The UK Government has now published the results of the consultation on the proposal for a Zero Emission Vehicle (ZEV) mandate. The proposal has received significant media attention in recent days, following the Government’s announcement last week that the ban on sales of new petrol, diesel and hybrid vehicles would be deferred from 2030 to 2035. Commentators initially queried whether this announcement would also mean the ZEV mandate would be deferred, or its targets relaxed, however the Government has confirmed that the proposal will go ahead largely unchanged.
The ZEV mandate will run in parallel with an updated CO2 allowances scheme, also covered by the consultation.
In this post we set out key details of the consultation outcome, and what this means for stakeholders going forward. For more detail on the initial proposals, see our previous blog posts in relation to the ZEV mandate here, and in relation to the CO2 scheme here.
Consultation results explained
The Government response confirms that the ZEV mandate will go ahead largely unchanged from the policy as proposed in the consultation.
The mandate differentiates between cars and vans, recognising that the development of and market for ZEV vans is less mature than those in relation to cars, meaning greater flexibility is required. In relation to cars, the ZEV targets have not changed, meaning the ZEV cars will need to make up at least 22% of manufacturer sales in 2024, rising to 28% in 2025, 33% in 2026, 38% in 2027, 52% in 2028, 66% in 2029, 80% in 2030, 84% in 2031, 88% in 2032, 92% in 2033, 96% in 2034 and finally 100% in 2035.
For vans, the Government has amended the early targets slightly in response to concerns that the transition should follow a smoother path, as previously the target would rise from 10% in 2024, to 19% in 2025. The target will now rise from 10% in 2024 to 16% in 2025, 24% in 2026, 34% in 2027, 46% in 2028, 58% in 2029, 70% in 2030, 76% in 2031, 82% in 2032, 88% in 2033, 94% in 2034 and finally 100% in 2035.
For both cars and vans, while the targets up to 2030 will enter into force from January 2024, operating as a trading scheme under the powers of the Climate Change Act 2008, the Government response notes that targets from 2031 onwards will be set out in future legislation “later in the decade”.
The ZEV mandate is designed to provide various options for manufacturers who may not reach the applicable target in a given year, or those who over-comply. This includes the following mechanisms:
- Banking: manufacturers will be allowed to bank any unused ZEV allowances, to be used in later compliance years, for up to three years. This remains unchanged from the Government’s proposals.
- Borrowing: manufacturers will be able to borrow ZEV allowances from later years in order to ease the pressure of complying with the targets in earlier years. For cars, the number of allowances that can be borrowed remains unchanged at 75% of the ZEV allowance target in 2024, 50% in 2025 and 25% in 2026. The cap on borrowing in relation to vans has been increased to 90% in 2024, following which it will align with the caps applicable to cars in 2025 and 2026.
- Trading: as set out in the consultation, manufacturers who exceed their ZEV targets may trade excess allowances freely to other manufacturers for any price. The Government response does not indicate any change to this proposal.
- Conversion: unused allowances from the CO2 scheme may be converted for use in the ZEV mandate. The Government has increased the cap on such conversion to 65% of the ZEV target in 2024, 45% in 2025 and 25% in 2026.
- Closed pools: manufacturers who are part of the same corporate group will be able to form closed pools and be treated as a single participant for the purposes of the ZEV mandate and CO2 scheme.
Where manufacturers do not reach the applicable ZEV target in a given year, and do not make use of any of the mechanisms described above, a final compliance payment, i.e. a financial penalty, will apply. For cars, this remains unchanged from the proposed amount of £15,000 per ZEV allowance. For vans, payments in 2024 have been reduced to £9,000, rising to £18,000 from 2025 onwards.
As set out in the Government’s proposal, derogations from the ZEV mandate may apply to certain small volume manufacturers. Those who register between 1,000-2,500 cars or vans per year can apply for a derogation until 2029, with a “transitional year” to apply in 2030. Manufacturers who register fewer than 1,000 cars or vans per year will automatically derogate from the ZEV mandate up to and including 2030.
As for the CO2 scheme, the proposals set out in our previous blog are largely unchanged.
The ZEV mandate will enter into force in Great Britain from January 2024, and is intended to apply in Northern Ireland once the Assembly is able to pass the required legislation. The Government has pledged to keep the mandate under continuous review, and will publish a mid-point review in early 2027, followed by a post-implementation review in 2029.