure if there’s an analogue here to excluding the less-than 200 mile EVs from “regulatory benefits.” I did not follow the rulemaking process for this decision but am interested in learning if it really did “fly under the radar.”
To solve these problems and more, I hope more manufacturers follow the lead of Aptera: low cost, highly efficient, >200-mile range, and – for low mileage driving habits in sunny climates – never need to be plugged in.