ALT VEHICLES

Quirky rule ensures top spot for Calif. in clean-car race

Californians drive almost as many electric vehicles as the rest of the nation combined, but the same regulations that made the Golden State a plug-in hotbed are keeping other states from following suit.

California's aggressive zero-emission vehicle (ZEV) regulation is the only regulation globally that mandates sales quotas for ZEVs, requiring automakers to accrue credits either through vehicle sales or by purchasing them from other manufacturers.

While nine other states have signed on to California's landmark ZEV regulation, automakers aren't currently compelled to actually sell electric vehicles in those other states, and sales there remain paltry.

That's thanks to the "travel provision," a 2003 amendment added to the regulation at the behest of automakers that allows manufacturers to earn credits in every state for cars they place in any state.

In practice, the provision allows manufacturers to concentrate their alternative-vehicle sales in California, earning enough credits to comply with regulations in states like Massachusetts, Oregon and Maryland by only placing actual cars in the Golden State.

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Indeed, in 2008, the California Air Resources Board (ARB) described the travel provision as "ensuring California as the central location for moving advanced, low [greenhouse gas] technology vehicles from the laboratory and demonstration phase to commercialization, where they are more critical to achieving the Governor's GHG emission reduction goals."

It's worked. Today, 40 percent of electric vehicles on U.S. roads are in California. And while battery electric vehicle sales made up 1.41 percent of California's auto market share in 2014, the other nine states using its regulations don't come close, according to IHS Automotive, which tracks industry data. Among them, Oregon and Connecticut have the highest proportions of ZEV sales at 0.67 and 0.19 percent of market share, respectively.

The travel provision won't be in place forever. It's scheduled to end for battery electric vehicles in 2018, although the provision will remain for fuel-cell cars through 2025.

The provision elicits mixed feelings from officials in the other nine ZEV states, who say while it was initially useful in giving them time to install infrastructure, it acts as a loophole, making it easier for automakers to comply with an admittedly aggressive regulation while leaving other states' pollution reduction goals by the side of the road.

"California intended for this discrepancy. It was part of this plan to give the automakers a leg up," said Matt Solomon of the Northeastern States for Coordinated Air Use Management (NESCAUM), which helps manage ZEV policies for those states.

"But it has worked as intended," Solomon said, "and we are now very much looking forward to the travel provision expiring so our states can continue to see the ZEV market goal we need in order to achieve our own climate goals."

Infrastructure

Because of a quirk in the Clean Air Act, states looking to mandate ZEV sales must adopt the California rule instead of writing their own.

Together, Connecticut, Massachusetts, Maryland, Maine, New Jersey, New York, Oregon, Rhode Island and Vermont are known as Section 177 states, after the portion of the federal rule that allows them to partner with California.

The travel provision became part of the regulation in 2003 after the auto industry sued California to relax its ZEV regulation. The industry said the rule was too ambitious and included among its concerns that their requirements were increasing as more states signed onto the regulation.

"Auto manufacturers have expressed concern that the ZEV program obligations in California are multiplied across other states that have adopted California's ZEV program," CARB wrote in its statement of reasons for amending the regulation at the time.

Back then, the only Section 177 states were New York, Massachusetts and Vermont, all of which agreed to the travel provision as long as it sunset for battery electric vehicles by 2012.

"The provision was added in 2003 to reflect the need to deploy these vehicles as they were coming to market, to get them placed geographically with infrastructure that could support them and allow for market expansion," said Elise Keddie, of ARB's Emissions Compliance, Automotive Regulations and Science (ECARS) Division.

The decision made sense then. After all, Californians are known for being more culturally environmentalist and tech savvy -- two attributes of electric vehicles' early customers.

And unlike most states in 2003, California already had a charging network in place from when General Motors had briefly sold its EV1 in the mid-1990s. All the state had to do was retrofit the charging stations to adhere to new plug standards.

"Infrastructure has always been the biggest challenge for electric vehicles," Keddie said.

Christine Kirby, who directs the Massachusetts Department of Environmental Protection's transportation program, said that at the time, officials thought staggering when electric vehicle sales would be required in Section 177 states would give states time to develop infrastructure as car technology matured.

"It basically recognized that California was in a different place than we were, and that they would be more of a proving ground for the technology," she said. "As the technology grew and became more acceptable, the marketplace would grow and the deal was the travel provision would go away."

'Free pass'

But since 2003, CARB has extended the travel provision twice -- first to sunset in 2015 and then in 2018 -- each time at the request of automakers.

In 2008, for example, Ford Motor Co. criticized ARB's decision to let the provision expire in 2015 instead of later, commenting that it would "amount to an unprecedented quantum leap in battery electric vehicle volume from one model year to the next."

"It is not realistic considering the limited niche market for those vehicles," Ford commented.

Four years later, when ARB extended the travel provision for battery electric vehicles through 2017, Chrysler called the move a "logical flexibility for manufacturers."

Mitsubishi agreed, commenting that "ZEVs should not be required in areas not prepared to develop sufficient infrastructure."

All the while, Section 177 states pushed back, asking ARB to maintain its previous deadlines. In 2008, NESCAUM commented that "battery electric vehicles are becoming cost-competitive with gasoline cars and are becoming technically feasible for commercialization."

Because of this, the vehicles "should not be included in the travel provision," NESCAUM wrote.

In considering public comments on its ZEV regulations, ARB says, it weighs all input equally, not giving any preference to other regulators who rely on the rule.

"Our key stakeholders in ZEV activities include the [Section] 177 states, automakers (regulated parties), environmental organizations and advocates," spokesman David Clegern said. "All comments are reviewed and considered without preference for the submitter, as all comments provide a valued perspective."

To Simon Mui, who follows electric vehicle regulations for the Natural Resources Defense Council, extending the travel provision has not made much sense. Given the technological progression of battery electric vehicles in the past few years, Mui argues that the travel provision should have at least expired in 2015.

"Automakers' lobbying has gotten them essentially to a free pass in these other states," he said. "Now that the technology is there, though, California has basically allowed them to pass out of their science class because they did OK on their math test."

'We are ready'

Today, the Alliance of Automobile Manufacturers says the travel provision remains critical to its complying with ZEV regulations.

It "has been helpful to manufacturers, essentially cutting the number of ZEVs required by over half," spokesman Daniel Gage said in a statement.

The travel provision does not prevent automakers from placing vehicles in Section 177 states. Indeed, some manufacturers, like Tesla, Nissan and BMW, make a point of selling cars in every state, regardless of its ZEV regulations.

But the fact remains that of the 11 model year 2015 battery electric vehicles technically available in the United States, only a handful are available for sale outside California.

And though Section 177 states represent an auto market 1.5 times the size of California's, those areas lag in electric vehicle ownership, thanks to the travel provision.

"In the 2012 rulemaking process, [ARB] recognized that extending the travel provision for battery electric vehicles through 2017 would result in significantly fewer electric cars on the road through 2017, and that is exactly what has occurred," Massachusetts' Kirby said. "Availability of vehicles in our states, in terms of both numbers and models, has been spotty."

Kirby said delaying the full force of California's ZEV regulations has also affected Massachusetts' ability to meet its clean energy and climate goals. Noting that California wrote its ZEV regulations as a means of improving air quality, Kirby said she sometimes believes the state and automakers forget "we have greenhouse gas reduction targets, too."

"At this point, the travel provision has served its purpose," Kirby said. "The market has advanced, we have invested seriously in infrastructure, in a rebate program. We are ready."

'Some kind of cliff'?

The big question for Section 177 states is how quickly their electric vehicle markets will rebound in 2018 after the travel provision has expired and automakers can no longer use California sales as place holders for cars in other states.

Alliance of Automobile Manufacturers spokesman Gage predicts that the number of electric vehicles on roads nationwide will be required to jump "about 150 percent."

"It will be a real problem unless consumer interest swells, and that will likely not happen without significant incentives and sizable investment in infrastructure," he said.

But automakers will be aided by the fact that California's ZEV cap-and-trade program is experiencing a credit glut unrelated to the travel provision (Greenwire, Jan. 4).

Already in California, automakers don't have to increase annual ZEV sales rates to comply with regulations because they have been able to bank credits by purchasing them from companies like Tesla.

When the travel provision sunsets in 2018, automakers will still be able to use their accumulated credits to avoid putting more vehicles on the road in Section 177 states.

In fact, Tesla Motors' vice president of development, Diarmuid O'Connell, says his company's analysis shows manufacturers have enough banked credits to maintain current annual sales rates in Section 177 states through 2022, at which time ZEV sales would only need to account for 2 percent of the auto market share.

"People think there is some kind of cliff when the travel provision expires that all of a sudden you will see a visible difference in the amount of battery electric cars on the road in New England, and that's just really not the case," he said.

Solomon of NESCAUM agrees with that projection. He said Northeastern states expect banked credits will "enable manufacturers to comply for several years without dramatic increases in electric vehicle deployments" after the travel provision expires in 2018.

That "grace period" is one reason why NESCAUM believes sunsetting the travel provision earlier would have been beneficial.

"We don't expect any dramatic earth-shaking shift in the market to occur immediately in 2018," he said. "But we do want a continuing, gradual increase in the market share for these vehicles."

Twitter: @arielwittenberg Email: awittenberg@eenews.net

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