Coming back for seconds: Can ZEV regulations expand access to used ZEVs?

Zero-emission vehicles (ZEVs) bring significant climate and air quality benefits. Yet ZEV uptake, while accelerating, has not occurred evenly across society. This is primarily due to the high upfront price of ZEVs: As of 2021, a new electric car could cost $5,000 more than a similar combustion vehicle, which makes them inaccessible to many people, despite their lower operational costs.

But as the ZEV market matures into adolescence, things could get interesting: thousands of new ZEVs are emerging from first ownership periods and entering the second-hand market as much less-expensive used vehicles. In the early electric vehicle market, a disproportionate share of vehicles (up to 80% in the United States as of 2018), was leased via automaker subsidiaries rather than purchased, meaning that automakers will have a say over what happens with these vehicles. Conscious of this opportunity, the state of California and the province of Québec in Canada are pioneering new regulatory approaches to support the used ZEV market and increase access to more affordable ZEV options within their jurisdictions.

Let’s first examine California, where the Air Resources Board (known as CARB) is developing the Advanced Clean Cars II regulations, which will implement the governor’s executive order setting a target of 100% ZEV sales by 2035. Among the details that caught our eye in this critical regulation is a new concept: Environmental Justice (EJ) credits for used ZEVs. This program will, for the first time, allow manufacturers to meet up to 5% of their ZEV minimum credit requirements by selling used ZEVs after they come off of leases. ZEV minimum credit requirements were originally introduced under California’s Advanced Clean Car regulations in 2012, and until 2021 applied only to new ZEVs. They require manufacturers to sell new ZEVs to earn credits—the greater the range, the more credits earned. Each year, manufacturers must meet a minimum ZEV credit requirement based on total sales. The minimum ZEV requirement increases annually and failure to comply results in a penalty.

As of December 2021, the used-ZEV provision would apply to model year 2026–2028 ZEVs that are resold in California after their initial 3-year leases are complete. Critically, the vehicle will have to be registered to a low-income household to be eligible. A used battery electric vehicle (BEV) or fuel cell vehicle (FCV) receives 0.25 EJ credits while a used plug-in hybrid (PHEV) receives 0.20 EJ credits. The credit is earned after the vehicle has completed one full year in California following its lease term. After 2031, the EJ credits expire and can no longer be earned, banked, or traded.

California isn’t the first to use regulations to establish and direct the used ZEV market: in 2016, the Canadian province of Québec included used ZEVs in its provincial ZEV regulation, which itself was inspired by the first iteration of California’s Advanced Clean Cars program. Manufacturers can meet up to 30% of their ZEV requirement by selling used ZEVs in the province. To be eligible, the used ZEV must be imported from outside of Québec and be less than 4 years old or have an odometer reading of less than 40,000 km (24,600 miles). As shown in Table 1, the number of credits a used ZEV can receive is based on distance traveled as well as the technical specifications of the ZEV. For example, if a new BEV earns 4 credits, a used BEV less than 4 years old or with 30,001 km to 40,000 km on the odometer, will earn 2 credits.

Table 1. Summary of used ZEV credit programs in California and Québec

The objective of supply-side incentives like used ZEV credits is to nudge manufacturers to be more active in the used ZEV market. This implies developing measures such as advertising and awareness campaigns that increase demand for used ZEVs. In Québec, however, early results of the used ZEV credit program show that participation remains marginal, as many manufacturers found the odometer distance feature of the credit-based structure to be limiting. Québec is therefore revisiting its program to make it more appealing to manufacturers.

These regulatory measures come as the used ZEV market is young and growing, as explored in a recent ZEV Alliance report. The report found that, at the global level, used ZEVs could outnumber new ZEVs on the roads by the early 2040s, after reaching price parity with used conventional vehicles within the 2025–2028 timeframe as shown in the figure below.

Figure 1. Projected global growth of the new and used ZEV market

Though used ZEVs credits may help to increase the longevity of ZEVs on the road and direct them to the populations who will benefit most, other policies will be needed to support the used ZEV market. One important policy category is assurance provisions to increase confidence in used ZEVs and further extend their useful life. Right to repair laws, which would allow third-party auto shops to repair ZEVs, could also help to build confidence and trust in the technology. While used ZEVs are more affordable, they might still require purchasing support measures such as incentives or loans until they reach price parity. For all these programs, it is important to test different approaches through pilot projects, to collect good data, and to update policies accordingly. Doing so will help us to shape, with access in mind, what will eventually become the largest part of the global ZEV market.

Related Content