New UK rules and targets for vehicle emissions from January 2024

Publication | 2月 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.

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