Zero emission vehicle transition becomes law

The government’s commitment to end the sale of new petrol and diesel cars by 2035 (the Zero Emission Vehicle Mandate) has become law through The Vehicle Emissions Trading Schemes Order (“Order”).

The Order, which came into force on 1 January 2024, requires 80% of new cars and 70% of new vans sold in Great Britain to be zero emission by 2030. The government aims to increase these percentages to 100% by 2035 although crucially the Order only legislates until 2030. This article delves deeper into what qualifies as a zero emission vehicle, the newly established trading schemes and what we can expect for the direction of travel ahead.

What is a zero emission vehicle?

A zero emission vehicle (“ZEV”) must (i) not emit any carbon dioxide, (ii) have a minimum electric range of at least 100 miles and (iii) meet certain warranty requirements, for example for cars, a battery warranty period that provides for replacement if the battery falls below 70% capacity at eight years or 100,000 miles of distance. A non-zero emission (“NZE”) vehicle is one that does not meet the ZEV requirements.

How do the trading schemes work?

The Order aims to reduce vehicle emissions by introducing four trading schemes that cover cars and vans: two in relation to the registration of NZE vehicles and two in relation to vehicle CO₂ emissions.Looking at the trading schemes for cars (with vans having equivalent schemes):

• Registration of NZE cars

 This scheme limits the number of NZE cars sold by providing manufactures with an allowance for the sale of NZE cars as a percentage of their total car sales. This allowance – which for 2024 is 78% of new car sales – reduces year-on-year until 2030. If manufacturers fail to account for their allowance, they will face a penalty of £15,000 per non-compliant car. Manufacturers have options to remedy an allowance shortfall: (i) in over-achieving years “banking” allowances for use within three years, (ii) “borrowing” allowances from future years, (iii) acquiring “credits” for special purpose ZEVs (such as ambulances and wheelchair accessible vehicles) and ZEV car clubs and (iv) “trading” credits and allowances with other manufacturers.

• CO₂ limits for NZE cars

 This scheme implements a CO₂ limit on NZE cars by allocating manufacturers one allowance for every gram of CO₂ per km they emit on average across their fleet. Allowances are determined by multiplying NZE car registrations by a static baseline per vehicle emissions target. If manufacturers fail to account for their allowance, they will face a penalty of £86 per unit of activity. Again, mitigation options are available such as trading allowances and converting allowances from the registration scheme into the CO₂ scheme.

The direction of travel

The Order comes in the wake of the controversial decision by Prime Minister Rishi Sunak last year to postpone the ban of new sales of petrol and diesel cars from 2030 to 2035. Although the Order was passed in the House of Commons with 381 votes in favour and only 37 against, the Labour Party has already pledged to revert to the 2030 target if elected. There will also no doubt be criticism of the extent to which the Order incentivises ‘rapid and deep’ decarbonisation of the transport sector, given the flexibility afforded to manufacturers, such as the ability to “borrow” credits from future years to cover present day emissions.

Regardless of whether the end date is 2030 or 2035, manufacturer confidence in consumer demand and the supporting roll out of charging infrastructure will be critical in achieving the mandate. The legislating of it should however provide manufacturers with more certainty as well as a legal framework which is liable only to be expanded on, not restricted, by future governments.

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Please contact our dedicated Zero Emission Vehicles & EV Charging Infrastructure practice for advice on ZEV legislation and the wider ZEV landscape.