Attachment C

1 ATTACHMENT C



### ARB Staff Response to March 26, 2008 Comment Letter : “2008 Proposed Solutions to Potential Loopholes in the

Amendments to the California Zero Emission Vehicle Program

Regulation, Agenda Item 08-3-5”

Comment Submitted By: Natural Resources Defense Cou ncil, Union of Concerned Scientists, American Lung Association of California, Center for Energy Efficiency and Renewable Technologies, Coali tion for Clean Air, Energy

Independence Now, and Friends of the Earth

Resolution 08-24, adopted on March 27, 2008, direct ed the Executive Officer of the California Air Resources Board (ARB or the Boar d) to review and consider comments presented by members of the environmental community on March 26, 2008 in regards to the Zero Emission Vehicle (ZEV) program. ARB staff met with environmental stakeholders, Spencer Quong (Union of Concerned Scientists), Luke Tonachel (Natural Resources Defense Council), Jamie Knapp (ZEV Alliance), Dave Modisette (California Electric Tran sportation Coalition), and John Shears (Center for Energy Efficiency and Renewable Technologies), on Thursday, April 24, 2008 to discuss each loophole i n further detail. Staff then had three subsequent meetings to discuss ARB direct ion and modifications on each of the loopholes including possible regulatory revisions on Thursday, June 19, Monday, July 7, and Thursday, July 10, 2008 bef ore the release of these documents for public comment.

After reviewing each loophole, staff has modified s ome of the regulatory language originally proposed in the Initial Stateme nt of Reasons (ISOR), released on February 8, 2008. The proposed modific ations, along with other proposed changes, will be made available for a publ ic comment period of at least 15 days.

Staff reviewed each loophole within the scope of th e overall Board direction, and made decisions to modify or keep the originally pro posed regulatory language. In some cases, staff recognized the issue highlight ed by the loophole, but chose to approach the issue from a different direction th an suggested in the March 26 comment letter. Some loopholes were dealt with dur ing the March 27 hearing in the Board’s direction to staff to modify regulatory language. Other loopholes staff concluded were not in fact loopholes, or reflect br oader issues that are better dealt with in the redesign of the ZEV program over the next two years.

Staff chose to make modifications based on the foll owing 3 loopholes:Attachment C

2 Loophole # 1 : “Limit hydrogen internal combustion engine vehicl es to AT-PZEV

(non-Enhanced) and PZEV credits due to their limite d benefit and potential for gaming.” 1

o Loophole Explanation and Author Reasoning: At low vehicle volumes hydrogen internal combustion engine (HICE) vehicles are unlikely to significantly push hydrogen infrast ructure development. These hydrogen fueled vehicles fail t o drive ZEV technology because their drive trains are not elect rified. Another concern was these vehicles present auto manufacture rs with a low cost alternative to gain credits with minimal i nvestment in ZEV vehicles. The authors proposed that HICE be limite d to fulfill non-Enhanced advanced technology partial zero emiss ion vehicle (AT-PZEV) or partial zero emission vehicle (PZEV) c redits only,

because these vehicles do not offer the same techno logy

advancement benefits.

o Staff Response: Overall, staff does not view this so much as a loophole, but as a broader policy issue. The defin ition of an Enhanced AT PZEV as presented in staff’s proposed r egulatory language at the Board hearing in 1962.1(j)(6) state s that an

“’Enhanced AT PZEV’... makes use of a ZEV fuel” and the ISOR clearly defined a HICE vehicle as falling under tha t definition.

Because the Board did not direct staff to make chan ges to this definition, staff does not believe the solution pro posed by the environmental groups is appropriate. However, staf f is proposing modifications to help ensure that HICE vehicles res ult in ZEV technology advancement.

o Staff Decision: Staff increased the requirements for the hydrogen storage system on HICE vehicles from 3600 to 5000 p ounds per square inch to ensure that only the most advanced H ICE vehicles are placed to meet ZEV requirements. This will pro mote the use of advanced hydrogen storage systems and further de velopment and commercialization of hydrogen tanks.

o Affected Regulatory Sections:

• 1962.1(c)(4)(A)

Loophole # 2: “Extend Carry Forward Provision to Enhanced AT-PZ EVs to

ensure that banked credits do not create long “blac kout” periods when none of these vehicles are produced.” 1

1 March 26, 2008. Executive Summary. “Re: 2008 Prop osed Solutions to Potential Loopholes in

the Amendments to the California Zero Emission Vehi cle Program Regulations, Agenda Item 08-

3-5”Attachment C

3 o Loophole Explanation and Author Reasoning: Without the carry forward limitation being applied to Enhanced AT PZE Vs, manufacturers could bank credits and avoid producti on in later years. If a manufacturer chose to build low volume s of Enhanced AT PZEVs during Phase II when a 3 times multiplier is applicable or over comply in Phase III, the result could be fe w or no Enhanced AT PZEVs placed in Phase IV. The carry fo rward provision should be extended to Enhanced AT PZEVs t hrough the

end of 2017.

o Staff Response: Staff does not agree that the carry forward provision should apply to Enhanced AT PZEV credits. Large numbers of Enhanced AT PZEVs, namely plug-in electr ic vehicles (PHEV), are not expected to be produced in large nu mbers during

the 2009 to 2011 timeframe. These vehicles have ne ver been produced, and it is unlikely that a sudden ramp up of volumes

would occur in such a limited timeframe. Addition ally, if a manufacturer were to be successful in their early p roduction of an Enhanced AT PZEV, it would be unlikely that the man ufacturer would stop production during the 2012 to 2014 timef rame. However, staff does believe a multiplier applicable to PHEVs delivered for sale during the 2009 to 2011 timefram e would allow

a manufacturer to earn 3 times the credit for each PHEV delivered for sale, which reduced the number of vehicles and increases the number of credits. This PHEV multiplier could crea te an artificial bank of credits that could be used to comply during the 2012 to

2014 timeframe.

Staff believes that extending the carry forward pro vision to include

Enhanced AT PZEVs would decrease the likelihood of vehicle demonstrations prior to 2012. It would penalize ma nufacturers deploying Enhanced AT PZEVs early by not allowing t hem to bank credits for more than three years. Instead, s taff chose to address the overall credit discrepancy between PHEV s and pure ZEVs during the 2009 to 2011 timeframe.

o Staff Decision: Staff has proposed to decreased the value of the multiplier offered to plug-in hybrid electric vehic les (PHEV) delivered for sale or extended lease during the 200 9 through 2011 from 3.0 to 1.25, which is the same value as the mu ltiplier offered for ZEVs sold or leased for three years, with the o ption to lease for an additional two years. This would provide cr edit, though less than what would have been given in staff’s original proposal, to plug-in electric vehicles produced and delivered fo r sale during the 2009 to 2011 timeframe while ensuring that pure ZEVs would not be put at a comparative disadvantage. Also, th ere will beAttachment C

4 limited potential for an excessive number of banked credits which could result in a black out during the 2012 to 2014 timeframe.

o Affected Regulatory Sections:

• 1962.1(c)(7)(B), (d)(5)(D)

Loophole # 8 : “Prevent product blackouts caused by NEV credits for the pure

ZEV minimum requirement and early introduction of E nhanced AT-PZEVs. This can be accomplished by limiting the use of NEV credits earned before 2008 to the (non-Enhanced) AT -PZEV or PZEV categories after 2011 and restricting NEV cred its earned after 2008 from the pure ZEV floor.” 1

o Loophole Explanation and Author Reasoning: In the early 2000’s auto manufacturers placed low cost, low technology neighborhood electric vehicles (NEV) in California for a short period of time only to fulfill their pure ZEV requi rement. NEVs

were then abandoned or removed with almost no benef it to air quality and technology advancement. Because of thi s, auto manufacturers have banked over 123,000 pure ZEV cre dits from NEVs. Because NEVs have been used as a pure ZEV cr edit loophole, the authors recommended limiting the use of the existing banked credits earned before 2008 to the (non-Enhanced) AT PZEV or PZEV categories after 201 1. NEV credits earned after 2008 could be applied to all c ategories outside of pure ZEV floor.

o Staff Response: Staff agrees the large number of banked NEV credits will slow the introduction of new, advanced technology

ZEVs unless their use is restricted.

o Staff Decision: Staff proposes to limit the use of NEV credits, bo th 2001-through-2005 credits as well as 2006 and subse quent model year NEV credits. With these modifications, 2001-through2005-MY-NEV credits are not available to meet the p ortion of the obligation that must be met with ZEV in 2012 throug h 2014. Also, the 2001-through-2005-MY-NEV banked credits are cap ped at 50% usage within the obligation that may be fulfill ed with

Enhanced AT PZEVs or AT PZEVs for the 2012 to 2014

timeframe. These modifications limit the use of 2 006 and beyond NEV credits within the minimum ZEV floor during the 2012 to 2014 timeframe while still allowing them to be full y used to meet requirements that may be met with Enhanced AT PZEVs , AT PZEVs, and PZEVs.Attachment C

5 The following tables will be placed into the regula tory language in section1962.1(g)(6)(A) as a modification:

(2001 through 2005 MY NEV credits)

Years ZEV Obligation that: Percentage limit

for NEVs allowed

to meet each Obligation:

2009 –

2011 Must be met with ZEVs 50%

2009 75%

2010 –

2011 May be met with AT PZEVs but not

PZEVs 50%

2009 –

2011 May be met with PZEVs No Limit

Must be met with ZEVs 0%

May be met with Enhanced AT PZEVs

and AT PZEVs 50% 2012 –

2014

May be met with PZEVs No Limit

(2006 and Subsequent MY NEV credits)

Years ZEV Obligation that: Percentage Limit

for NEVs allowed

to meet each Obligation:

May be met through compliance with Primary Requirements No Limit

May be met through compliance with Alternative Requirements, and must

be met with ZEVs 0% 2009 -

2011

May be met through compliance

Alternative Requirements, and may be

met with AT PZEVs or PZEVs No Limit

Must be met with ZEVs 0% 2012 –

2014 May be met with Enhanced AT

PZEVs, AT PZEVs, or PZEVs No LimitAttachment C

6 Also, to ensure that only the highest performing NE Vs receive credit, staff included additional requirements for 2010 MY NEVs. These requirements mirror the NEV America Standards , set forth in “NEV America: Neighborhood Electric Vehicles (NE V) Technical Specifications” (Revision 2) 2 , including acceleration, top speed, and constant speed range specifications as w ell as battery and warranty requirements.

o Affected Regulatory Sections:

• 1962.1(d)(5)(F); (g)(6)

The Board made modifications to staff’s proposal wh ich consequently dealt with two of the loopholes presented.

Loophole # 4 : “Raise performance requirement for Type IV ZEV to a level that is

not already exceeded by the recent models of fuel c ell vehicles on the road today. Also, ensure the new class does no t result in a decrease of pure ZEVs required in Phase II.” 1

o Loophole Explanation and Author Reasoning: Type IV ZEV is not

a more advanced fuel cell vehicle and does not enco urage technology development. The addition of the Type I V ZEV results in backsliding of the pure ZEV requirement. The au thors proposed that staff adjust the credit system so the re is no decrease in pure ZEV requirement in Phase II and al so consider the following requirements:

1) 300 mile range with no measurable decrease in o ther performance metrics (e.g. luggage, and passenger vo lume) 2) Fast refueling capability 3) Federal Motor Vehicle Safety and Standard ce rtified

4) Achieves a minimum number of FreedomCar and Fue l

Technical Goals 5) Available to the public for sale or a minimum t hree year

lease

o Board Direction: The Board proposed and approved a new gold category of ZEV, Type V, which earns 7 credits, and must have a 300 mile or more range and 15 minute fast refueling capability. This new category ZEV meets many of the suggestions described in the fore mentioned loophole.

2 NEV America: Neighborhood Electric Vehicles (NEV) T echnical Specifications (Revision 2),
December 1, 2004: http://www1.eere.energy.gov/vehiclesandfuels/avta/p dfs/nev/nev_tech_spec.pdfAttachment C

7 In discussions with authors of the March 26 comment letter, staff received further comment that the new Type V vehicl e satisfies some requests, but that they still wanted more stri ngent standards to be placed on Type IV ZEVs. Not all of the OEMs have successfully built a Type III ZEV, let alone a Type IV ZEV. Requiring more stringent standards on a new ZEV typ e could hinder development. Staff felt that the requiremen ts for a Type IV ZEV were adequate and appropriate, and did not prop ose modifications to requirements for a Type IV ZEV.

o Affected Regulatory Sections:

• 1962.1(d)(5)(A), (d)(5)(B), (d)(5)(C), (d)(5)(D), (d)(5)(E), (j)(11)

Loophole # 9 : “Modify six year extension of Intermediate Volume Manufacturer

(IVM) timeline as this increases the time these man ufacturers have to comply with the program to twelve years.” 1

o Loophole Explanation and Author Reasoning: Staff proposed to lengthen the intermediate volume manufacturer (IVM) transition period by six years. This means that an IVM does n ot have to produce any fuel cell vehicles or battery electric vehicles, and must produce only a fraction of their AT PZEV requi rement, for twelve years after exceeding large volume manufactu rer (LVM) threshold. Because of the importance of advancing pure ZEV technologies, supplier base, and infrastructure amo ng all large manufacturers, the authors opposed the six year ext ension of

timeline for transition from IVM to LVM.

o Board Direction: The Board did not adopt staff’s proposed modifications to the regulation to allow the IVMs a 12 year transition period into LVM requirements. IVMs will still be subject to LVM requirements at the start of the sixth model year following

the start of the transition.

o Affected Regulatory Sections:

• 1962.1(b)(7)(A)

ARB staff reviewed and took into consideration the other four loopholes, and concluded it was unnecessary to modify the regulati on. Discussions held with all

stakeholders lead staff to believe that these were in fact, not loopholes to the regulation and did not pose a threat to the purpose s or overall goals of the ZEV program, or that they would be better dealt in the context of a larger public process during the redesign of the ZEV program.Attachment C

8 Loophole # 3 : “Limit travel provision for Type III and IV ZEV t o 2014 because

increased volumes in the pre-commercialization phas es after 2015 are necessary to encourage expansion and cost reduction in component and infrastructure suppliers.” 1

o Loophole Explanation and Author Reasoning: The end of the travel provision means that the auto companies must meet the ZEV regulations in California and ten other states that have adopted the ZEV regulations. This doubles the numb er of ZEVs the auto companies have to produce nationwide. The current regulation requirements in addition to eliminating the travel provision means the auto manufacturers have to prod uce 100,000 vehicles nationally. Extending the travel provisio n to 2017 hinders the Board’s ability to remove the provision during Phase IV if the Board finds that nationwide commercialization of pu re ZEVs is feasible. Because of the need to support future gr owth of pureZEV technologies, suppliers, and infrastructure, pl us the advantage of future flexibility in the regulations, the authors proposed limiting the extension of the Travel Provi sion to 2014.

o Staff Response: This is not a loophole; it is a policy decision. Staff proposed that the travel provision be extende d to 2017 during the March 27 hearing, and the Board approved this provision. The principle involved is vehicle types that are pre-commercial in volume and require new fueling in frastructure are considered to be in a demonstration phase and t he benefit of requiring demonstrations from 10 other states is we akened by the high cost and lack of new information obtained. St aff believes that PHEVs will jump directly to commercial volumes , and no new infrastructure is required. Thus it did not recomm end a travel provision for this technology. Fuel cells, on the other hand, are likely to undergo several more demonstration phases to validate durability and lower cost designs for new fueling i nfrastructure (several million dollars per station). Thus, staff believes travel through 2017 model year is appropriate so that demo nstrations are limited to only a few areas. Likewise, battery electric vehicles may need future demonstrations to establish custome r acceptance. Based on this assessment, staff believ es the travel provision for Type III, Type IV, and Type V ZEVs th rough 2017 is appropriate.

Staff does not think that the provision will compro mise its ability to redesign the ZEV program. The redesign will begin with a clean sheet of paper, and all provisions of the current Z EV program will be up for reconsideration.Attachment C

9 o Staff Decision: Staff did not make modifications to the regulator y text in response to this loophole.

Loophole # 5 : “Eliminate extension of Type C hybrid electric ve hicle (HEV)

because it is an off-the-shelf technology that offe rs limited benefit to advancing technology.” 1

o Loophole Explanation and Author Reasoning: Type C hybrid electric vehicles (HEV) do not contribute to techno logy advancement and the auto companies have a financial incentive to use the technology as a loophole to meet their A T-PZEV requirement. The authors recommended not extending the credits for Type C HEV unless they use lithium ion batteries or other advanced energy storage systems not currently in commercial production.

o Staff Response: In the regulation, a Type C HEV is a vehicle with an electric motor with greater than or equal to 10 kW of power output and less than 60 volts for its traction driv e system voltage. Type C HEVs are also required to be equipped with a n advanced traction energy storage system, such as lithium ion batteries, nickel metal-hydride batteries, or ultracapacitors. Staff believes that Type C hybrids still provide environmental ben efits and should be an option for a manufacturer. Manufactur ers need as much flexibility as possible to design vehicles for a variety of applications. Additionally, Type C requires a manu facturer to utilize advanced batteries, which are not “off the shelf”. Not all LVMs have deployed hybrids, so to limit them could be fateful for further hybrid deployment. Additionally, an LVM wh o makes a larger vehicle as a mild hybrid provides greater gr eenhouse benefit to California than a small mild hybrid.

o Staff Decision: Staff did not make modifications to the regulator y text in response to this loophole.

Loophole # 6 : “Place 50% cap on the use of Type I and Type I.5 ZEV that do not

use advanced batteries and limit their Travel Provi sion to 2011 [rather than 2014] because they have limited long-t erm benefits and open a program loophole.” 1

o Loophole Explanation and Author Reasoning: ARB has introduced a new Type I.5 ZEV and removed the cap o n Type I

and I.5 ZEV. This means that an automaker can meet its entire pure ZEV floor requirement with Type I.5. The auth ors saw the advantages of early introduction of Type I.5s as a low cost loophole to fulfill the pure ZEV floor requirement with limited long-Attachment C

10 term benefits to the program. The authors proposed keeping the 50% cap on Type I and I.5 ZEV and limiting their Tr avel Provision to 2011, if they do not use advanced batteries.

o Staff Response: Type I ZEVs are vehicles with an all electric UDDS range between 50 and 75 miles. Type I.5 ZEVs are vehicles with an all electric range between 75 and 100 miles. Many consider Type I.5 ZEVs to be city electric veh icles. Staff does not see this so much as a loophole but as a br oader policy

issue. Staff received direction in the Board’s Res olution 07-18 after its May 24, 2007 Board Hearing to provide mor e even treatment of battery electric vehicles. The origin al proposal to remove the limits placed on Type I and I.5 ZEVs pre sented to the

Board on March 27 reflects this overall Board direc tion. At this time, staff does not believe it is necessary to cap these vehicles, because they do require an advanced battery and tra de transparency should limit manufacturers in their pr oduction or trades of “cheaply produced” vehicles.

Staff believes Type I, I.5, and IIs still will be p roduced in demonstration–like quantities in the 2012 to 2014 t imeframe and that duplicate demonstrations in many other states is not needed. Thus, staff believes the travel provision is approp riate for these

vehicles.

o Staff Decision: Staff did not make modifications to the regulator y text in response to this loophole.

Loophole # 7 : “Quantitatively define the term ‘advanced battery ’ to reward

production of truly new technologies as opposed to high power nickel-metal hydride batteries available in today’s mass market hybrids.” 1

o Loophole Explanation and Author Reasoning: The ZEV regulations use the term ‘advanced batteries’ to de fine a Type C AT-PZEV. ‘Advanced battery’ is a term that is both vague and changing, depending on the development of the techn ology. High powered nickel metal-hydride batteries are being ma ss produced for use in hybrid vehicles on the road today and do not represent the advanced batteries needed for the pure ZEV and Enhanced AT-PZEV requirements. ‘Advanced batteries’ should m ore appropriately refer to the deep cycle nickel metal- hydride and lithium batteries not currently in widespread use. The authors requested that ARB define term using a quantitative metric that acknowledges commercialization status in vehicles.Attachment C

11 o Staff Response: Staff does not view this as a potential loophole to compliance with the ZEV program. Staff believes that the current examples provided in 1962.1(c)(4)(B)4. for an advanced energy storage system are adequate for the purposes of the regulation. The Board supports technology neutrali ty, as evidenced in its Resolution 07-18 following the May 7, 2007 Board Hearing. Staff does not agree that defining advanced battery supports this neutrality. Staff believes t hat nickel metal-hydride batteries are advanced batteries and demonstrate innovative technology. These batteries are long la sting and have been very successful in hybrids currently available

.

Additionally, as the scoping process begins for the revision of the ZEV program, staff believes it is important to prom ote nickel metal-hydride batteries on the road to commercializ ation in the marketplace. The more commercially successful thes e batteries are, the easier it will be for the greenhouse gas p rogram to rely on hybrid electric vehicle technology for setting the greenhouse gas

fleet standards.

o Staff Decision: Staff did not make modifications to the regulator y text in response to this loophole.