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International arbitration report
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
New UK rules and targets for vehicle emissions from January 2024
Global | Publication | February 2024
As part of the development of the UK vehicle emission regulatory framework, the Vehicle Emissions Trading Scheme Order 2023 (the Order) came into force on 1 January 2024.
The Order follows the publication of the net zero strategy in October 2021, in which the government committed to end the sale of new petrol and diesel cars by 2030 (recently extended to 2035). The Order encompasses the Zero Emission Vehicle (ZEV) mandate announced by the government on 28 September 2023. It sets out requirements for a percentage of manufacturers’ new car and van sales to be zero emission each year from 2024. It also places limitations on the carbon dioxide emissions of new non-zero-emission vehicles.
Content
What is a zero emission vehicle?
To qualify as a ZEV, a vehicle must emit no carbon dioxide or any other targeted greenhouse gases at the exhaust, have a minimum range of 120 miles, and meet certain minimum warranty requirements. The battery warranty requirement is currently intended to be reduced from 70% to 65% capacity at eight years or 100,000 miles, and the minimum range warranty will be reduced from 120 miles to 100 miles. Both of these warranties will be reviewed as the technology develops.
The Schemes
The Order introduces four new GB-wide emissions trading schemes (the Schemes) which are due to operate from January 2024, and are designed to contribute to the UK’s emissions reduction targets and net zero objective:
- the non-zero emission car registration trading scheme (CRTS);
- the non-zero emission van registration trading scheme (VRTS);
- the non-zero emission car carbon dioxide trading scheme (CCTS); and
- the non-zero emission van carbon dioxide trading scheme (VCTS).
The CRTS and VRTS
The CRTS and the VRTS (together, the RTS) will implement a ZEV mandate to limit the share of new, non-zero emission (NZE) cars and vans that may be registered. The key principles of the regulatory framework set out in the RTS are as follows:
| Targets | National targets for vehicle manufacturers will be introduced as a percentage of their total annual sales that must be zero emission. These will be implemented gradually from 2024, with the Order setting out exact percentage requirements for 2024-2030. The thresholds for 2031-2035 will be set out in future legislation. |
| Allocation |
Compliance with the RTS will be measured through the allocation of an allowance to each manufacturer (a RTS Allowance). Manufacturers will receive sufficient RTS Allowances that if they meet their ZEV sales target, they will not need additional RTS Allowances to avoid non-compliance. |
| Surrender |
One RTS Allowance must be surrendered for each NZE vehicle sold. |
| Banking |
To enable a flexible approach to the transition, manufacturers that overachieve by selling more ZEVs than their target will be able to bank their RTS Allowances for future use, within three years. |
| Borrowing |
Manufacturers that sell fewer ZEVs than their target will be able to borrow from future RTS Allowances in a phased way. |
| Credits |
Manufacturers may acquire credits for the manufacture of special purpose ZEVs and ZEVs used exclusively by car clubs (RTS Credits). |
| Conversion |
Manufacturers will be able to convert unused allowances under the NZE carbon dioxide emissions scheme (the CCTS and VCTS) to RTS Credits, to encourage a transition to ZEV as quickly as possible. |
| Trading |
Manufacturers may trade RTS allowances or RTS Credits to other manufacturers. |
| Derogations |
Manufacturers selling fewer than 1,000 vehicles will benefit from derogation from this trajectory. There will be scope for manufacturers of between 1,000 and 2,499 vehicles to request some derogation, in an effort to ease the transition for smaller ZEV-producing entities. |
| Exemptions |
Special purpose vehicles such as ambulances and wheelchair-accessible vehicles will be exempt. |
| Penalty |
If manufacturers still fail to meet targets despite using the available mechanisms to borrow or trade RTS Allowances and RTS Credits, they must make a payment to the government. For each unit of activity not accounted for using an RTS allowance or RTS credit under the CRTS the manufacturer must pay £15,000, and for such excess units under the VRTS, £18,000. For the 2024 scheme year VRTS penalty payments are £9,000. |
The CCTS and VCTS
The CCTS and the VCTS (together, the CTS) will implement a carbon dioxide standard to limit carbon dioxide emissions from NZE cars and vans. The key principles of the regulatory framework set out in the CTS are as follows:
| Target | Manufacturers will receive a baseline target for carbon dioxide emissions based on 2021 data, which will remain constant out to 2030. |
| Award |
Compliance with the CTS will be measured through the award of allowances to each manufacturer (a CTS Allowance). Manufacturers must have enough CTS Allowances so that they have one CTS Allowance for every gram of carbon dioxide per kilometre that they emit on average fleetwide. |
| Surrender |
One CTS Allowance must be surrendered for each NZE vehicle sold. |
| Conversion |
Scope will be available for manufacturers to convert unused RTS Allowances into CTS Allowances to meet their obligation. |
| Trading |
Manufacturers that overachieve by beating their target will be able to trade CTS Allowances to other manufacturers that miss their target. |
| Exemptions |
Manufacturers selling fewer than 1,000 NZE vehicles will be exempt. |
| Penalty |
If manufacturers still fail to meet targets despite using the available mechanisms to trade or convert CTS Allowances, they must make a payment to the government. For each unit of activity not accounted for using a CTS Allowance, the manufacturer must pay £86 under both the CCTS and VCTS. |
Summary
All local authorities have been allocated funds from the Local EV Infrastructure Scheme (totalling £381 million), to deploy adequate charging infrastructure. The government has signalled its commitment to a complete transition to ZEV manufacture and is seeking to accelerate road transport decarbonisation, ahead of the zero emission target of 2035, and will facilitate the enforcement of targets for ZEV manufacture and carbon dioxide emissions. There will be both incentives and penalties for manufacturers as they work towards this, and the pace to reach this objective will certainly be demanding.
The NRF Environment team is on hand to advise and support entities subject to the Schemes and to assist in navigating the developing ZEV legislative landscape.
With thanks to Rebecca Bell and Christopher O’Brien for their contributions
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