It’s less financially beneficial to trade CO2 credits in order to achieve ZEV compliance, because ZEV is seen as the dominant part of the legislation.
Imagine it as differing currency exchange rates. Still, for the first three years of this scheme, overperformance on CO2 reduction will reduce a manufacturer’s ZEV mandate target, although this is capped at 65% in 2024, 45% in 2025 and 25% in 2026.
This part of the scheme is best thought of as similar to the 2021 baseline set for CO2 being used from this year: overperformance on CO2 will help reduce a manufacturer’s ZEV target.
The headline in all of this is that even after a manufacturer has pooled, banked, borrowed and traded, for every car it sells short of its ZEV target in a given year, it will be fined £15,000 (although this technically isn’t a fine, as paying this amount is a legitimate way of complying with the legislation, however unpalatable).
This figure is based on what’s considered to be the ‘saving’ to a car maker of building a combustion car versus a ZEV, as well as a penalty for its excess CO2 emissions.
The final catch, though, is that manufacturers can buy credits from others that overperform on the ZEV mandate in order to comply. JLR has been on the record saying that it will be buying credits to comply, for example. The likes of BYD, MG and Tesla can expect to do a good trade here. The going rate for a credit is unknown, other than it won’t cost more than £14,999.99.
If a manufacturer buying its way out of larger fines seems counterintuitive, understand that it’s simply a mirroring of other sectors in which carbon trading is the norm.
Manufacturers that sell fewer than 2500 cars in the UK per year are exempt from the ZEV mandate and manufacturers that sell fewer than 1000 are also exempt from the CO2 regulations.
Those selling between 1000 and 2500, therefore, must still meet CO2 targets, though, and in the indicative legislation for 2030-2035, the end of new combustion car sales will be applied across the board, regardless of a manufacturer’s size.