California continues to push toward its statewide carbon-neutrality goals.

On August 25, 2022, the California Air Resources Board (CARB) unanimously approved regulations that require all new 2035 and later passenger vehicles to be zero-emission vehicles. The agency’s “Advanced Clean Cars II” regulations require manufacturers to deliver an increasing percentage of zero-emission vehicles each year, starting with 35% of new vehicle sales for cars, pickup trucks, and SUVs in 2026, and ramping up each year to reach 100% new vehicle sales by 2035.[1]

The below chart provided by CARB sets forth the percentage requirements for new vehicle sales for each year between 2026 and 2035.[2]In its resolution accompanying the new regulations, CARB emphasized that mobile sources in California are the “greatest contributor” to emissions of particulate matter, NOx, hydrocarbons, and greenhouse gasses (GHGs) that threaten public health and cause climate change.[3] According to the agency, the benefits from the new regulations will include 9.5 million fewer conventional vehicles sold by 2035 and cutting by 50% GHG emissions from cars, pickup trucks, and SUVs by 2040, saving nearly 400 million metric tons of pollution.[4] CARB also estimates that its new regulations will lead to more than 4,000 fewer deaths and significantly reduced hospitalizations for cardiovascular and respiratory illnesses and asthma.[5] California’s press release regarding the promulgation emphasizes the “trailblazing” nature of the rules and that “California’s is the most aggressive regulation to establish a definitive mechanism” to implement 100% zero-emission vehicles.[6]

The zero-emission regulations realize many of the vehicle directives set forth by Governor Gavin Newsom in his September 2020 executive order (Executive Order N-79-20).[7] That order set out a number of actions to combat “the climate change crisis [that] is happening now” and that “prioritize clean transportation solutions that are accessible to all Californians, particularly those who are low-income or experience a disproportionate share of pollution[.]”[8] Among the many other actions in the order, Governor Newsom directed CARB to develop regulations that require “increasing volumes of new zero-emission vehicles sold in the State towards the target of 100 percent of in-state sales by 2035.”[9] The new regulations realize this goal.

To assure consumers that zero-emission vehicles are “full replacements” for conventional cars, pickup trucks, and SUVs, CARB promulgated minimum requirements for zero-emission vehicles. For instance, the agency instituted a number of range, durability, and warranty requirements. The new regulations require that 2030 and subsequent model year vehicles be designed to maintain 80% or more of their range for the useful life of 10 years or 150,000 miles (70% of the range for 70% of fleet is required for model years 2026-2029).[10] Vehicle batteries must be warranted to maintain 75% of their energy for eight years or 100,000 miles starting in model year 2031 (70% for years 2026-2030).[11] Propulsion-related parts must be warranted for at least three years or 50,000 miles, and certain “high-priced” propulsion parts for seven years or 70,000 miles.[12] With certain exceptions, repair or replacement of propulsion-related parts or batteries during the warranty period must be performed at no charge to the vehicle owner and with no diagnostic labor charges.[13] Additional measures include facilitating charging and battery labeling to make owning a zero-emission vehicle easier for consumers.[14]

Battery electric, fuel cell, and plug-in hybrid electric vehicles (PHEVs) all count toward a manufacturer’s annual sales requirement, but certain eligibility requirements must be met. For battery and fuel cell vehicles, CARB indicates that each vehicle must have a certified range greater than or equal to 150 miles and that PHEVs must have an all-electric range of at least 50 miles.[15] Additionally, manufacturer sales of PHEVs are limited to no more than 20% of the overall zero-emission vehicle sales requirement.[16] Manufacturers may also meet a portion of their annual zero-emission vehicle sales requirement (5% of the applicable year requirement) with “environmental justice vehicle values” such as discounted zero-emission vehicles in certain community programs (counts as 1.5 vehicles), sales of end-of-lease vehicles to dealers participating in a financial assistance program (counts as 1.15 vehicles), and vehicles below certain MSRP thresholds (counts as 1.1 vehicles).[17] Early compliance credits may also be used within certain limits (15% of the applicable year requirement).[18]

The road to all zero-emission vehicles is not without challenges. Setting aside necessary technological advancements, developments in the areas of affordability, charging infrastructure (especially in low-income communities), and the sufficiency of battery supply chains will also be needed. Many of these issues are being worked on both at the state and federal levels. Legislation such as the recent federal Inflation Reduction Act — which provides tax credits of $7,500 for qualifying, new zero-emission vehicles — are intended to help support the market development for these vehicles.[19] California also has a number of programs to encourage consumers, especially in low-income communities, to acquire zero-emission vehicles (e.g., the Clean Vehicle Rebate Project provides up to $7,000 for qualified individuals).[20]

Although the regulations have been unanimously approved by CARB, more steps must be taken before the rules can become effective. Most importantly, California must request a preemption waiver from the Environmental Protection Agency (EPA) under Section 209 of the Clean Air Act. The Biden Administration would likely grant such a waiver, but a number of states and others are in the process of challenging the waiver process. The waiver request for these zero-emission vehicle regulations will likely remain in the shadow of that litigation for some time. Latham & Watkins will continue to monitor these developments.

Endnotes

[1] The regulation covers new vehicle sales only. It does not preclude the use of existing combustion-powered vehicles, nor does it prevent the sales of those used vehicles.

[2] https://content.govdelivery.com/accounts/CARB/bulletins/329a48c.

[3] https://insideepa.com/sites/insideepa.com/files/documents/2022/aug/epa2022_1419a.pdf.

[4] Supra n.1.

[5] Supra n.2.

[6] Supra n.1.

[7] https://www.gov.ca.gov/wp-content/uploads/2020/09/9.23.20-EO-N-79-20-Climate.pdf.

[8] Supra n.6.

[9] Id. Separately, the order also directed CARB to develop regulations that turnover “everywhere feasible” the fleets — not just new sales — of medium/heavy-duty vehicles, off-road vehicles, and off-road equipment to 100% zero-emission vehicles by 2045.

[10] 13 CCR § 1962.4(d)(2).

[11] 13 CCR § 1962.8(c)(3).

[12] 13 CCR § 1962.8(c)(1).

[13] 13 CCR § 1962.8(c)(4)(D).

[14] 13 CCR §§ 1962.3, 1962.6.

[15] Supra n.2. Note, however, that the amounts reported by CARB differ slightly from the proposed “final” regulation (e.g., reporting a 200 mile range for zero-emission vehicles at 13 CCR § 1962.4(d)(1)).

[16] Id.

[17] 13 CCR § 1962.4(e)(2).

[18] 13 CCR § 1962.4(e)(3).

[19] See “Nine Takeaways from the Inflation Reduction Act’s Climate Initiatives,” https://www.lw.com/admin/upload/SiteAttachments/Alert%203002%20final.pdf.

[20] Supra n.2.