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California’s Zero Emission Vehicle Program a Source of Increasing Concern

Environmentalists say the program risks falling short of Gov. Jerry Brown’s goal of having at least 1.5 million emissions-free vehicles on the streets by 2025.

(TNS) — Elon Musk had had enough.

Asked recently about one of California’s most important programs to promote cleaner cars, the CEO of electric automaker Tesla Motors ripped into the obscure but powerful state agency that runs it.

“The California Air Resources Board is being incredibly weak,” Musk said on a conference call with Wall Street analysts. The agency, he added, “should be damn well ashamed of themselves.”

California’s Zero Emission Vehicle program — which pushes automakers to sell an increasing number of electric cars, plug-in hybrids and fuel-cell vehicles in the state — has become a source of increasing concern to environmentalists, who say it risks falling short of Gov. Jerry Brown’s goal of having at least 1.5 million emissions-free vehicles on the streets by 2025.

Musk is the most prominent person so far to sound an alarm about the program, which analysts credit with helping make California the center of the electric car movement. But he’s hardly alone.

“The program is in dire need of a tuneup,” said Simon Mui, director of the Natural Resources Defense Council’s clean-vehicle efforts in California. “It won’t be delivering as many vehicles as the state wants.”

According to an analysis by the the defense council, the program will lead to only 1 million cars by 2025 — well below the state’s goal.

Aware of the concerns, the Air Resources Board is considering changes. The agency plans to discuss the program’s future at a hearing in December, and a spokesman brushed off Musk’s criticism.

“Elon Musk is working very hard to move a company forward,” board spokesman Dave Clegern said. “CARB is working very hard to move the state of California forward. The moving parts are quite different.”

No state has more electric vehicles than California, thanks in part to the air board’s insistence that automakers offer them here. Even so, in a state where officials consider emissions-free cars essential to the fight against climate change, the trend has been slow to catch on.

Since the current wave of electric vehicles hit the market at the end of 2010, about 223,700 electrics and plug-in hybrids have been sold in the state. That’s 46 percent of the nationwide total, but it’s less than 1 percent of all cars registered in California. With low gasoline prices, clean-car sales have remained sluggish.

Tesla, whose luxury electric cars have developed a global following, has consistently received orders for more cars than it can build. But in an odd twist, the Palo Alto company’s success could turn into one of several factors threatening the ZEV program, analysts say.

The program gives automakers credits based on the number and types of clean cars they sell within the state. If a company sells more clean vehicles than it needs, it can sell its excess credits to other automakers that haven’t moved as many.

Tesla has benefited greatly from the program. In the first quarter of this year alone, it made $57 million from selling ZEV credits to other carmakers.

And with its ambitious expansion plans — the company intends to increase production at its Fremont factory to 1 million cars per year in 2020 — Tesla could soon produce enough credits that other automakers wouldn’t need to sell many zero-emission vehicles of their own in California. Instead they could buy credits from Tesla and keep selling plenty of gas-powered cars.

“One automaker, like Tesla, could generate so many credits that nobody else would have to do much of anything,” Mui said. “You could see Tesla very easily blowing the requirement out of the water.”

So many excess credits are already available that Musk, in his recent call with analysts, complained they were now worth “pennies on the dollar.” Despite Tesla’s $57 million first-quarter haul, ZEV revenue in the second quarter was so low that the company didn’t bother to spell it out.

A core problem, Mui said, is that the state has allocated too many credits and needs to ratchet them back.

So observers are suggesting tweaks.

Assemblywoman Autumn Burke, D-Inglewood (Los Angeles County), introduced legislation this month that would have forced every automaker to ensure that by 2025, at least 15 percent of all cars they sold in California would produce no emissions. But the bill was opposed by most automakers and quickly died.

Other proposals have focused on the way the Air Resources Board calculates the credits.

The ZEV program awards more credits to fuel-cell vehicles and electric cars than it does to plug-in hybrids, which run on gasoline part of the time. Electric cars that can drive hundreds of miles on a single charge get more credits than those with shorter range.

The very cleanest cars now receive nine credits per vehicle, while those at the bottom of the rankings get one. In 2018, that spread will shrink, with the best-performing cars getting just four credits.

Curiously, as electric car technology improves and the cars are able to go farther on a single charge, companies can comply with the ZEV requirement by selling fewer cars — something the regulators didn’t anticipate.

“It’s a classic example of technology outpacing regulation,” Mui said.

At the same time, his environmental group argues that the range estimates used by the Air Resources Board grossly overstate the number of miles that some lower-performing electric vehicles can travel between charges. Simply using more accurate range estimates would shrink the number of excess credits available on the market, Mui said. So would cutting even further the maximum number of credits available per car.

“From the environmental and policy perspective, it’s sales that matter, not the credits,” Mui said.

Many automakers, for their part, say the state has more immediate concerns.

John Bozzella, CEO of the lobbying group Global Automakers, said the ZEV program needs updating, though he did not say how. A higher priority for the state, he said, should be allocating more money for rebates to people who buy clean cars. The popular rebate program ran out of funding in June.

The state should also, he said, extend the availability of stickers that allow people with electric cars, fuel-cell vehicles and some plug-in hybrids to drive solo in California’s carpool lanes — a powerful perk.

“While we’re focused on the nuts and bolts of the ZEV mandate, I get concerned that we’re losing sight of the bigger picture,” Bozzella said. “It’s not enough to count credits. We need to build markets.”

Even though most automakers, from General Motors to Volkswagen, are rolling out electric cars, the Air Resources Board still considers the ZEV program essential, and not just in California. Seven other states have agreed to adopt California’s program.

“The fundamental goal of our regulation is to encourage innovation in electric vehicles, and that is happening,” said Joshua Cunningham, chief of sustainable transportation technology for the board. He declined to say which specific changes, if any, the board’s staff would recommend to its governing panel in December.

“We feel very confident that it’s played an important role in pushing the automakers to make investments faster than they would have,” he said.

©2016 the San Francisco Chronicle, Distributed by Tribune Content Agency, LLC.