CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY

AIR RESOURCES BOARD

STAFF REPORT: INITIAL STATEMENT OF REASONS

2008 PROPOSED AMENDMENTS TO THE

CALIFORNIA ZERO EMISSION VEHICLE PROGRAM REGULATION S

This report has been reviewed by the staff of the C alifornia Air Resources Board and approved for publication. Approval does not si gnify that the contents necessarily reflect the views and policies of the A ir Resources Board, nor does the mention of trade names or commercial products c onstitute endorsement or

recommendation for use.

Date of Release: February 8, 2008 Scheduled for Consideration: March 27, 2008Initial Statement of Reasons

February 8, 2008

i EXECUTIVE SUMMARY

In 1990, the California Air Resources Board (ARB or the Board) adopted an ambitious program to significantly reduce the environmental i mpact of light-duty vehicles through the commercial introduction of zero emission vehicles ( ZEV) into the California fleet.

The ZEV program is vital in meeting California’s en vironmental goals. Zero-emission technologies can greatly reduce or even eliminate s ome of the persistent environmental problems with motor vehicles. The ZEV program prom otes the use of the cleanest gasoline technologies available, while still encour aging the development of pure zero emission technologies.

The ZEV program has been modified four times since its inception – in 1996, 1998, 2001, and most recently in 2003. While the program requirements have been changed to reflect the status of technology, the original o bjective has not changed. California continues to maintain a strong commitment to the co mmercialization of zero-emission passenger cars and light-duty trucks.

In response to the Board’s actions, automakers have developed and demonstrated limited numbers of ZEVs to evaluate their technolog ical and commercial feasibility. Parallel to these efforts, automakers have commerci alized “near-zero” emission vehicles and hybrid electric vehicles (HEV) that ha ve been supportive of the ZEV program goals and have significantly reduced vehicl e emissions.

The ZEV program was last modified in 2003 to resolv e legal challenges and to better address the state of technology. Given the uncerta inty in the pace of technology development, the Board directed that an independent panel of experts (Panel) be convened to report on the status of ZEV technologie s and their readiness for

commercialization.

The Panel’s findings were presented to the Board in May 2007. Subsequent to presentations by the ARB staff and Panel, and after taking public comment, the Board adopted Resolution 07-18 directing ARB staff to ret urn to the Board with proposed changes that address the state of technologies need ed to meet the regulation. In directing that changes were needed, the Board affir med its support for the program and emphasized that any changes should strengthen the o verall objectives of the program.

Proposed Amendments to the Regulations

In response to the Board’s direction, ARB staff is now proposing amendments to the program that are designed to better reflect the sta te of technology and create incentives for new vehicle designs. Other proposed changes ar e intended to clarify and simplify specific program requirements pertaining to 2009 an d subsequent model years (MY). The most significant proposed amendments pertain to Phase III and Phase IV (2012 – 2017), while Phase II (2009 – 2011) requirements re main largely unchanged. TheInitial Statement of Reasons

February 8, 2008

ii proposed amendments are expected to maintain pressu re on the commercialization of pure ZEV technologies while recognizing the technol ogical limitations and costs of current vehicles. The key elements of staff’s prop osal are the following:

A. Creation of the “New Path” for 2012. Combine the Base Path and Alternative Path requirements into a New Path where the ZEV obligati on and the options to use other vehicle types are expressed as annual percentage re quirements. The pure ZEV requirement may be offset by up to 90 percent “Enha nced” Advanced Technology Partial ZEVs (Enhanced AT PZEV), a new classificati on of vehicle in Phase III (2012 – 2014). In Phase IV (2015 – 2017), 50 percent of th e ZEV target requirement could be

met with Enhanced AT PZEVs. Enhanced AT PZEVs 1 are AT PZEVs with credit

allowances 2 totaling more than 1.0 and which use fuels that ca n be used in a ZEV, like electricity or hydrogen. Examples of Enhanced AT P ZEVs are plug-in hybrid electric vehicles (PHEVs) and hydrogen internal combustion e ngine vehicles. The proposed changes act to simplify the regulation while mainta ining the overall outcome of the Alternative Path. Establish a new Type IV category to recognize longer range ZEVs and adjust ZEV credits such that Type III ZEVs earn 4 credits and Type IV ZEVs earn 5 credits through 2017.

B. Establish Carry-Forward and Carry-Back provisio ns for ZEV credits. Modify the credit provisions under the proposed “New Path” to be consistent with the existing provisions contained in the Alternative Path which allow compliance over a three year window. Additionally, modify the way credits may b e used after a specified time to limit the possibility that amassed credits could cause a black out of ZEV production for an extended period of time and to make the regulatory requirements better reflect the expected outcome in terms of vehicles produced.

C. Provide More Equal Treatment of Battery Electric Vehicles

. Eliminate the cap on the use of full-function and city battery electric vehi cles (EV) within the Alternative Compliance Path. Change the ratio for substitution for each vehicle type to be consistent with the credits earned by the vehicle r ather than a separate ratio established only for pure ZEV obligation compliance. Create a new Type I.5 to recognize opportunity for a marketable longer range city EV.

D. Adjust Credits for AT PZEVs

. Modify the AT PZEV requirements, primarily to addre ss PHEVs. The proposed amendments include addressing deployment of “blended” HEVs through an equivalent all electric range (EAER) cre dit, adjusting the credits for advanced componentry and fuel cycle emissions, and other conforming changes.

E. Increase Credit for Neighborhood Electric Vehicl es

. Double the existing credit for neighborhood electric vehicles (NEV) to 0.3 credits per vehicle to reflect the vehicle’s

1 In discussion papers and conversations with stakeh olders, this classification of vehicles has been

referred to as Silver Plus.

2 Allowances are part of a vehicle’s credit calculat ion and credits are the sum of the allowances given

.Initial Statement of Reasons

February 8, 2008

iii positive environmental benefits but limited functio nality compared with full function battery or fuel cell EVs.

F. Extend “Travel” Provision

. Extend the provision that allows Type III ZEVs plac ed in any state that has adopted California’s ZEV program to count towards California’s ZEV requirement through 2017, and include Type IV ZEVs. Include battery EVs within the provision but sunset the application of this provis ion for these vehicles in 2014.

G. Modify Transition for Intermediate Automakers . Create a ramp-up period of six years for intermediate volume manufacturers (IVM) who are transitioning to large volume status. During this time, an automaker would be al lowed to meet its ZEV requirements with increasing numbers of partial ZEV allowance (P ZEV) of which a percentage must

be AT PZEVs.

H. Public Availability of ZEV Credit Data. Require that all production data be publicly available starting with the 2009 model year and rel ease ZEV credit bank balance information for the 2010 model year and beyond.

Effect of Proposed Amendments

2009 – 2011:

The staff proposal is not expected to change the n umber of pure ZEVs (e.g., fuel cell and battery EVs) in the near term. However, the changes made do allow additional flexibility for the use of battery EVs, should products be available in this timeframe. Since many automakers still retain suff icient banked credits to assist with their compliance plans for this time period, staff expects they will aggressively use banked credits to meet the requirements in this tim eframe since ZEV technologies remain very expensive. Thus the actual number of n ew ZEVs produced is expected to be lower than the 2,500 commonly referred to for th is time period. Additionally, the amendments provide a clearer path for the use of PH EVs which are under development.

2012 – 2017:

The staff proposal is expected to decrease the num ber of pure ZEVs (e.g. fuel cell and battery EVs) introduced during this t imeframe relative to the existing program. Where the existing program would call for 75,000 ZEVs between 2012 and 2017, the staff proposal could result in as few as 27,500 ZEVs if manufacturers comply using the highest credit earning ZEVs. A mix of ZE V types used for compliance in this time period, including fuel cell vehicles and a ran ge of battery EVs, would result in a higher number of ZEVs. The overall number of advan ced technology vehicles should increase as manufacturers are allowed to meet a par t of the requirements with a new class of vehicle, referred to as Enhanced AT PZEVs. More than 150,000 Enhanced AT

PZEVs could result in the 2012 – 2017 timeframe. T he exact number of vehicles that will be placed is unknown; however use of banked cr edits will not be as significant in this timeframe, meaning that production of ZEVs sho uld more closely match the stated requirements than in previous years of the program.Initial Statement of Reasons

February 8, 2008

iv 2018 and subsequent:

No changes are proposed to the ZEV requirements fo r the long term. The current 16% requirement beginning in 201 8 remains in place. It is expected that the program will be revisited prior to the imp lementation of this portion of the regulation to determine if the pace of vehicle intr oduction is correct or if it can be

accelerated.

The proposal is expected to reduce the cost of comp liance by reducing the number of vehicles incorporating the most expensive technolog ies (fuel cell and battery EVs) needed during the 2012 – 2017 timeframe. The estim ated annual savings averages $1.3 billion in 2012 – 2014 and nearly $0.9 billion in 2015 – 2017.

The ZEV program continues to provide positive air q uality impacts as compared to no program. The changes proposed by staff significant ly reduce an automaker’s cost of compliance, but still provide increased air quality benefits primarily because they rely upon the proven emissions benefits of commercially viable and increasingly available

AT PZEVs. Staff believes that a reduction in the n ear term production volume of ZEVs is warranted because technological and cost hurdles remain that are best solved through continued lower volume demonstrations of th e technologies. In making these changes, the program will reduce criteria pollutant emissions by 7,000 tons over the life of the affected vehicles. The proposed changes fur ther encourage AT PZEV technologies as well as Enhanced AT PZEV technologi es, both of which enable pure ZEV technology.

Staff Recommendation

The ARB staff recommends that the Board adopt the a mendments as proposed in this Initial Statement of Reasons (ISOR). The proposed amendments respond to the current state of ZEV technology, and reduce the ove rall cost of compliance to industry, while maintaining the push toward ZEV commercializa tion.TABLE OF CONTENTS

1. INTRODUCTION.......................................

................................................... ........................................1

2. BACKGROUND .........................................

................................................... .......................................2

2.1 ZEV P ROGRAM O BJECTIVES

................................................... ................................................... ....2

2.2 A IR Q UALITY IN C ALIFORNIA

................................................... ................................................... ......2

2.3 Z ERO E MISSION V EHICLE P ROGRAM H ISTORY

................................................... ..............................3

2.4 C URRENT P ROGRAM

................................................... ................................................... ................4

2.5 M ANUFACTURER C OMPLIANCE S TATUS

................................................... ........................................5

3. SUMMARY OF PROPOSED AMENDMENTS .....................

................................................... ............7

3.1 C REATION OF THE “N EW P ATH ” (2012 ONWARD ) .................................................. ...........................7

3.2 ZEV C REDITS : C ARRY F ORWARD /C ARRY B ACK

................................................... .........................10

3.3 P ROVIDE FOR M ORE E QUAL T REATMENT OF B ATTERY E LECTRIC V EHICLES ....................................12

3.4 A DJUST C REDIT D ETERMINATION M ETHODS FOR AT PZEV S

................................................... ......14

3.5 I NCREASE C REDIT FOR N EIGHBORHOOD E LECTRIC V EHICLES

................................................... .....19

3.6 E XTEND T RAVEL P ROVISION

................................................... ................................................... ...20

3.7 M ODIFY T RANSITION FOR I NTERMEDIATE V OLUME M ANUFACTURERS ..............................................21

3.8 A DDITIONAL M ODIFICATIONS

................................................... ................................................... ...22

4. EFFECT OF PROPOSED CHANGES.........................

................................................... ...................26

4.1 C REATION OF THE “N EW P ATH ” (2012 ONWARD ) AND C HANGES TO T REATMENT OF B ATTERY EV S ..26

4.2 I NCREASE C REDIT FOR N EIGHBORHOOD E LECTRIC V EHICLES

................................................... .....27

4.3 E XTEND “T RAVEL ” P ROVISION

................................................... ................................................... 28

4.4 M ODIFY T RANSITION FOR A UTOMAKERS

................................................... .....................................28

4.5 O VERALL A NTICIPATED I MPACTS

................................................... ................................................28

5. REGULATORY ALTERNATIVES............................

................................................... .......................30

5.1 D O N OT A MEND P ROGRAM

................................................... ................................................... .....30

5.2 A DOPT S UBSTANTIAL R EVISIONS TO THE ZEV R EGULATION

................................................... ........30

6. ECONOMIC IMPACTS ...................................

................................................... ................................32

6.1 L EGAL R EQUIREMENT

................................................... ................................................... .............32

6.2 D IRECTLY A FFECTED B USINESSES

................................................... .............................................32

6.3 P OTENTIAL I MPACT ON M ANUFACTURERS

................................................... ...................................32

6.4 I NCREMENTAL P ER -V EHICLE C OST E STIMATES

................................................... ...........................33

6.5 C OST S AVINGS

................................................... ................................................... ......................34

6.6 P OTENTIAL I MPACT ON D EALERSHIPS

................................................... .........................................35

6.7 P OTENTIAL I MPACTS ON V EHICLE O PERATORS

................................................... ...........................35

6.8 P OTENTIAL I MPACT ON B USINESS C OMPETITIVENESS

................................................... ..................35

6.9 P OTENTIAL I MPACT ON E MPLOYMENT

................................................... .........................................36

6.10 P OTENTIAL I MPACT ON B USINESS C REATION

, E LIMINATION OR E XPANSION .....................................36

6.11 P OTENTIAL C OSTS TO L OCAL AND S TATE A GENCIES

................................................... ...................36

7. ENVIRONMENTAL IMPACTS..............................

................................................... ..........................37

7.1 P ROGRAM B ENEFITS

................................................... ................................................... ..............37

7.2 B ENEFITS OF P ROPOSED A MENDMENTS

................................................... .....................................37

7.3 E NERGY D IVERSITY AND E NERGY D EMAND

................................................... ................................38

7.4 E NVIRONMENTAL J USTICE

................................................... ................................................... ......39

7.5 C ALIFORNIA E NVIRONMENTAL Q UALITY A CT

................................................... ...............................39

8. COST-EFFECTIVENESS.................................

................................................... ...............................40

9. SUMMARY AND STAFF RECOMMENDATION ...................

................................................... .........419.1 S UMMARY OF S TAFF P ROPOSAL

................................................... ................................................41

9.2 S TAFF R ECOMMENDATION

................................................... ................................................... ......41

10. REFERENCES.........................................

................................................... ...................................42

APPENDIX A: PROPOSED REGULATION ORDER: AMENDMENTS T O THE

ZERO-EMISSION VEHICLE REGULATION

### Table of Acronyms

AER ............ All Electric Range

ARB ............ California Air Resources Board AT PZEV .... Advanced Technology Partial ZEV Allowan ce Vehicle CNG ........... Compressed Natural Gas EAER ......... Equivalent All Electric Range EMFAC ....... ARB’s mobile emissions inventory model ing program

EV .............. Electric Vehicle HEV ............ Hybrid-Electric Vehicle

ISOR .......... Initial Statement of Reasons

IVM.............. Intermediate Volume Manufacturers LDT1 .......... Light Duty Truck with a loaded vehic le weight of 0-3750 pounds LDT2 .......... Light Duty Truck with a loaded vehic le weight of 3751 pounds to a gross

vehicle weight of 8500 pounds, or a “LEV I” light-d uty truck with a loaded vehicle weight of 3751-5750 pounds LEV I .......... First generation Low Emission Vehic le program, adopted in a 1990-1991

rulemaking, and generally applicable in the 1994-20 03 model years LEV II ......... Second generation Low Emission Vehi cle program, adopted in a 1998-

1999 rulemaking, and generally applicable in the 20 04 and subsequent model years LFCE........... Low Fuel Cycle Emissions LVM............. Large Volume Manufacturers

MY .............. Model Year NEV............. Neighborhood Electric Vehicle NOx ............ Oxides of Nitrogen PHEV ......... Plug-in Hybrid-Electric Vehicle

PZEV .......... Partial ZEV Allowance Vehicle ROG ........... Reactive Organic Gases Type 0 ........ Utility EV, less than 50 mile range Type I ......... City EV, range of 50 to less than 7 5 miles Type I.5 ....... City EV, range of 75 to less than 10 0 miles Type II ........ Full Function EV, range of 100 or m ore miles Type III ....... ZEV, range of 100 or more miles plu s fast refueling Type IV........ ZEV, range of 200 or more miles plus fast refueling UDDS ......... Urban Dynamometer Driving Schedule ULEV I ........ Ultra-Low Emission Vehicle, pre-1998 regulations ULEV II ....... Ultra-Low Emission Vehicle, post-199 8 regulations

VMT ............ Vehicle Miles Traveled

ZEV ............ Zero Emission Vehicle1

1. INTRODUCTION

In 1990, the California Air Resources Board (ARB or the Board) adopted an ambitious program to dramatically reduce the environmental im pact of light-duty vehicles through the gradual introduction of zero emission vehicles (ZEV) into the California fleet. The ZEV program, which affects passenger cars and light -duty trucks (LDT1 and LDT2), has been adjusted four times since its inception: in 19 96, 1998, 2001 and 2003. The fundamental goal of the program, however, has not c hanged. California remains committed to the commercialization of ZEV technolog ies.

California’s strong commitment to the ZEV program r eflects the essential need for ZEV technology in order to achieve the State’s public h ealth protection goals. Health-based state and federal air quality standards continue to be exceeded in regions throughout California. California’s growing population and in creasing use of motor vehicles mean continued upward pressure on statewide emissions.

Zero-emission technologies can greatly reduce or ev en eliminate some of the persistent emissions related environmental problems with motor vehicles. Combustion-based engines are prone to deterioration over time and re sult in higher fuel cycle emissions. Catastrophic failures are also a concern. Older ga soline-powered vehicles, for example, become gross emitters if their emission co ntrol systems fail. Combustible fuels also have significant “upstream” impacts. Re fining, fuel storage and delivery all have associated emissions. Apart from upset condit ions that may occur during electric power generation or hydrogen fuel production and di stribution, ZEVs have none of

these vulnerabilities.

While ZEVs can provide significant environmental be nefits, it is also necessary that they be economically viable. Since the program’s incept ion, substantial technological improvements have occurred. These improvements hav e raised the level of vehicle performance and have resulted in attractive solutio ns to personal mobility. However, the cost goals necessary for such technologies to c ompete successfully in the marketplace have not been met, preventing widesprea d introduction of the technology.

This rulemaking provides another opportunity for th e Board to consider mid-course

corrections that address the realities of the state of technologies while encouraging the introduction of new, innovative plug-in hybrid elec tric vehicle (HEV) designs to reduce the environmental impacts from light-duty vehicles and further support ZEV commercialization through deployment of enabling te chnologies.2

2. BACKGROUND

2.1 ZEV Program Objectives

The ongoing adjustments to the ZEV program are the result of the continuing need to balance the pressure on vehicle manufacturers to de velop ZEVs with the recognition of real-world status of the available technologies. S ince its adoption, the ZEV program has pushed the boundaries of ZEV development, while taking into account the cost, performance, suitability for volume production and long-term prospects of the technologies. The following are the main objective s of the ZEV program and of staff’s proposed changes:

• Maintain the pure ZEV requirement as a technology forcing-element of ARB’s overall effort to achieve long term public health a nd air quality goals

• Take full advantage of technology options and acce lerate ZEV development through deployment of advanced vehicles with ZEV en abling technology

• Maximize air quality benefits by allowing automake rs the flexibility to meet portions of the regulation with conventional techno logies substantially cleaner than required by other motor vehicle requirements

• Simplify the structure of the ZEV program

The program has not yet resulted in the commercial introduction of ZEVs. However, the tremendous progress that has been made in a variety of advanced technologies can, at least in part, be attributed to the existence of th e ZEV requirement. Furthermore, ARB staff believes that continued regulatory requiremen ts are needed to push the development of pure ZEVs.

2.2 Air Quality in California

Air quality in California has improved dramatically over the past 30 years, largely due to continued progress in controlling pollution from mo tor vehicles. Faced with ever more stringent regulations, vehicle manufacturers have m ade remarkable progress in advancing vehicle technology. Vehicles meeting ARB ’s most stringent emission

certification standards achieve emission levels tha t seemed impossible when the ZEV program was adopted in 1990.

Despite this progress, air quality in many areas of the state still does not meet federal or state health-based ambient air quality standards. Mobile sources still are responsible for well over half of the ozone-forming emissions i n California. The relative contribution of passenger cars and small trucks is expected to d ecline over time as new standards phase in, but in 2020 such vehicles will still be r esponsible for approximately 10 percent

of total emissions based on the ARB emissions inven tory. 1 State and federal law

1 ARB 2007a, 2007 Almanac Data, 2007.3

requires the implementation of control strategies t o attain ambient air quality standards as quickly as practicable and as mandated.

Other programs and legislation, including Assembly Bill 1007 (State Alternative Fuels Plan), require the state to prepare new plans to in crease the use of alternative fuels in California. These other programs indicate the need for significant use of the electric

drive train as well as other actions to meet Califo rnia’s air quality and emission reduction goals.

2.3 Zero Emission Vehicle Program History

Manufacturers originally pursued the development of battery electric vehicles (EV) to meet the ZEV requirements. In 1996, the ARB elimin ated the requirements for the 1998 through 2002 model years (MY) due to cost and perfo rmance issues to allow additional time for battery research and development. To ensu re a significant market for advanced battery manufacturers, ARB entered into ag reements with manufacturers to place in California roughly 1,800 advanced-battery EVs between 1998 and 2000. The agreements were designed to provide battery develop ers with the necessary initial production volumes to meet the cost and performance goals needed for commercial production.

Contrary to expectations, advanced battery costs ha ve remained too high for commercial viability. For example, research in 200 0 showed that full-sized nickel metalhydride battery packs would cost approximately $7,0 00 to $9,000 each at production levels exceeding 100,000 battery packs per year, an d would cost twice as much at lower production levels. Notwithstanding these cos ts, several manufacturers continued to place a modest number of battery EVs after meeti ng their agreement volumes.

These vehicles earned ZEV credits that have been us ed for compliance with the regulation.

Manufacturers began to look seriously at hydrogen f uel cell vehicles in the late 1990’s as an alternative to battery EVs. This interest le d to cooperative efforts among the ARB, industry and other governmental agencies to cr eate the California Fuel Cell Partnership in 1999. The Partnership demonstrates fuel cell vehicle technology while exploring the paths to commercialization. Changes to the program in 2003 provided

new incentives for fuel cell vehicles.

The most recent changes to the ZEV program in 2003 resolved legal challenges and addressed the state of various vehicle technologies . Given these changes and the uncertainty in technology development, the Board di rected that an independent panel of experts (Panel) be convened to report on the status of ZEV technologies and their readiness for commercialization prior to 2009.4

From the results of the Panel report 2 , in May 2007, the Board found that some changes to the program were needed to align the requirement s with the state of technology. However, the Board’s overall direction was that any changes should be limited in scope to the greatest extent possible and that no “backsl iding” of the program should result. The proposed amendments presented in this rulemakin g respond to this direction and to the Board’s findings contained within Board Resolut ion 07-18 3

.

2.4 Current Program

Shown below in Table 2.1 is the structure of the cu rrent ZEV regulation for MY 2009.

Table 2.1: 2009 ZEV Program Requirements - Base Pat h

1 Percent of total California sales differs from per centage requirement because credits per vehicle type vary.

The three categories of vehicles used to meet the Z EV regulation are referred to as ZEV or “gold,” advanced technology partial zero emissio n vehicles (AT PZEV) or “silver,” and partial ZEV allowance vehicles (PZEV) or “bronze.” To date, approximately 4,500 ZEVs have been demonstrated, while over 100,000 AT PZEVs and nearly 700,000 PZEVs have been commercially introduced, resulting in sig nificant emissions reductions. An example of an AT PZEV is the Toyota Prius HEV while examples of a PZEV are the

Ford Focus and BMW 325.

The Board’s 2003 amendments increased the requireme nts for ZEVs to 11 percent starting in 2009 and ultimately increasing to 16 pe rcent in 2018. Large volume manufacturers (LVM – those with annual California s ales exceeding 60,000 vehicles) are allowed to comply using either the Base Complia nce Path with the percentage ZEV requirements shown in Table 2.1 or the Alternative Path shown in Table 2.2 below. The

2 Kalhammer, et al. Status and Prospects for Zero Emission Vehicle Tec hnology: Report of the ARB Independent Expert Panel 2007 , April 13, 2007

3 ARB 2007b, Board Resolution 07-18, May 24, 2007 Certification Standards

% Requirement % of Total

Vehicle Sales 1 Vehicle Type Category Technical Description

2.5 < 1 Zero Emission Vehicle (ZEV) Gold Zero tailpipe emissions: battery electric vehicles and hydrogen fuel cells.

2.5 5 Advanced Technology

PZEV (AT PZEV) Silver Vehicles certified to PZEV standards and employing ZEV-enabling technologies: e.g. hybrids or compressed natural gas vehicles.

6 30 Partial Zero

Emission Vehicle (PZEV) Bronze Conventional vehicles certified to the most stringent tailpipe emission standards, zero evaporative emissions, and extended warranty.

11 35 Total ZEV Requirement5

Alternative Compliance Path was included in the ZEV program in 2003 to promote the

commercialization of fuel cell vehicles and to ensu re that new ZEVs continued to be produced. The Alternative Compliance Path also all ows AT PZEVs to fulfill a greater share of the top five percent of obligations (the g old and silver commitments), provided that the manufacturer meets the requirements specif ied below.

Table 2.2: Alternative Compliance Path Fuel Cell Re quirements

As illustrated in Table 2.2, the requirement for ZE Vs, e.g., fuel cell vehicles, increases by factors of ten for Phases II and III and then do ubles for Phase IV, as the technology was expected to make the transition from demonstrat ion to full commercialization. Volumes in Phases I and II reflected the early deve lopment process, with further technological changes expected prior to ramp-up tow ard commercialization. Phases III and IV were designed to establish new commercial ma rkets for the technology.

2.5 Manufacturer Compliance Status

Twenty-two auto manufacturers are subject to the ZE V regulation. Six are defined as LVMs: General Motors, Toyota, Ford, Honda, Chrysler LLC and Nissan. The remaining 16 are intermediate volume manufacturers (IVM). IV Ms can meet the regulation entirely

with PZEVs.

All manufacturers are currently in compliance with the ZEV regulation. The product plans and technology development strategies vary fr om manufacturer to manufacturer. Most manufacturers have enough banked credits from ZEVs already produced and placed to comply with the regulation through approx imately 2009. It should be noted however, that while all of the large manufacturers have active fuel cell vehicle demonstrations, some of these manufacturers have ch osen to comply using the Base Path and not need to produce any additional fuel ce ll vehicles between now and the end of 2008 to comply with the regulation.

To meet the AT PZEV portion of the regulation, manu facturers are either producing AT PZEVs (primarily HEVs) or using banked credits from previously produced neighborhood electric vehicles (NEVs). Four of the six large manufacturers have commercialized AT PZEVs; two of these manufacturers , Toyota and Honda, dominate the volumes produced to date. On aggregate, manufa cturers have sufficient banked AT PZEV and NEV credits to meet the AT PZEV portion of the regulation for the next four to five years.

Phase During Model Years Manufacturer’s Market Share of:

I 2005 – 2008 250 fuel cell vehicles

II 2009 – 2011 2,500 fuel cell vehicles

III 2012 – 2014 25,000 fuel cell vehicles

IV 2015 – 2017 50,000 fuel cell vehicles6

Regardless of the method with which manufacturers a re meeting the AT PZEV portion of the program, the number of AT PZEVs produced to date is beyond what is required by the ZEV regulation. In 2005, twice as many AT P ZEVs were produced as required to meet AT PZEV portion of the program due mostly from production from two manufacturers. Over-compliance will change within the next model year or so as the optional volume of AT PZEVs increases to 8 percent of the total fleet for those

manufacturers on the Alternative Path.

Table 2.3 presents the approximate total number of gold, silver and bronze vehicles placed as of MY 2006. Manufacturers have been prod ucing PZEVs at a rate greater than needed in aggregate (in 2005, manufacturers pr oduced 40 percent more PZEVs than the industry-wide PZEV option).

Table 2.3: Vehicle Placements by Type

1 Estimates of total vehicle placements from 1994 th rough 2006.

Table 2.4 shows the current aggregate ZEV credit ba lances by vehicle type for the six LVMs. The balances reflect compliance with the AT PZEV and PZEV requirements in 2005 and 2006. However, for manufacturers on the A lternative Path, gold credits have not yet been spent since Phase I does not end until the end of the 2008 MY.

Table 2.4: Current Aggregated ZEV Bank Credits

Vehicle Type Vehicle Credit

ZEV “Gold” 43,726

ZEV from NEVs 1 123,271

AT PZEV “Silver” 110,839

PZEV “Bronze” 113,734

1 NEV credits can only meet the PZEV or AT PZEV porti on of the regulation Vehicle Type Quantity 1

ZEV Fuel cell 160

ZEV Battery electric 4,400

ZEV Neighborhood electric 26,000

AT PZEV Hybrid/Compressed Natural Gas 109,000

PZEV Conventional 672,0007

3. SUMMARY OF PROPOSED AMENDMENTS

In response to the Board’s direction, and in consid eration of the issues related to technology commercialization, staff is now proposin g amendments to the program that are designed to reflect the state of technology and create an opportunity for new emerging vehicle technologies to count towards the pure ZEV requirement. Other proposed changes are intended to clarify and simpli fy specific program requirements. The areas identified in this section represent the most significant changes being proposed.

3.1 Creation of the “New Path” (2012 onward)

Staff Proposal: Merge the existing compliance paths into a single p ath beginning in 2012 and allow high-scoring AT PZEVs to meet up to 90 percent of the pure ZEV requirement in 2012 – 2014, and 50 percent in 2015 – 2017.

This set of changes is aimed at accomplishing a num ber of goals and includes a number of different elements. The goals include:

• Establish an appropriate volume of ZEVs given the state of the technologies

• Acknowledge new ZEV Types that hold promise for co mmercialization including mid-range battery EVs and longer range fuel cell ve hicles

• Establish an appropriate relationship between ZEV types by adjusting the

number of credits awarded

• Incentivize production of certain AT PZEV technolo gies that facilitate the commercialization of pure ZEVs

• Simplify the regulation

3.1.1 Adjustment of ZEV Volumes

Based on the projections of the Panel, production o f thousands of fuel cell vehicles per year globally is achievable within the next five ye ars given the pace of effort underway by manufacturers and suppliers. This projection is generally consistent with the existing requirements for Phase II (2,500 over a three year period). Maintaining Phase II is also important as manufacturers struggle to engage hydro gen fueling partners to seriously respond to the need for infrastructure, since great er use of stations is necessary for further investment by fuel providers. Staff, there fore, believes that the current Phase II requirements which represent a ten fold increase of Phase I requirements should remain unchanged.

However, the Panel found the Phase III and Phase IV requirements to be significantly higher than what is reasonable to expect in the 201 2 – 2017 timeframe given the state of fuel cell technologies. According to the Panel, high costs and continuing challenges with durability and life expectancy of the technolo gy could be prohibitive to manufacturers significantly growing the production volumes of vehicles. Similarly, the Panel found that battery technology, while making p rogress, has yet to reach a point8

where significant ramp up of vehicle volumes could be mandated as costs remain high and some battery chemistries have yet to prove life time durability. The Board accepted these findings from the Panel at their May 2007 Boa rd Hearing and directed that adjustments be made to address these issues while s till embracing the overall objectives of the ZEV program to the greatest feasi ble extent.

In response, staff is now proposing changes that ar e more in line with the findings of the Panel. The proposal creates a more feasible progra m by adjusting the number of pure ZEVs downward beginning in 2012. The existing ZEV production floor for Phase III and Phase IV are 25,000 and 50,000 ZEVs respectively. Staff proposes to reduce this floor to 2,500 ZEVs in Phase III and 25,000 ZEVs in Phase IV.

3.1.2 New ZEV Types and Adjustments to Existing ZEV Types

As staff assessed the types of ZEVs that may be use d to meet the ZEV regulation in the coming years, two new types emerged. The first, de scribed as a Type I.5 ZEV falls between a Type I ZEV (generally described as a City EV with minimum range of 50 miles) and a Type II ZEV (generally described as a full function battery EV with minimum range of 100 miles). The second, described as a Type IV ZEV is a ZEV with 200 miles range that is fast refuel capable.

The Type I.5 ZEV is proposed because staff learned that an optimal, cost effective, and marketable BEV may soon evolve, but that these migh t offer a driving range that is short of the 100 mile requirement for Type II but greatly exceeds the 50 mile requirement for Type I. Several manufacturers have indicated a st rong interest in the creation of this new tier. To recognize this new BEV and provide ap propriate incentives, staff proposes

to award them with credit of 2.5.

The definition of the Type IV would be a ZEV that h as a range of at least 200 miles and fast refueling capabilities. This would likely be an advanced fuel cell vehicle. It is proposed that the Type IV be given 5 credits per ve hicle. This additional credit, compared to battery EVs and lower range fuel cell v ehicles would be available in the near term to reflect the greater challenges for fue l cell vehicles to reach marketability and their higher development costs. Credit for the se vehicles would become consistent with Type II and Type III vehicles beginning in 201 8.

Type III ZEVs are defined as ZEVs with range greate r than 100 miles and fast refueling capabilities. Staff is proposing to broaden that d efinition to allow ZEVs with range greater than 200 miles, but not fast refuel capable to be Type III ZEVs. This would mean that a battery EV with range greater than 200 miles would earn the same credit as a fuel cell vehicle with range less than 200 miles; the differentiation being the fast refueling capability.9

3.1.3 Adjustment of Credits for ZEVs

With the addition of the two new ZEV types, and in consideration of the state of development of each vehicle type involved, staff ha s adjusted the credits for several ZEV types to establish distinction between them. A s described above, Type I.5 ZEVs are assigned 2.5 credits and Type IV ZEVs are assig ned 5 credits. Staff is also proposing that the 4 credits currently earned by a Type III ZEV (typically a fuel cell vehicle with less than 200 miles) in 2009 – 2011 be continued through 2012 – 2017 timeframe. This recognizes the state of developmen t and continued high cost of fuel cell technology in this timeframe. Table 3.1 prese nts the credits for both existing and proposed ZEV categories. Expanding the vehicle typ es provides greater flexibility and opportunities for manufacturers to comply with the regulation.

Table 3.1: Credits for ZEVs 2009 to 2017

Tier Expected

Technology Range Existing Proposed

Type I Battery EV 50 – 74 miles 2 2

Type I.5 (new) Battery EV 75 – 99 miles NA 2.5

Type II Battery EV > 100 miles 3 3

Type III Fuel Cell or Battery EV Fuel Cell – 100 – 199 miles

Battery EV > 200 miles 4 4

Type IV (new) Fuel Cell > 200 miles NA 5

3.1.4 Incentives for Enhanced AT PZEVs

Staff proposes to create a new classification of ve hicle called “Enhanced AT PZEVs” and to incentivize their production by allowing the m to meet up to 90 percent of the ZEV target in 2012 – 2014, and 50 percent of the ZEV ta rget in 2015 – 2017.

An Enhanced AT PZEV by definition would earn one or more credits per vehicle and

use a “ZEV fuel.” Those that don’t are considered conventional AT PZEVs. Enhanced AT PZEVs, though not gold in terms of zero tailpipe emissions, are extremely clean in terms of both criteria pollutant and climate change fuel cycle emissions and, even more

than conventional AT PZEVs make use of fuels and ve hicle systems directly enabling further advancement of ZEVs. Examples of Enhanced AT PZEVs include plug-in hybrid electric vehicles (PHEVs) and hydrogen internal com bustion engine vehicles.

Enhanced AT PZEVs would provide the option to lower the number of pure ZEVs required in Phase III and Phase IV. That is, manuf acturers would be allowed to produce Enhanced AT PZEVs in sufficient quantities to repla ce the credits from the reduced number of pure ZEVs in each Phase, thereby providin g a “backfill” as requested by the Board. Because the per vehicle credit for an Enhan ced AT PZEV is less than the credit for a pure ZEV, use of the backfill option will res ult in a greater number of total vehicles produced.10

3.1.5 Simplify the Program with the “New Path”

The staff also proposes to combine the existing Alt ernative and Base Paths into a single “New Path” beginning in 2012. The New Path would r eturn the compliance calculation to an annual percentage requirement for ZEVs with o ptions to comply with percentages of PZEVs, AT PZEVs and Enhanced AT PZEVs. Table 3. 2 illustrates the New Path percentages and the expected numbers of vehicles fo r 2012 – 2014 and 2015 – 2017.

Table 3.2: Proposed “New Path” Requirement by Vehic le Category

2012 – 2014 (12 % Total Requirement) 1 2015 – 2017 (14 % Total Requirement) 1

Percent Vehicles

Per Year 2 Vehicles over

period 2 Percent Vehicles Per

Year* Vehicles over

period*

ZEV 3 0.3%– 3% 840 – 8,353 2,500 – 25,000 3% – 6% 8,333-16,660 25, 000 – 50,000

Enhanced

AT PZEV 0 – 2.7% Up to 25,000 Up to 75,000 Up to 3% Up to 28,000 Up to 83,000

AT PZEV 3% 65,000 195,000 2% 51,000 153,000

PZEV 6.0% 420,000 1,260,000 6.0% 420,000 1,260,000

1 Based on annual California vehicle sales of 1.4 m illion passenger cars, light-duty trucks (LDT 1 and LDT 2) by the six large volume auto manufacturers.

2 Assumes that Enhanced AT PZEVs earn 1.5 credits, AT PZEVs earn 0.65 credits in 2012 – 2014, and 0.55 credits 2015 – 2017. Credits earned vary by v ehicle technology, and thus the number of vehicles produced may vary from the volumes in this table.

3 Assumes Type IV ZEV.

Approximately 75,000 Enhanced AT PZEVs could be pla ced to backfill ninety percent of the gold requirement in 2012 – 2014. This increase s to roughly 83,000 vehicles in 2015 – 2017. The AT PZEV or “silver” percentage require ment is based on the existing Alternative Path and results in approximately 195,0 00 vehicles in 2012 – 2014. Concerning AT PZEVs, the existing program allows ma nufacturers to use AT PZEVs under the Alternative Path to meet a majority of th e ZEV requirements. The number of

standard AT PZEVs decreases in the 2015 – 2017 time frame due to the creation of the new Enhanced AT PZEV category and due to the increa sing requirement for the ZEV category. The PZEV option would remain unchanged d uring the six year period and stay consistent with the existing program.

The New Path is intended to increase flexibility an d incentivize the introduction of innovative advanced vehicle technologies. Returnin g to a single path simplifies the regulatory structure and provides for a more easily described and understood regulation. The New Path results in more certainty and transparency about how many vehicles will be produced and what impacts the prog ram will have on commercialization and air quality improvement.

3.2 ZEV Credits: Carry Forward/Carry Back

Staff Proposal: Modify the credit provisions under the proposed “Ne w Path” to be consistent with the existing provisions contained i n the Alternative Path which allow compliance over a three-year window. The proposal would also modify the way credits11

may be used after a specified time to avoid excessi ve credit build up and help assure a smooth and continuous ramp up in production volume.

The ZEV regulation allows the banking and trading o f credits earned from early introduction and/or over-compliance with the regula tion. Because of the lag between early demonstrations and implementation of the regu lation, automakers amassed substantial credit accounts with early actions, inc luding production and placement of NEVs. This has caused delays in the introduction o f increasing numbers of ZEVs into the market. In addition, the banked ZEV credits cr eate uncertainty as to what actions automakers will take to comply with the ZEV require ment, which, in turn, impacts the Board’s ability to accurately forecast the environm ental impacts of the program. Staff is therefore proposing to change the long-term applica bility of how banked credits can be

used.

3.2.1 Carry Forward

Staff proposes that all ZEV credits earned thru 200 8 MY retain their full flexibility thru 2011. Beginning in MY 2012, these credits would no longer be allowed to offset the ZEV requirement; instead they would only be allowed to meet portions of the regulation that could be met with PZEVs, AT PZEVs or Enhanced AT PZEVs. Credits earned in

the 2009 MY and later would be allowed to be carrie d forward for two additional years for application to the gold requirement. For examp le, gold credits earned in 2010 would retain full flexibility until 2013, at which time “ stale” credits could not be used to comply with the gold requirements. Existing provisions fo r banked AT PZEV and PZEV credit would remain unchanged. The proposed amendments wi ll help alleviate the possibility of long black out periods during which pure ZEV pro duction is curtailed, while, at the same time, allow automakers to build up short term reserves so that they may choose production phases that fit their product planning c ycles.

3.2.2 Carry Back

The ZEV regulation currently includes a one-year-ca rry-back provision for gold-category vehicles, meaning that if an automaker fails to mee t its obligation in one year, the obligation may be made up in the next year, after f ulfilling the past year’s compliance obligation. Staff proposes to change the carry bac k provision to two years, meaning that an automaker may fulfill an obligation for yea r one and/or two after meeting the year-three compliance obligation. Like the carry-f orward provision described above, this provides flexibility to automakers to match their p roduction development schedules with technology demonstration phases. The stretch from one to two years coincides with the three-year windows originally established in the Al ternative Path. The regulation already allows for a two-year carry back for silver and bronze vehicles and would also

cover Enhanced AT PZEVs.

Figure 3.1 illustrates the proposed changes. As sh own in the figure, a manufacturer producing in 2009 can use those credits to meet req uirements in 2009, 2010 and 2011 without restriction. Beginning in 2012 the credits can only be used to meet a12

manufacturer’s PZEV or AT PZEV requirements. Regar ding carry back, a manufacturer producing vehicles in 2014 can use those credits in MYs 2012 and 2013 to fulfill the requirements after fulfilling their full obligation for the 2014 MY.

Figure 3.1: Carry Forward/Carry Back Scenarios

Scenarios 2009 2010 2011 2012 2013 2014

Carry Forward Gold ZEV

credit

earned Only useful for meeting

AT PZEV

and PZEV requirements

Carry Back Gold requirement

not met Gold

requirement

not met Gold vehicles

produced

In the worst case, using a combination of both carr y forward and carry back an auto manufacturer could have a four-year “black out” in ZEV production. This is also possible under the existing Alternative Path compli ance option as a manufacturer can

front load Phase II and end load Phase III to achie ve compliance. This gap is also consistent with product development cycles, which f or demonstration volumes of vehicles is helpful for spacing out generations of technology. As the requirement grows, staff believes carry back will not be heavily relie d upon because the risk of carrying such a significant debt is too great.

3.3 Provide for More Equal Treatment of Battery Electri c Vehicles

Staff Proposal: Eliminate the cap on the use of full-function and c ity EVs within the Alternative Compliance Path. Change the ratio for substitution for each vehicle type to be consistent with the credit earned by the vehicle

.

Battery EVs were the primary compliance strategy in the early years of the ZEV program. In 2003, findings on cost and durability pointed to an extremely limited commercial market (ARB 2003). In an effort to refo cus the regulation towards a technology with mass market commercial potential, t he Board shifted the regulation towards acceleration of fuel cell vehicle technolog y. Many stakeholders expressed a concern that these changes would hinder development of battery EVs. In response, in 2003, the Board provided limited incentives for bat tery EVs by allowing a portion of the Alternative Path to be met with the technology. Ho wever, battery EVs used as

substitutes for fuel cell vehicles within the Alter native Path were required to substitute at

a ratio between 5:1 and 20:1.

In response to continued public interest in battery EV technology, the ARB has been monitoring the state of battery technology and the prospects for battery EV

commercialization. The Board directed that staff reassess the development of battery EV technology and cost in the Panel’s technology as sessment. The Panel found that Retains Full Credit Value13

significant effort is going into development of imp roved batteries for use in vehicles. Lithium and nickel-metal-hydride technologies are r eceiving the greatest focus and are expected to meet the performance and life cycle dem ands of customers. However, while technological progress has been made and life cycle cost is starting to look more attractive as gasoline prices increase, cost remain s high and at least for lithium, lifetime durability is not yet proven. The Panel concluded that a small market is possible for the technology.

Some automakers are now showing renewed interest in bringing battery EVs to market. Improvements in battery chemistry and announcements by battery companies and start-up automakers have raised new optimism that t he technology may be viable in the mid-term. Given the progress made in battery techn ology and the possibility of automakers coming back into the battery EV market, staff is now proposing that the ZEV regulation be modified to provide for more even treatment of battery EVs (Type I and Type II ZEVs). The amendments would remove the cap for use of battery EVs to meet the gold requirement and would establish compl iance ratios for their use based on the credits they earn rather than a secondary “subs titution ratio” as was the case in the Alternative Path in the current regulation.

Tables 3.3 and 3.4 demonstrate the existing and pro posed treatment of battery EVs under the New Path. Under the existing Alternative Path, manufacturers must meet at least 50 percent of the requirement with Type III v ehicles, or fuel cell vehicles. This was included to ensure that fuel cell technology would have the necessary focus and attention. Type I and II vehicles (battery EVs) co uld be used to meet the remaining 50 percent, but at the credit ratios shown in Table 3. 3. The large ratios between fuel cell and battery EVs meant that much larger numbers of b attery EVs had to be produced if a manufacturer chose to meet the regulation with the technology. Additionally, a manufacturer had to produce two ZEV technologies to comply with the regulation – fuel cell vehicles and battery EVs.

Table 3.3: Existing Cap and Substitution Ratio for Type I and II ZEVs

ZEV Type Cap

(percent) Ratio to Type III

(2005-2011) Ratio to Type III
(2012-2017) I (City EVs) 50 20:1 10:1 II (Full Function EVs) 50 10:1 5:1

The staff proposes to remove the cap and modify the ratios for substitution to be

consistent with those in Table 3.2. Table 3.4 illu strates the proposed ratios as they relate to Type IV vehicles. For example, 5 full-fu nction-battery EVs would be required in lieu of 3 Type IV fuel cell vehicles during the 201 2 – 2014 timeframe.14 Table 3.4: Proposed Ratio for Type I and II Vehicle s

Type Cap

(percent) Ratio to Type IV (2009-2017)

I (City EV) 0 2.5 : 1 I.5 (City EV) 0 2 : 1 II (Full Function EV) 0 5 : 3

By returning to technology neutrality and consideri ng battery EVs and fuel cell vehicles similarly, ARB recognizes the equal air quality ben efit of both technologies. The market has changed since the amendments to the program in 2003, with several manufacturers showing a renewed interest in battery technology. Current fuel cell development is strong and does not need as much regulatory advanta ge as is provided by the existing program. It is likely that some manufacturers will pursue more advanced battery EV development as a result of this proposal. Still, s taff believes the strong interest and investment in fuel cell vehicle development will co ntinue regardless of these changes.

3.4 Adjust Credit Determination Methods for AT PZEV s

The credit allowances provided to AT PZEVs are inte nded to accelerate the development and deployment of ZEV technologies in t he marketplace. Examples of such technologies include electric drive systems, e nergy-storage systems, and gaseous fuel storage used in compressed natural gas (CNG) a nd hydrogen internal combustion engine vehicles. Staff believes that promoting th e widespread adoption of ZEV technologies in AT PZEVs leads to component perform ance improvements and cost reductions that are necessary for ZEV commercializa tion. The Expert Panel agreed, even though sales of HEVs are steadily increasing, the critical components HEVs share with ZEVs, such as advanced technology batteries, a re continuing to rapidly evolve.

Although automotive manufacturers are given a wide variety of AT PZEV options, staff is currently aware of near-term AT PZEV production plans only for CNG vehicles, HEV,

and PHEVs.

Staff is proposing several modifications to the tre atment of credits for HEV AT PZEVs, primarily to address PHEVs. They include addressin g (1) treatment of “blended” PHEVs through an establishment of an equivalent all electric range (EAER), (2) adjusting the allowance for advanced componentry an d Type C HEV credit, and (3), PHEV low fuel cycle emissions (LFCE).

3.4.1 Zero-Emission VMT PZEV Allowance

Staff Proposal: Replace the former “all electric range” (AER) calc ulation used in the zero-emission-vehicle-miles-traveled (VMT) allowanc e 4 determination with a newly defined EAER to enable blended PHEVs to be appropri ately treated relative to nonblended PHEVs.

4 Allowances are part of a vehicle’s credit calculat ion and credits are the sum of the allowances given

.15

PHEVs 5 are HEVs which are capable of recharging from off- vehicle power sources in the same way battery EVs do. Since staff last exam ined the prospects for deployment of PHEVs, manufacturers have indicated an interest in deployment of “blended” PHEVs that have a more limited electric-only driving rang e. When PHEVs were last considered during 2003 ZEV regulation amendments, i t was envisioned that all PHEVs would run off of the battery until it was depleted and then transition to combined engine and electric hybrid operation. Since 2003, the con cept of a blended PHEV has emerged as an intermediate step between conventiona l hybrids and PHEVs. In some cases, it is anticipated that existing HEV models w ill evolve into blended PHEVs with the addition of extra battery capacity and an on-ve hicle charger while their conventional HEV powertrain may remain much the same. A blended PHEV still plugs in and accumulates energy from an off-vehicle electrical p ower source. Blended PHEVs differ from an AER PHEV in electric range because the engi ne may start anytime during range testing, usually much before the off vehicle charge energy has been fully depleted. Proponents of blended PHEVs claim they p rovide the reductions in GHG emissions and petroleum dependency as AER PHEVs do, but through near-term, less-challenging transitional step between existing HEVs and higher-powered, more expensive AER PHEVs. Under the existing regulation , blended PHEVs would not earn the zero-emission-VMT allowance because they could not achieve 10 miles of Urban Dynamometer Driving Schedule (UDDS) range without t heir internal combustion engines starting.

Staff proposes to retain the existing 10 mile minim um AER requirement for this allowance, but would allow blended PHEVs to qualify with 10 or more miles of VMT EAER described below. Staff also proposes that the AER value used for credit determination be replaced with the EAER value. EA ER will be defined as the UDDS miles driven by the PHEV until it has depleted its off-vehicle accumulated energy (charge depleting range or R cd ), but this range value is then multiplied by the f raction of those miles derived from off-vehicle electricity (e lectric range fraction or ERF) relative to electricity and gasoline.

EAER = (R cd * ERF)

For PHEVs with significant AER that can satisfy UDD S cycle(s) in electric mode, the ERF is 1.0 and the EAER is equal to the former AER. The allowance for the zeroemission, AER of PHEVs was formerly calculated usin g the following equation:

Allowance = (33.8 + [0.5 * AER])/25),

where the AER is measured on city driving cycle tes t until the engine turned on.

Staff proposes to replace this allowance formula wi th the following:

5 PHEVs are also described as Off-Vehicle Charge Cap able HEVs.16 Allowance = EAER x (1 – UF Rcd ) / 14.6

Where:

o R cd is the UDDS range of the PHEV until the off-vehicl e accumulated charge energy is depleted.

o ERF is the electric range fraction (electric energ y/ total energy)

o UF Rcd is the Utility Factor based on the charge depletio n range according

to the 0-100 mile 4th order polynomial curve fit from SAE’s J1711 6 , March 1999, page 52., which expresses the likelihood a vehicle will accum ulate a daily range in miles.

The reason that the former linear equation is repla ced by the utility-factor based function is to better reflect the likelihood that the range capability of a PHEV will be used by the general population. Under the proposed treatment, allowance per mile is very high near the 10-mile range because it is likely that these z ero emission miles will be routinely driven, while the allowance per mile decrease to a lower value as range increases

because of the decreased likelihood that these mile s will be routinely driven. This new method results in the AER allowance (shown in blue as the “former method) compared to the EAER allowance (shown in pink for three diff erent examples of electric-rangefraction values) as shown in Figure 3.2 below:

Figure 3.2: AER Credit Allowance VS EAER

6 SAE. SAE International, Recommended Practice for Measuring the Exhaust Emis sions and Fuel Economy of Hybrid-Electric Vehicles , March 1999

0.000 0.200 0.400 0.600 0.800 1.000 1.200 1.400 1.600 1.800 2.000

0 10 20 30 40 50 60

EAER (miles)AER Credit Allowance Former

Method

Examples with different EERF

(100%, 80% and 60%)17

These proposed amendments will also result in low r ange AER PHEVs receiving less AER allowance under this proposal than they did for merly, but they will also receive additional advanced componentry allowance (see belo w) to offset this decrease. This combination of changes in allowances is necessary i n order to appropriately reward the

AER PHEVs relative to blended PHEVs.

3.4.2 PHEV Advanced Componentry Allowance

Staff Proposal: Extend the allowance sunset for Type C HEVs, and ad d a new higher-power Type F HEV category.

Advanced Componentry Allowance – Staff proposes to implement a phase-down schedule and eliminate the allowance sunset for Typ e C HEVs. The Type C modification is recommended in response to comments that post-2011 hybrids with significant (>10 kW) power capability can still mak e an important contribution to technology development even if sub-systems operate at lower-voltage levels that might

not be suitable for full-function ZEVs. This is tr ue because Type C HEVs must still make use of advanced energy storage systems that ar e expected to be used on ZEVs. Staff believes that Type C HEVs may be well suited for very high volume markets where tighter cost constraints may restrict other HEV tec hnologies from being deployed. Staff recommends that the allowance for Type C hybrids be extended indefinitely, but at a reduced allowance level relative to other HEV desig ns.

Staff also proposes to add a new, higher battery ca pacity Type F HEV category for HEVs that demonstrate sufficient power capability t o propel an HEV through the UDDS driving test cycle on electric power alone. Type F HEVs must also qualify for the zeroemission-VMT allowance, and must demonstrate at lea st 10 UDDS miles of AER, instead of EAER (i.e., blended PHEVs would not be T ype F HEVs).

The Type F HEV category is intended to encourage th e deployment of higher battery capacity HEV drive systems interchangeable with tho se deployed in Type III ZEVs. In this way, design, development, tooling, and other c osts can be shared with the systems

destined for ZEVs in order to further drive down co sts and deploy ZEVs sooner. The allowance schedule proposed is shown in Table 3.5 b elow:

Table 3.5: Proposed HEV Componentry Allowance Sched ule

Year Type C

10 kW Type D

10 kW Type E

50 kW Type F (NEW)

>= 10 mile UDDS Capable

2005-2011 0.2 0.4 0.5 0.85

2012-2014 0.15 0.35 0.45 0.8

2015+ 0.1 0.25 0.35 0.718

3.4.3 PZEV Low-Fuel-Cycle-Emissions-Allowance

Staff Proposal: Eliminate the LFCE allowance for vehicles that do n ot make exclusive
use of LFCE fuels. PHEVs receive additional allowa nce under AER and Advanced Componentry to make up for this loss of LFCE allowa nce. As a result, only dedicated LFCE fueled vehicles will now be eligible for AT PZ EV LFCE allowance. Examples of AT PZEVs still eligible include CNG and hydrogen in ternal combustion vehicles.

3.4.4 Overall Effect of Changes to PHEV Allowances

The proposed changes would result in PHEVs receivin g overall pre-multiplier allowances as shown in examples listed in the Table 3.6 below, where B20, B30 and B40 are blended PHEV examples and P20, P40 and P60 are AER examples.

Table 3.6: PHEV Allowances

2011 Allowance

PHEV Type Rcd ERF (%) Existing Proposed

B12.5 Blended PHEV 12.5 80 0.7 1.24

B20 Blended PHEV 20 80 0.7 1.45

B30 Blended PHEV 30 80 0.7 1.65

B40 Blended PHEV 40 80 0.7 1.78

P10 AER PHEV 10 100 1.9 1.62

P20 AER PHEV 20 100 2.1 1.99

P40 AER PHEV 40 100 2.4 2.4

P60 AER PHEV 60 100 2.7 2.57

Table 3.5 shows that for AER PHEVs, the allowances awarded are not significantly changed from the existing regulation. Blended PHEV s which under the existing regulation could earn no more than 0.7 credits as a conventional hybrid, can now earn more than double. However, the table also shows th at blended PHEVs also do not earn as much as AER PHEVs even if their “range” is simil ar.

3.4.5 AT PZEV Credit Cap

Staff proposes to implement a pre-multiplier credit cap of 3.0 for all AT PZEVs. While AT PZEV attributes may be attractive features that advance deployment of ZEVs, earning pre-multiplier credit that is greater than that earned by a full function Type II ZEV is not justified.19 Table 3.7: AT PZEV Post-Multiplier Credit

2009-2011 2012 and beyond

AT-PZEV Type Description PreMultiplier Final Credit Final Credit

Type E HEV 0.70 0.70 0.65

CNG Compressed

Natural Gas Engine 0.70 0.70 0.70

HICE Hydrogen Internal

Combustion Engine 2.30 6.90 2.30

B12.5/ 80% ERF Blended PHEV 1.24 3.72 3.57

B40/ 80% ERF Blended PHEV 1.78 5.34 5.18

P10 AER PHEV 1.62 4.86 4.85

P40 AER PHEV 2.40 7.20 7.19

3.5 Increase Credit for Neighborhood Electric Vehic les

Staff Proposal: Double the credit earned by NEVs to 0.3 credits per vehicle to reflect the vehicle’s positive environmental benefits but l imited functionality compared with full

function ZEVs.

During the 2003 ZEV amendments, ARB committed to re viewing the credit value for NEVs. NEVs are low speed vehicles that have a maxi mum speed of 25 miles per hour and are only allowed to be driven on roads with a m aximum speed limit of 35 miles per hour. The positive benefits of NEVs include reduci ng emissions from cold starts, providing zero tailpipe emissions, providing high c onsumer usage for short trips and providing a future market and demand for more robus t ZEVs. However, NEVs are

limited to a niche market due to the small number o f areas in California where speed limits are low and due to a limited driving range, currently 30 miles per charge.

According to research to done by DiamlerChrysler an d GEM 7 , approximately 2 cold starts on average per day are reduced due to the us e of NEVs. Cold starts represent a large portion of a conventional gasoline vehicle’s environmental impacts. Consequently NEVs can eliminate up to one third of an owner’s ye arly ozone precursor emissions due

to the reduction in cold starts.

7 GEM. Surveys of NEV Owner Behavior in California . December, 2005 Prepared for GEM by Mightycomm and Access Research Group.20

In analyzing the credit value of NEVs, staff is mindful that higher credit values in the past encouraged mass production of low quality NEVs many of which remained in California for only a short period of time. Staff proposes an increase in the NEV credit value from 0.15 to 0.3 reflecting the positive bene fits listed above balanced with the

limited use of the vehicle.

3.6 Extend Travel Provision

Staff Proposal: Extend the provision that allows Type III ZEVs plac ed in any state that has adopted California’s ZEV program to count towar ds California’s ZEV requirement through 2017. Also, allow Type IVs placed in any s tate to count towards the California requirements. Include Type I and Type II ZEVs but sunset the application of the provision for these vehicles in 2014.

Section 177 of the federal Clean Air Act allows oth er states to adopt California motor vehicle emission standards, including the ZEV regul ation. The current ZEV regulation allows Type III vehicles placed in service in secti on 177 states to be counted towards compliance with the California percentage ZEV requi rements as if they are placed in service in California. Similarly, a vehicle placed in California counts towards compliance in a section 177 state. This “travel” provision wa s added in 2003 to encourage the initial development of higher cost Type III vehicles by sta rting with a lower volume production nationwide until the technology is ready to become commercially viable. The travel provision is set to sunset in 2011 under the curren t regulation. (ARB 2003)

Ten section 177 states have adopted the ZEV regulat ions: Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, Ne w York, Oregon, Rhode Island,

and Vermont. If manufacturers were to meet the ZEV requirements in each state, the number of ZEVs required nationally more than double and hinder the ability of auto manufacturers to bring these vehicles to market. T herefore, staff proposes that the travel provision for Type III and Type IV vehicles be extended through MY 2017.

Stakeholders also proposed that Type I and Type II vehicles be eligible for the travel provision. Similar to Type III vehicles, the cost to produce and introduce Type I and Type II vehicles into the market is high. In exami ning this proposal staff believes that technology neutrality is necessary to encourage all advanced technologies to come to market as soon as possible. Staff notes that the s uccessful introduction of AT PZEV hybrids began with low volumes in select states and still represents a small percentage of the overall market and that ZEV technologies mus t start with low production volumes until the vehicles are commercially viable. Staff proposes that Type I, Type I.5 and Type II vehicles be eligible for the section 177 tr avel provision through MY 2014 when they are estimated to be commercially viable. Tabl e 3.8 shows the existing and proposed schedule for sun-setting the travel provis ion.21 Table 3.8: Travel Provision Sunset Schedule

Vehicle Type Type I Type I.5 Type II Type III Type IV

Current: N/A N/A N/A 2011 N/A

Extended to: 2014 2014 2014 2017 2017

3.7 Modify Transition for Intermediate Volume Manuf acturers

Staff Proposal: Extend the transition period by six years for IVMs. During this time, an automaker would be allowed to meet their ZEV obliga tions with PZEVs and AT PZEVs, where a minimum percentage would have to be AT PZEV s.

ARB’s regulations define LVMs as automakers with an nual California sales in excess of 60,000 passenger cars and light-duty trucks (LDT 1, LDT 2, and MDVs). They define

IVMs as automakers with annual California sales bet ween 3,001 and 60,000 passenger cars, LDT 1s, LDT 2s, and MDVs.

The 60,000 vehicle sales volume threshold was estab lished to acknowledge the significant gap between intermediate volume and lar ge volume automakers. While BMW, Mercedes, Hyundai, and VW, all IVMs, are neari ng the 60,000 vehicle threshold, their relative size has not changed in relation to the six largest automakers – Toyota, General Motors, Ford, Honda, Chrysler, and Nissan b ecause the volume of vehicles sold in California has been increasing across the b oard. This gap is illustrated in figure

3.3 below. Figure 3.3: Market Share by Manufacturer

Toyota

General Motors

Ford

Honda

Chrysler

Nissan

BMW

Volkswagen

Mercedes Benz

Hyundai

Mitsubishi

Kia

Mazda

Volvo

Jaguar

Suzuki

Land Rover Hyundai

Mercedes Volkswagen

BMW22

Once an automaker exceeds the threshold for three c onsecutive years, they are defined as a LVM. That automaker then has six years before having to meet the requirements for LVMs. Under the existing regulation, that mean s they must begin to produce pure ZEVs vehicles or acquire the appropriate credits.

During the May 2007 technology report to the Board, the ARB suggested the threshold for LVMs transitioning to LVMs be changed upward to reflect changes in the overall automobile market. After taking comment, the Board directed that the threshold remain unchanged. However, the Board also directed staff to identify ways to ease the

transition for intermediate volume automakers.

Staff is now proposing to provide an additional tra nsition period of six years. During this time, transitioning automakers would be required to produce a growing percentage of AT PZEVs if they do not comply with gold vehicles a s described in Table 3.9. In the first three years of the extend transition, newly defined LVMs would have the option to meet the ZEV requirements with a combination of PZEVs an d AT PZEVs, of which at least a quarter would have to be AT PZEVs. In the second t hree years of the ramp-up phase,

these manufacturers would continue to meet the ZEV regulation requirements with a combination of PZEVs and AT PZEVs, of which at leas t a third would have to be

AT PZEVs.

Table 3.9: Intermediate to Large Volume Transition

Current Regulation Proposed Amendment

Years 3 years of

volume in

excess of 60,000 1-6

Lead Time 7-9

AT PZEV

Transition 1 10-12

AT PZEV

Transition 2 13 and

beyond

Full ZEV Requirement

Status IVM LVM LVM LVM LVM

PZEVs 100 % of ZEV

Obligation 100% of ZEV

Obligation 75% of ZEV

Obligation 67% of ZEV

Obligation Full LVM

Obligations as dictated by regulation

These changes act as a way to bridge IVMs into ZEV production and provide additional time to develop full ZEV technologies while bringin g them into the AT PZEV market with ZEV enabling technologies.

3.8 Additional Modifications

3.8.1 ZEV Credits for Advanced Technology Demonstra tion Programs

Staff Proposal: Establish new restrictions on the placement of advanced techn ology

demonstration vehicles.

Under the current program, vehicles that are placed in a California advanced technology demonstration program may earn ZEV credits even if they are not “delivered for sale.”23

In addition, vehicles in these programs are only re quired to be in California for six

months. Staff believes that the nature of demonstr ations for these vehicles has changed and that vehicles receiving credit should b e demonstrated in California for a longer period of time.

Staff also wants to encourage manufacturers to leas e these advanced vehicles to the public or to fleet operators. Thus, staff is propo sing that vehicles in an advanced technology demonstration program remain in Californ ia for the first year of a two year placement requirement and that the number of vehicl es eligible for this provision per manufacturer is six. Beyond six vehicles, manufact urers would then need to certify vehicles through the regular certification process. Additionally, staff is proposing that the advanced technology demonstration program provi sion be phased out at the end of 2014 when it is anticipated that small scale demons tration programs will no longer be

needed.

3.8.2 ZEV Credits for Transportation Systems

Staff Proposal: Clarify minimum participation requirements for tran sportation system

credit.

Under the current ZEV regulation, vehicles that are placed as part of a transportation system, such as a car-share program, can earn addit ional ZEV credits. Originally the vision for vehicles in these programs was that they would remain in the program for at least two years; however, this was never explicitly stated in the regulatory language. Staff proposes that vehicles in transportation syst ems remain in these programs for two years. At the same time, staff proposes the level of credits that these vehicles earn be reduced, and would sunset for PZEV and AT PZEV in 2 011. ZEVs would continue to receive transportation system credits beyond this s unset.

3.8.3 Fast Refueling

Staff Proposal: Modify the description of fast refueling capability for Type III ZEVs.

Since the 2003 ZEV regulation amendments were adopt ed, there have been several inquiries regarding the specific details on how the fast refueling capability requirement for Type III ZEVs will be applied. Unfortunately, ARB staff cannot yet cite industry definitions, standards, or test procedures because these are still under development. The fast refueling criterion is important because t his distinction between Type II and Type III & IV is crucial to manufacturers who wish to take advantage of the additional incentives ARB is providing for Type III & IV ZEVs through 2017.

The majority of hydrogen fuel cell vehicle prototyp es made to date are equipped with compressed hydrogen storage. Since 2003, compresse d hydrogen storage systems have become available at an alternative 10,000 poun ds per square inch (psi) pressure rating in order to further improve the range of hyd rogen vehicles. This increase in pressure results in a hydrogen vehicle range increa se of approximately 67 percent for24

the same external tank volume. At the time of the 2003 amendments, the feasibility of refilling 5,000 psi tanks in less than 10 minutes s eemed certain, and ARB received very little comment regarding challenges involved in mee ting the proposed Type III fast refueling criterion of 10 minutes. (ARB 2003)

However, most demonstration vehicles outside of the manufacturer’s test facilities currently refuel under conservative default or “non -communication” procedures that were developed at the California Fuel Cell Partners hip. Fast refueling is not yet achievable using 10,000 psi storage systems with so me of these preliminary fill procedures. The longer refueling times for these s ystems will eventually decrease as refueling standards and dispensing equipment techno logy mature and the industry settles on solutions to accelerate the refueling pr ocess. Furthermore, ARB staff believes that existing fuel cell vehicles with 10,0 00 psi hydrogen storage tanks will ultimately be capable of sub-10-minute refueling wh en used with refueling apparatus that will be deployed for public use. Staff does n ot intend to require that this fast refueling requirement be met at any currently-exist ing refueling or charging station. Even at today’s refueling stations, 10,000 psi capa ble vehicles are refueling in nearly 10-minute times; the impact of this technology chan ge is not burdensomely long refuelings.

Staff proposes to clarify the regulation to require a Type III ZEV to have the capability to accumulate at least 95 miles of UDDS range in 10 mi nutes or less. This change is to align standards with those suggested in ARB’s Manuf acturers’ Advisory Correspondence 2006-02: Policy Regarding the “Fast Refueling Capability” Criterion For 2003 and Subsequent Model-Year Type III Zero-Em ission Vehicles (ZEV) 8 . It is expected that the “maximum rated energy capacity” v alue that a manufacturer declares

will be the same value used to determine vehicle ra nge and that this “maximum-ratedenergy-capacity” value has already compensated for unusable fuel and fast-fill limitations. Since the requirement is that 95 perc ent of this capacity be delivered to the vehicle fuel system in 10 minutes or less and since Type III ZEVs must achieve a minimum 100 mile UDDS range, it is, therefore, equi valent to the current ZEV regulation requirement, but would be clarified by staff’s prop osed amendments.

3.8.4 Release of Production Data and Credit Bank Ba lances

Staff Proposal: Require that all production data be publicly availa ble beginning in 2009 and release specified ZEV credit bank balance infor mation in MY 2010.

To provide greater transparency to interested stake holders, staff is proposing that all production credits earned and submitted by automake rs in the 2009 MY and beyond be public information. The ZEV bank credit balances o f automakers in specified categories would be considered public information beginning in the 2010 MY. This change is

8 ARB 2006b. California Air Resources Board, Manufacturers’ Advisory Correspondence 2006-02: Policy Regarding the “Fast Refueling Capability” CriterionFor 2003 and Subsequent Model-Year Type III ZeroEmission Vehicles (ZEV). May 10, 2006.25

proposed to allow stakeholders and the public to be tter understand how manufacturers are complying with this regulation, and to assure t hey can more fully participate in future regulatory hearings on this subject.

3.8.5 Revise the Definition of Independent Low Volu me Manufacturer

Staff Proposal: Revise the existing definition of independent low v olume manufacturer.

In response to the industry consolidation that was occurring in the late 1990s, ARB adopted percentage ownership criteria and set the v alue at 50 percent for aggregation of production volume for determination of manufactu rer size. Doing so created a fair method to determine aggregation that was objective and equitable for all manufacturers involved in partial ownership scenarios. Adopting t his provision also recognized the challenging technical nature of the program and the fact that the requirements to develop and market ZEV technologies place a greater than normal risk and burden on smaller companies. For independent low volume manu facturers, a different aggregation value of 10 percent was adopted.

The inconsistency in aggregation percentages used t o determine ZEV requirements could create a situation in which aggregation betwe en two firms with a qualified ownership scenario is asymmetrical. An independent low volume manufacturer that accumulates a capital investment in another firm wi th ownership totaling greater than 10 percent would be forced to aggregate its sales with the other firm to determine its ZEV obligation. However should the other firm be either an intermediate or small volume manufacturer, this company would not aggregate with the independent low volume manufacturer until ownership exceeded 50 percent. To address this issue, staff is proposing to amend the definition to include a clau se in which the Executive Officer can allow an exemption if it is determined that 10% or greater ownership by one of the firms does not result in responsibility for overall direc tion of both firms.

3.8.6 Revise Phase II Vehicle Requirement Methodolo gy

The existing regulation calculates the Alternative Compliance Path requirements based on a LVM’s market share of the target ZEV volume. Using this method creates uncertainty due to shift in market between LVMs. S taff is therefore proposing to use production data from MYs 2003 – 2006 to provide cer tainty for the requirements during

this timeframe for each manufacturer.26

4. EFFECT OF PROPOSED CHANGES

This section provides an assessment of the number o f vehicles that may be produced due to the proposed changes. Sections 6 and 7 then use these estimates to project the economic and environmental impacts of the proposed changes.

The ZEV program has by far the largest impact on th e LVMs as IVMs are able to meet the requirements with PZEVs. Consequently, the ana lysis focuses on the impact on the

six LVMs. Due to the small number of automakers af fected and to the resulting confidentiality concerns, staff’s analysis of the p roposed changes reflects the overall impact to the industry.

Creating further uncertainty in the assessment is t he fact that each automaker is in a unique situation. Some have smaller numbers of ban ked credits, while others have credits sufficient to cover their compliance obliga tions for a number of years. In addition, manufacturers differ in the status of fue l cell development, the availability of PZEV or AT PZEV products in the near term, and the technologies to be emphasized in their corporate strategy. All of these factors aff ect a manufacturer’s compliance status, and, therefore, the compliance pathways it pursues. Because of these factors, predicting the impacts for the proposed changes wit h certainty is not possible. Rather the estimates represent plausible outcomes from the proposed amendments based on current ZEV credit accounts, numerous discussions w ith industry and other information gathered.

The most significant proposed changes are presented below along with their expected impacts to the number and types of vehicles produce d.

4.1 Creation of the “New Path” (2012 onward) and Ch anges to Treatment of Battery EVs

As a result of this proposal, the minimum number of Type IV ZEVs required in Phase III (2012 – 2014) would be reduced from 25,000 to 2,500 vehicles. This pure ZEV requirement could be met with either fuel cell vehi cles or battery EVs. If manufacturers choose to produce city EVs, the total production re quired would increase due the

differences in credit value.

Table 4.1 shows the impact from removing the cap an d modifying the credit ratios for ZEV Types. The proposed changes are expected to ma ke this approach less costly than producing fuel cell vehicles. However, the am ount of interest in battery EV production will depend largely on improvements in b attery technology in the near future and their marketability.27 Table 4.1: Production Requirements for Zero Emissio n Vehicles

Vehicle Type 2009

– 2011 2012

– 2014 2015

–

2017

Type I (City EV) 5,000 6,250 62,500
Type I.5 (City EV) 4,000 5,000 50,000
Type II (Full Function) 3,333 4,167 41,667
Type III (Fuel Cell) 2,500 3,125 31,250
Type IV (Fuel Cell) 2,000 2,500 25,000

By comparison, the existing program requires 2,500 Type III vehicles in 2009 to 2011 and 25,000 in 2012 – 2014. The existing program li mits the substitution of battery EVs to 50 percent of the requirement with significantly higher credit ratios resulting in much higher production requirements.

The proposal would allow Enhanced AT PZEVs to make up the “shortfall” or difference with the existing requirements. Table 4.2 shows th e incremental production of Enhanced AT PZEVs over the three-year period that w ould be required. To give a sense of the increase in total vehicles required, t wo Enhanced AT PZEVs are considered, a PHEV with a 40 mile AER, and a blende d Enhanced AT PZEV with 12.5

miles of AER. The number of “offset” vehicles vari es due to the differences in credit earned for each vehicle type but will exceed the ex isting 25,000 requirement for Type III vehicles. For purposes of estimating cost and emis sions later in Section 6 and 7, a value of 1.5 was used to represent a weighted avera ge Enhanced AT PZEV credit.

Table 4.2: Incremental Production Using Enhanced AT PZEVs as Gold Backfill

2012 – 2014

Vehicle Type Proposed Credit Incremental Production

AT PZEV

HEV: 40 mile AER 2.4 46,875

Blended HEV: 22 mile electric range 1.5 75,000

Blended HEV: 12.5 mile electric

range 1.24 90,725

4.2 Increase Credit for Neighborhood Electric Vehic les

Doubling the level of credit for NEVs increases the incentives for manufacturers to produce them. This increase will not necessarily r esult in overwhelming the market with new NEVs, but will provide a modest incentive for t hose already in production. Since the 2001 to 2005 timeframe, the number of NEVs plac ed in California has dropped dramatically. Thus, the impact from this proposed change is expected to be extremely

small. Because of the limitations on the use of NE Vs for compliance, they are typically used to offset PZEV or AT PZEV requirements. There fore, the increase in credits for NEVs will reduce the number of AT PZEVs that are pr oduced. The resulting impact is approximately one less AT PZEV for every four NEVs placed.28

4.3 Extend “Travel” Provision

Extending the “travel” provision can reduce the ind ustry obligation in states that have adopted the California program. California sales a re nearly equal to the sales from all states that have adopted the ZEV requirements. Con sequently, this change is anticipated to reduce the number of ZEVs needed in other states by approximately 2,500 vehicles in the 2012 – 2014 timeframe. The p roposal would extend the provision for Type III and IV ZEVs through 2017. To the exte nt that fuel cell vehicles are produced to meet the requirements in that timeframe , this proposal will reduce the number of vehicles by the amount placed in states t hat have adopted the ZEV program. Similarly, since battery EVs are also included in t he travel provision, battery EVs could be reduced by half nationwide.

4.4 Modify Transition for Automakers

Several automakers with a collective market share o f roughly 10 percent are projected to be affected by this aspect of staff’s proposal. When compared to the existing transition where gold ZEVs are required, the net ef fect would be a reduction of several hundred pure ZEVs and a corresponding “backfill” or increase of approximately 3,000 to 4,000 PZEVs and AT PZEVs in the 2012 timeframe. Du e to the large numbers of PZEVs and AT PZEVs, the overall impact would be a n et reduction in cost and

emissions.

4.5 Overall Anticipated Impacts

Staff has also looked at the existing ZEV bank on a n industry wide basis, as shown in Table 2.4. Using the industry wide aggregate total s for the ZEV bank, staff examined the possible numbers of vehicles to be placed betwe en 2009 and 2017. Presented

below are two scenarios of the number of vehicles m anufacturers will place, dependent

on their use of banked ZEV credits. Staff took int o account limited applicability of NEV credits for use in gold and silver categories. Sce nario 1, presented in Table 4.3, shows the approximate number of vehicles that would be pl aced if the manufacturers used no

banked ZEV credits.29 Table 4.3: Scenario 1 – No Credit Use

Vehicle Type 2009-2011 2012-2014 2015-2017

ZEVs

Fuel Cell Vehicle Type IV, or 2,000 2,500 25,000

Fuel Cell Vehicle Type III, or 2,500 3,125 31,250

Battery Vehicle Type II, or 3,333 4,167 41,667

City EV Type I.5, or 4,000 5,000 50,000

City EV Type I 5,000 6,250 62,500

Enhanced AT PZEVs 0 75,000 83,333

AT PZEV 207,000 195,000 153,000

PZEV 1,260,000 1,260,000 1,260,000

Assumes Enhanced AT PZEVs earn 1.5 credits, silver vehicles earn 0.65 credits in 2012 – 2014, and

0.55 credits 2015 – 2017. Based on annual Californ ia vehicle sales of 1.4 million passenger cars, light-duty trucks (LDT 1 and LDT 2) by the six larg e volume auto manufacturers.

For Scenario 2, as presented in Table 4.4, staff pr ojected the total number of vehicles to be placed by manufacturers using a combination of b anked credits and new production. As shown, existing banked credits are largely spent in the 2009 – 2011 timeframe with minimal impact in 2012. The number of fuel cell ve hicles estimated for 2009 – 2011 reflect staff’s understanding of industry wide plan s for the technology. For both scenarios the number of pure ZEVs is not added toge ther, but rather reflects the

number of vehicles that would be needed to meet the requirements for each technology type. Given the current state of battery technolog y, staff does not anticipate that manufacturers will produce any battery EVs prior to 2012.

Table 4.4: Scenario 2 – Probable Credit Use

Vehicle Type 2009-2011 2012-2014 2015-2017

ZEVs

Fuel Cell Vehicle Type IV or 250 2,500 25,000

Fuel Cell Vehicle Type III or 200 3,125 31,250

Battery Vehicle Type II or 0 4,167 41,667

City EV Type I.5 or 0 5,000 50,000

City EV Type I 0 6,250 62,500

Enhanced AT PZEVs 30,000 75,000 83,333

AT PZEV 107,000 95,000 153,000

PZEV 700,000 1,260,000 1,260,000

Assumes Enhanced AT PZEVs earn 1.5 credits, silver vehicles earn 0.65 credits in 2012 – 2014, and

0.55 credits 2015 – 2017. Based on annual Californ ia vehicle sales of 1.4 million passenger cars, light-duty trucks (LDT 1 and LDT 2) by the six larg e volume auto manufacturers.30

5. REGULATORY ALTERNATIVES

5.1 Do Not Amend Program

ARB staff considered not recommending any amendment s to the ZEV regulations. In this case, large volume manufacturers would need to produce and place 25,000 advanced technology vehicles between 2012 and 2014. Based on the data obtained, the technology needed will not be ready for such la rge volumes and will result in the imposition of a large cost burden on the manufactur ers.

The vehicles would need to be priced aggressively t o meet the sales targets, and this

would reduce the revenue available to the manufactu rers to offset their costs. To the extent that the state provides subsidies in order t o assist with vehicle marketing, such a large number of vehicles needing subsidies would re sult in large state expenditures. Under the current program, manufacturers would most likely use their entire amount of banked credits before needing to produce costly add itional ZEVs to meet their program requirements.

5.2 Adopt Substantial Revisions to the ZEV Regulati on

As part of the regulatory development process, ARB staff considered three options regarding the number of vehicles required under the Alternative Compliance Path, as shown in Table 5.1. The options were evaluated in the context of strengthening the program by deploying advanced technology vehicles t o further advance ZEV commercialization and manufacturing capacity while considering balancing the overall costs and compliance feasibility.

Table 5.1: Possible Options

Phase II III IV

Years 2009-2011 2012-2014 2015-2017

*Option 1 Staff Proposal 2,500 2,500/ Enhanced

AT PZEV offset 25,000/ Enhanced

AT PZEV offset *Option 2 Combined Phase 5,000 10,000 to 15,000 *Option 3 No Change 2,500 25,000 50,000

* Each LVM would be required to produce their sales -weighted share.

Option 1 would maintain the pressure to continue th e development of emerging ZEV technologies. At the same time, the proposal would take greater advantage of the recent interest in new technology options and provi de manufacturers with greater flexibility in meeting the ZEV program requirements

.

Option 2, suggested by some automakers, provides fl exibility around product plans and allows greater time for technology advancement befo re introducing larger numbers of vehicles. However, staff rejected this option beca use of the significant risk that it would create a gap in vehicle production as automakers ba ck-load their obligation.31

Option 3, suggested by several environmental organi zations, delays any action in proposing amendments to Phase III. However, staff rejected this approach as automakers have indicated that product planning and development schedules for the 2012-2014 MYs are now in place and a feasible regul ation is needed for this timeframe.

Staff’s proposed amendments to ZEV program maintain the on going goals of pure ZEV commercialization while taking into consideration t he current cost and associated technological barriers. The changes proposed by sta ff significantly reduce an automaker’s cost of compliance, but still provide i ncreased air quality benefits primarily because they rely upon the proven emission benefits of commercially viable and increasingly available AT PZEVs. Staff believes th at relinquishing a portion of the research and development production volume in excha nge for reduced costs to

automobile manufacturers and increased near term em ission benefits is a compromise that benefits almost all stakeholders. The propose d amendments are the most feasible and cost effective option.32

6. ECONOMIC IMPACTS

The proposed amendments to the ZEV program are proj ected by ARB staff to reduce the costs of compliance for automobile manufacturer s. Staff believes, therefore, that the proposed amendments would cause no noticeable a dverse impact on California employment, business status, and competitiveness wh en compared to the existing program. Because the ZEV regulations provide consi derable flexibility to manufacturers, the magnitude of these savings is di fficult to estimate with certainty.

6.1 Legal Requirement

Sections 11346.3 and 11346.5 of the Government Code require state agencies to assess the potential for adverse economic impacts o n California business enterprises and individuals when proposing to adopt or amend an y administrative regulation. The assessment shall include consideration of the impac t of the proposed regulation on California jobs, business expansion, elimination, o r creation, and the ability of California businesses to compete.

State agencies are also required to estimate the co st or savings to any state or local agency and school districts in accordance with inst ruction adopted by the Department of Finance. This estimate is to include any nondiscre tionary costs or savings to local agencies and the costs or savings in federal fundin g to the state.

6.2 Directly Affected Businesses

LVMs that produce passenger cars and light-duty tru cks in California would be directly affected by the proposed amendments. Also affected are businesses that supply parts for these vehicles. California accounts for only a small share of total nationwide motor vehicle and parts manufacturing. There are about 4 0 companies worldwide that manufacture California-certified light- and medium- duty vehicles and heavy-duty gasoline engines. All but the largest six would no t be affected by the amendments with the exception of those IVMs that transition to LVMs due to increasing production volume. Current projections show that one to four IVMs will transition to LVMs. Only one motor vehicle manufacturing plant is located in California, the NUMMI facility, which is a joint venture between GM and Toyota. Since NU MMI does not produce vehicles affected by the amendments to the ZEV regulation, s taff expects there to be no California based impacts.

6.3 Potential Impact on Manufacturers

The proposed amendments are expected to reduce cost s to motor vehicle manufacturers. The key factors that determine the cost of compliance with the ZEV program are the number and types of vehicles that a re required, and the incremental cost per vehicle. The changes that would result fr om the proposed amendments are33

estimated below and are subject to considerable unc ertainty because of the flexibility allowed by the regulation.

6.4 Incremental Per-Vehicle Cost Estimates

ARB staff used the incremental costs per vehicle fr om the 2003 regulatory amendment process as the starting point for the staff estimat es. Where appropriate, staff modified the projected costs based on gathered estimates of technology costs and to reflect changes in volume and timing.

Fuel cell Vehicles

The 2003 rulemaking estimated the incremental cost of fuel cell vehicles for development Phase III at $120,000 per vehicle (ARB 2003). However, this assumed a vehicle production of tens of thousands of vehicles . Because the proposal would repeat the volumes required in Phase II with 2,500 vehicle s, this analysis uses the cost estimates from 2003 for development required for Ph ase II. Consequently, the incremental cost is estimated to be $250,000 per ve hicle in the 2012 – 2014 timeframe. Fuel cell vehicles with greater range are typically more expensive due to efficiency improvements, and/or greater on-board fuel storage. Staff therefore assumes an average additional incremental cost of $50,000 for these vehicles in the near term, and $25,000 in the mid-term.

Battery Electric Vehicles

Recent announcements have increased optimism in new battery chemistries, namely lithium-based batteries. However, price fluctuatio ns and lithium-ion battery availability make recent cost numbers uncertain, so staff will c ontinue to use the estimates from 2003 until these batteries become available in larg e pack quantities. The 2003 rulemaking estimated the incremental costs for Type II battery EVs at $17,000 and Type I city EVs at $8,000 (ARB 2003). These estima tes, however, were based on larger volume production than would be needed to me et the requirements in 2012 – 2014 and would underestimate the cost to industry. Since the cost of the vehicles will depend on several factors including the battery che mistry used, a sizable cost range is used for Type I and Type II vehicles. Increased ra nge for Type I.5 is largely dependent on greater battery size. In small volumes this inc reased range is expected to raise the cost of the vehicle by $15,000 over the 2012-2014 t imeframe. In much high production quantities over all costs for both are expected to be reduced significantly.

Plug-in Hybrid Electric Vehicle

Staff has relied on a report by EPRI entitled “Comp aring the Benefits and Impacts of Hybrid Electric Vehicle Options for Compact Sedan a nd Sport Utility Vehicles” 9 to

9 “Comparing the Benefits and Impacts of Hybrid Elec tric Vehicle Options for Compact Sedan and Sport Utility Vehicles”, EPRI, Palo Alto, CA: 2002. 10068 92.34

estimate the average incremental cost for Enhanced AT PZEVs vehicles produced in

low volumes.

Table 6.1 presents the incremental cost estimates f or each vehicle technology.

Table 6.1: Incremental Vehicle Cost Estimates

Vehicle Type 2012 to 2014 2015 to 2017

ZEVs
Fuel Cell Vehicle: Type IV $300,000 $150,000

Fuel Cell Vehicle: Type III $250,000 $125,000

Battery Vehicle: Type II $80,000 to $120,000 $40,00 0 to $60,000

Battery Vehicle: Type I.5 $40,000 to $80,000 $20,00 0 to $40,000

Battery Vehicle: Type I $35,000 to $65,000 $15,000 to $35,000

AT PZEVs

Plug-in Hybrid Electric Vehicle $25,000 $12,500

The estimates for the various vehicle types are sub ject to great uncertainty associated with projecting future costs for evolving technolog y. As such, though the direction of the cost impact of the proposed amendments is clear, th e magnitude of the savings is much

more difficult to assess. 10

6.5 Cost Savings

The incremental vehicle costs from Table 6.1 were u sed to estimate the costs from the proposed changes to the Phase III and Phase IV requ irements. The incremental costs were combined with the projected changes in Table 4 .1 to estimate the costs for complying with the proposed amendments through each of the ZEV technologies allowed. Scenarios 1 through 5 present compliance costs assuming the minimum required numbers of ZEVs (“floor” requirement) comb ined with the maximum use of Enhanced AT PZEVs for backfill. The proposed amend ments allow varying amounts of different ZEV technologies to be used to meet the f loor requirement. The five scenarios reflect these proposed changes.

Though the number of required vehicles decreases fo r higher scoring vehicles (e.g., Type III and Type IV), overall costs are higher due to greater incremental cost per vehicle. As compared to the existing regulation, t he overall cost of compliance strategies using the combination of vehicle types i s lower. These estimates are summarized below in Table 6.2, where the annual cos t of each scenario is subtracted from the projected annual cost of the existing regu lation ($2,083 million)

10 ARB 2008. California Air Resources Board, Excel S preadsheet: Vehicle Estimates and Costs, February 200835 Table 6.2: Estimated Annual Costs and Savings from Proposal (In millions)

1 Assumes fuel cell vehicle, not battery EV.

Table 6.2 also presents the savings from the propos ed amendments when compared to the existing program. As shown, the proposed amend ments greatly decrease overall

cost due to the reduction in vehicle numbers of the most expensive technologies.

6.6 Potential Impact on Dealerships

The extent to which motor vehicle dealerships are a ffected by the current ZEV regulation, or the amended regulation, depends on t he specifics of the interaction between the dealership and the manufacturer. The p roposed changes are expected to have limited impact on dealers as many of the vehic le technologies affected are not expected to be sold commercially and those that wil l be are placed in relatively small

numbers.

6.7 Potential Impacts on Vehicle Operators

The proposed changes would reduce the number of fue l cell and battery EVs demonstrated. These vehicles are not expected to b e sold or leased in the timeframe under consideration as a commercial product. As is the case with dealerships, the impact of the current regulation or the amended reg ulation on vehicle purchasers will depend on the extent to which manufacturers choose, and are able, to pass along any increased costs. Once again, staff cannot estimate the extent to which this would occur, but it is clear that the proposed amendments would serve to reduce any possible cost increases for vehicle purchasers as compared t o the current regulation.

6.8 Potential Impact on Business Competitiveness

Because the proposed amendments are anticipated to reduce costs faced by California businesses, they would have no adverse impact on th e ability of California businesses to compete with businesses in other states.

Scenarios Vehicle Types 2012- 2017

Annual

Cost 2012-2017

Annual Savings

Existing Regulation Type III $2,083 N/A

1 Type IV + Enhanced AT PZEV $1,236 $847

2 Type III 1 + Enhanced AT PZEV $1,267 $816

3 Type II + Enhanced AT PZEV $903 $1,180

4 Type I.5 + Enhanced AT PZEV $786 $1,297

5 Type I + Enhanced AT PZEV $799 $1,28436

6.9 Potential Impact on Employment

The proposed amendments are not expected to cause a noticeable change in California employment because California accounts for only a s mall share of motor vehicle and parts manufacturing employment, which is not expect ed to be affected by the regulation.

6.10 Potential Impact on Business Creation, Elimina tion or Expansion

Staff sees a potential benefit to start up companie s specializing in advanced battery technology and ZEVs. The proposed amendments are n ot expected to affect business creation, elimination or expansion.

6.11 Potential Costs to Local and State Agencies

The proposed amendments are not expected to result in an increase in costs for state and local agencies.37

7. ENVIRONMENTAL IMPACTS

This section includes a discussion of the emission impacts of the ZEV program, and, separately the proposed regulatory amendments. The first analysis calculates the projected benefits of the total ZEV program. The a nalysis includes both criteria pollutant and climate change emissions.

7.1 Program Benefits

The Mobile Source Emission Inventory, EMFAC2007 11 , was used to assess the overall emission benefits of the ZEV program. Using EMFAC, staff modeled the ZEV program and compared these results to a vehicle program wit h no ZEV component. This comparison is applicable to the South Coast Air Bas in and represents the emissions from vehicles subject to this regulation. It inclu des passenger cars and light-duty trucks weighing less than 3,751 pounds gross vehicle weigh t, plus light duty trucks weighing less than 8,500 pounds gross vehicle weight phased in beginning in 2008.

Table 7.1 presents the difference in emissions for the South Coast Air Basin in 2020 and 2030 for the current ZEV program compared to no t having a ZEV program. As shown in Table 7.1 staff estimates that the propose d changes will result in a net decrease of about 13.83 tons per day of direct emis sions of reactive organic gases (ROG) and oxides of nitrogen (NOx) in 2020. For 20 30, Table 7.1 shows a net decrease of about 15.52 tons per day of direct emis sions of ROG and NOx from the proposed amendments when compared to the current pr ogram.

Table 7.1: Summertime Emissions, South Coast Air B asin in 2020 and 2030 (Tons per day)

2020 ROGexh. ROGevap. NOx Total No ZEV Program 36 63 66 164 Current Program 26 60 64 151 Benefit of Current Program v. No Program 10 3 2 13

2030 ROGexh. ROGevap. NOx Total No ZEV Program 22 55 38 115 Current Program 14 49 36 100 Benefit of Current Program v. No Program 8 6 2 16

As illustrated, the ZEV requirements provide benefi ts beyond that achieved by using a fleet emissions average. As important, the program continues to push new technology

that will reduce emissions in the future.

7.2 Benefits of Proposed Amendments

The Greenhouse gases, Regulated Emissions, and Ener gy use in Transportation (GREET) 12 model was used to directly compare the emission im pacts from the changes

11 ARB 2007c, EMFAC2007. Version 2.3, Updated Novemb er 200638

being proposed by staff. The most significant elem ent of the proposal affects the requirements for pure ZEVs beginning in 2012.

Using the GREET model, staff analyzed the five scen arios presented in Section 6.5 to show the lifetime emissions benefit of the proposed changes. The analysis considers the impacts from reducing the floor number of gold vehicles and backfilling with

Enhanced AT PZEVs. All scenarios were run on a wel l-to-wheel basis with an assumed 150,000 mile vehicle life. Presented below in Tabl e 7.2 and Table 7.3 are the average lifetime emissions for criteria pollutants and clim ate change emissions for Phase III and Phase IV respectively.

Table 7.2: Total Lifetime Emissions of Proposed Cha nges for 2012 – 2014 1
(Tons in thousands)

Scenarios Lifetime Emissions

ROG + NOx Climate Change (CO2)

Existing Regulation 11 13,200

Average of Five Scenarios 6 9,750

Average Emission Benefit 5 3,450

1 In all scenarios, the emissions from conventional v ehicles were included as necessary to make the total number of vehicles, 145,833, consistent f or each scenario.

Table 7.3: Total Lifetime Emissions of Proposed Cha nges for 2015 – 2017 1
(Tons in thousands)

Scenarios Lifetime Emissions

ROG + NOx Climate Change (CO2)

Existing Regulation 6 7,800

Average of Five Scenarios 4 5,700

Average Emission Benefit 2 2,100

1 In all scenarios, the emissions from conventional v ehicles were included as necessary to make the total number of vehicles, 145,833, consistent f or each scenario.

As shown in Table 7.2 and 7.3, the flexibility prov ided by the proposed amendments will reduce emissions during the 2012 – 2017 timeframe. In terms of climate change emissions, all alternatives analyzed reduce overall emissions.

7.3 Energy Diversity and Energy Demand

The vehicle technologies expected to be used to com ply with the ZEV program typically use fuel more efficiently, and thus when fully comm ercialized will reduce demand for petroleum fuels. These technologies also use non-p etroleum fuels, such as electricity and hydrogen, which helps diversify the transportat ion fuel market. The ZEV program

12 ARB et al 2007d, Modified California GREET model " greet1.7ROW_US_CA_v92"

_ ftp://ftp.arb.ca.gov/carbis/fuels/ab1007/CA_Greet_j une07_ June, 200739

and the proposed amendments are consistent with rec ent reports that recommend increased vehicle efficiency and increased use of a lternative fuels.

7.4 Environmental Justice

The proposed regulation is consistent with the ARB’ s Environmental Justice Policy to reduce health risks from criteria pollutants in all communities, including low-income and minority communities. Many communities are located near heavily traveled freeways. By reducing emissions of air pollutants from light duty vehicles, the proposed regulation will provide air quality benefits by reducing expos ure to and associated health risk from these pollutants.

7.5 California Environmental Quality Act

The California Environmental Quality Act (CEQA) and ARB policy require an analysis to determine the potential environmental impacts of pr oposed regulations. Because the ARB's program involving the adoption of regulations has been certified by the Secretary of Resources pursuant to Public Resources Code sect ion 21080.5, the CEQA environmental analysis requirements may be included in the Initial Statement of Reasons (ISOR) for this rulemaking. In the ISOR, A RB must include a “functionally equivalent” document, rather than adhering to the f ormat described in CEQA of an Initial Study, a Negative Declaration, and an Environmental Impact Report. In addition, staff will respond, in the Final Statement of Reasons for the regulation, to all significant environmental issues raised by the public during th e public review period or at the Board public hearing.

Public Resources Code section 21159 requires that t he environmental impact analysis conducted by ARB include the following: an analysis of reasonably foreseeable environmental impacts of the methods of compliance; an analysis of reasonably foreseeable feasible mitigation measures; and an an alysis of reasonably foreseeable alternative means of compliance with the regulation

.

Compliance with the proposed regulation is expected to directly affect air quality and potentially affect other environmental media as wel l. Our analysis of the reasonable foreseeable environmental impacts of the methods of compliance is presented below. Regarding mitigation measures, CEQA requires an age ncy to identify and adopt feasible mitigation measures that would minimize an y significant adverse environmental impacts described in the environmental analysis.

Because this regulatory proposal identifies no new potentially significant environmental effects, it would not have any significant or poten tially significant effects on the environment. Therefore no alternatives or mitigatio n measures are proposed to avoid or reduce any significant effects on the environment.40

8. COST-EFFECTIVENESS

This section discusses the cost-effectiveness of th e proposed amendments. Determining the cost-effectiveness of the ZEV progr am has always been more difficult and uncertain than for other regulatory measures du e to the far-reaching nature and longer lead times of the program. Predicting the f uture cost of technologies that are still in the demonstration stage is difficult at best. I n addition, the ZEV program has always combined two distinct objectives – first, achieving emission reductions today through expanded introduction of commercially available nea r-zero emission technology, and second, accelerating the development of pure ZEV te chnologies that have the potential to provide significant air quality benefits over th e long term, but have minimal immediate air quality impact given their pre-commercial statu s and limited production.

Cost-effectiveness is a measure of the cost incurre d to achieve a specific outcome, as compared to other ways to reach that same end. Und er the proposed amendments, the primary impact would be to reduce the number of fue l cell and battery EVs required in

the 2012 – 2017 timeframe. As noted in Section 6.5 , the estimated annual savings to industry from these changes would be $1.3 billion i n 2012 – 2014 and $0.9 billion in 2015 – 2017 depending upon the compliance strategy chosen, though some compliance options would increase a manufacturer’s costs if chosen. Consequently, when compared to the existing program, the proposed amendments produce positive cost-effectiveness. That is, the overall impact to the environment is improved at less cost due to the expected commercialization of large r numbers of AT PZEVs.41

9. SUMMARY AND STAFF RECOMMENDATION

9.1 Summary of Staff Proposal

Staff’s proposed modifications would recognize the state of development for the leading ZEV technologies, provide greater flexibility in ma nufacturer compliance and increase the near-term air quality benefits through the comm ercialization of larger numbers of AT PZEVs. In addition, the proposed amendments mainta in pressure toward the commercialization of ZEV technologies while at the same time reflecting the current state and cost of ZEV technology. The staff propos al contains the following specific

amendments: Table 9.1: Summary of Proposed Modifications

Goal Solution

Address technology challenges of fuel cell

vehicles Lower required numbers of fuel cells during Phase III and IV (2012 – 2014 & 2015 – 2017) and create Type IV ZEV.

Incentivize PHEVs with zero emission mile capability Allow Enhanced AT PZEVs in Phase III to count for 90% of gold requirement. Establish new

calculations for AT PZEV credits to account for new plug in hybrid configurations.

Simplify regulation Create “New Path” to replace tw o path system.

Remove barriers to using Battery EVs for compliance Remove caps on Type I and II battery EVs; change ratio for use and create Type I.5 ZEV, however maintain higher credits for fuel cell vehicles compared to battery EVs to reflect relative state o f development.

Fulfill commitment to revisit role of NEVs Up credi t to 0.3 to recognize environmental benefits.

Smooth transition for IVMs going to LVM Create tran sition period emphasizing AT PZEVs.

Program compliance transparency Release of ZEV production data beginning in 2009

and ZEV credit balances in 2010.

Conforming changes Extend travel provision.

9.2 Staff Recommendation

ARB staff recommends that the Board amend section 1 962, Title 13, California Code of Regulations, and the incorporated test procedures a nd related regulations, and adopt section 1962.1. The proposed amendments and adopti ons are set forth in the Proposed Regulation Order in Appendix A.42

10. REFERENCES

ARB 2000. California Air Resources Board, Staff Report, 2000 Zero Emission Vehicle Program Biennial Review , August 7, 2000.

ARB 2001. California Air Resources Board, Final Statement of Reasons, Amendments to the California Zero Emission Vehicle Program Reg ulations , December 2001.

ARB 2003. California Air Resources Board, Staff Report, 2003 Proposed Amendments to the California Zero Emission Vehicle Program Reg ulations , January 10, 2003.

ARB 2004. California Air Resources Board, Initial Statement of Reasons for Proposed Rulemaking, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions from Motor Vehicles, August 2004.

ARB 2006a. California Air Resources Board, California Hydrogen Highway Network: Year End Progress Report to the Legislature, December 2006.

ARB 2006b. California Air Resources Board, Manufacturers’ Advisory Correspondence

2006-02: Policy Regarding the “Fast Refueling Capability” Cr iterion For 2003 and Subsequent Model-Year Type III Zero-Emission Vehicl es (ZEV). May 10, 2006.

ARB 2007a. California Air Resources Board, 2007 Almanac Data, 2007.

ARB 2007b. California Air Resources Board, Board Resolution 07-18, May 24, 2007.

ARB 2007c. California Air Resources Board, EMFAC200 7. Version 2.3, Updated, http://www.arb.ca.gov/msei/onroad/latest_version.ht m November 2006.

ARB 2007d. ARB, Tiax, CEC, Argonne National Labs, M odified California GREET Model: "greet1.7ROW_US_CA_v92" ftp://ftp.arb.ca.gov/carbis/fuels/ab1007/CA_Greet_j une07_ June, 2007

ARB 2007e. California Air Resources Board, Status Report on the California Air Resources Board’s Zero Emission Vehicle Program , April 20, 2007

ARB 2007f. California Air Resources Board, Concept Paper: Staff’s Suggested Modifications to the Zero Emission Vehicle (ZEV) Pr ogram , November 9, 2007

ARB 2008. California Air Resources Board, Excel Sp readsheet: Vehicle Estimates and Costs, February 2008

EPRI

. Duvall, et al. Comparing the Benefits and Impacts of Hybrid Elect ric Vehicle Options. Palo Alto , CA: 2001 1000349.43

GEM. Surveys of NEV Owner Behavior in California . December, 2005 Prepared for GEM by Mightycomm and Access Research Group.

Kalhammer, F., Kopf, B., Swan, D., Roan, V., Walsh, M., Status and Prospects for Zero Emissions Vehicle Technology: Report of the ARB Ind ependent Expert Panel 2007

, April 13, 2007.

SAE. SAE International, Recommended Practice for Measuring the Exhaust Emis sions and Fuel Economy of Hybrid-Electric Vehicles , March 199944

APPENDIX A: PROPOSED AMENDMENTS

1. Proposed Regulation Order: Amendments and Adopt ion to the Zero-Emission Vehicle Program

Attached

2. Proposed Amendments to the test procedures incor porated by reference in sections 1962 and 1962.1, title 13, California Code of Regulations.

Copies of the Test Procedures are available on the ARB’s Internet site at http://www.arb.ca.gov/msprog/zevprog/2007rule/2007r ule.htm , or may also be obtained by contacting the agency contact person fo r this rulemaking, Mark Williams, at (916) 327-5610 or via email at mwilliam@arb.ca.gov

.