Starting in January 2024, the UK government’s Zero Emission Vehicle (ZEV) Mandate is kicking in as part of its commitment to end new internal combustion engine (ICE) car sales by 2035. This mandate, now set in law under The Vehicle Emissions Trading Schemes Order, maps out a clear path toward zero-emission roads.
The Vehicle Emission Trading Scheme (VETS) creates a two-part approach: the Non-Zero Emission Car Registration Trading Scheme (CRTS) and the Non-Zero Emission Car CO2 Trading Scheme (CCTS). Together, these frameworks aim to significantly lower emissions across the automotive industry. Here’s how they break down.
NON-ZERO EMISSION CAR REGISTRATION TRADING SCHEME (CRTS)
Most people know this as the ZEV mandate itself. Each year, manufacturers are required to ensure a minimum percentage of their car sales are zero-emission vehicles.
HOW DOES IT WORK?
Manufacturers are allocated a set number of allowances based on the total non-ZEV cars they sell. For instance, if Manufacturer A sells 50,000 cars in 2024, they get allowances for 78% of those (39,000 cars). This means the other 22%, 11,000 cars, must be ZEVs. If they miss the target, they face a penalty of £15,000 per non-ZEV car (£9,000 for vans), with fines set to increase in 2025.
If they can’t meet their ZEV requirement, manufacturers have options:
- Buying Allowances: They can purchase allowances from other manufacturers (like Tesla or Polestar). However, the going price isn’t clear yet, and it remains to be seen how open or “behind-the-scenes” this market will be.
- Borrowing Allowances: They can borrow from future years’ allowances, but only up to two years ahead — so there’s a real risk if their sales projections don’t pan out.
- Earning Credits: By participating in the CO2 trading scheme (CCTS), manufacturers can earn credits to offset their ZEV requirements. However, there’s a limit; they can only cover up to 65% of their ZEV requirement this way, meaning they still need a minimum of 7.7% ZEVs.
If a manufacturer exceeds their ZEV target, they can carry forward any surplus for up to three years.
NON-ZERO EMISSION CAR CARBON DIOXIDE TRADING SCHEME (CCTS)
The CCTS targets CO2 emissions from ICE vehicles, setting a baseline using 2021 data to measure manufacturers’ CO2 allowances.
Say Manufacturer A’s baseline is 130 grams of CO2 per car, based on 2021 data. If it sells 39,000 non-ZEV cars in 2024, its CO2 allowance would be about 5 million grams. Exceeding this allowance comes with a fine of £86 per gram. However, if they reduce their average CO2 emissions, they can convert that reduction into CRTS credits.
For example, if Manufacturer A’s cars emit an average of 120g of CO2 instead of 130g, they would save 390,000 grams. This can be traded for CRTS allowances at a rate of 167g per allowance. In this case, Manufacturer A would get around 2,335 extra allowances, effectively reducing their ZEV target from 11,000 to 8,665 cars. That’s a ZEV target shift from 22% to 17%.
WHAT DOES IT ALL MEAN?
The ZEV Mandate and VETS framework provide manufacturers with more ways to meet their emission targets, making it possible to balance between reducing CO2 emissions and selling non-ZEV cars. The ZEV mandate signals a massive shift for the auto industry and offers flexibility, but the road ahead will still be challenging.
Curious about how the ZEV mandate could affect your business? Well get in touch with us today.
