ZEV mandate: what it is and how it will impact UK drivers

Annual mandate targets to 2035

The ZEV mandate sets limits on the maximum percentage of non-ZEV cars that each manufacturer can sell, implicitly dictating that 22% of sales must be ZEV in 2024, 28% in 2025, 33% in 2026, 38% in 2027, 52% in 2028, 66% in 2029 and 80% in 2030. (There are similar targets for vans, starting at 10% in 2024 and reaching 70% in 2030.)

It ends there, though. It’s only indicative after that: 84% in 2031, 88% in 2032, 92% in 2033, 96% in 2034 and 100% in 2035.

As of now, there’s no formal ban on the sale of new internal-combustion-engine cars from 2035, only legislation that requires 80% of new car sales to be zero-emission by 2030.

It isn’t yet known what will be allowed to be sold as that 20% between 2030 and 2035, although whatever it is will still almost certainly have to meet a fleet average CO2 emissions target. 

Previous legislation dictated that car makers met a fleet average for CO2 emissions. This has been rolled into the ZEV mandate, revoking European Union legislation on CO2.

Called the Vehicle Emissions Trading Schemes (VETS), it mandates a growing proportion of ZEVs each year while also ensuring that CO2 emissions from non-ZEVs don’t increase.

The CO2 part of VETS is based on a 2021 baseline figure for each manufacturer’s non-ZEV fleet average CO2 emissions.

So long as it was compliant in 2021, a manufacturer can use either its actual or target CO2 figure as its reference, whichever is higher. And any future overperformance against this target can be transferred into a limited number of additional non-ZEV allowances in the first three years, potentially reducing the number of ZEVs that the manufacturer is required to sell in the earlier period of regulation. 

For now, it applies only to Great Britain and not Northern Ireland, although the recent return of the Assembly at Stormont means this system is expected to be mirrored there too.

Car makers can also pool, ‘bank’ and ‘borrow’ their emissions – which is where it starts to get complicated.

To deal with the easy part first, ‘connected entities’ – Stellantis or the Volkswagen Group, for example – are able to pool together. Do so and manufacturers must pool on both ZEV and CO2 and take a CO2 baseline average accordingly.

Whether it’s a connected entity or on its own, a manufacturer can then ‘bank and borrow’. Banking allows it to quite literally bank overperformance on ZEV mandate sales on a rolling three-year basis from 2024 to 2030 to allow for a hiccup in a future year. Borrowing is the inverse: if a manufacturer knows its game-changing mass-market EV is coming next year, it won’t mind underperformance in the current year.

However, it can borrow only up to 75% of its mandated 22% ZEV share in 2024, 50% in 2025 and 25% in 2026. To put it another way, a car maker at a bare minimum needs 5.5% of its sales mix to be ZEVs this year.

Any borrowing also attracts a 3.5% compound interest rate, meaning targets will only become harder to hit in future years. Think of Ford and Toyota here. Borrowing will last for three years.

No car maker has yet gone on the record with what its actual ZEV mandate figure is after using CO2 performance to offset it down from 22%, but one car maker’s is understood to be as low as 8%. More typical numbers quoted to Autocar have been 18-20%.

Whatever figure a car maker has been given based on 2021 is locked in for three years, and the proportional gap to the mandated ZEV figure remains the same each year.

Adding further complexity is that car makers can trade between the ZEV mandate and the CO2 requirements and vice versa. Overperformance on the ZEV mandate earns a manufacturer credits for CO2 compliance. This could allow it to sell a light-performance combustion car from a sub-brand, for example. It has three years to utilise these credits.

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 counter-intuitive, 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.

Don’t go looking for any loopholes, because there aren’t any. One source described the legislation as “so watertight it’s as if a car maker had written them...”

However, there is a provision in the legislation for a review in 2026, and the percentage targets could then be altered. All flexibilities, banking and borrowing will end at that point too. But if you’re hoping for a repeal, remember that 2050 North Star.

“This has to work, as road transport is the [UK’s] biggest-emitting sector,” says Hawes.

There’s a chance that this scheme could be derailed by a change in government, but Labour has committed to at least the spirit of the legislation, if not the detail.

Remember, its proclamation that it would reverse the Conservatives’ decision to roll back the ban on non-ZEVs from 2035 to 2030 was never anything of the sort: the detail within the government’s eye-catching announcement last year merely left open what the other 20% of cars to be sold after 2030 could be, as the ZEV mandate’s path to 80% of new cars sold needing to be ZEVs remained unchanged.

What does it mean for car buyers?

If you’re in the market for an electric car, the news is largely positive. Several manufacturers, seeking to boost their EV sales, have started to offer enticing finance and leasing packages in order to incentivise purchases.

Honda, for example, previously offered an £8000 deposit contribution in PCP finance contracts for its e:Ny1 electric crossover. That brought the car's monthly cost in line with the hybrid HR-V, despite having a list price £14,000 more expensive. Honda has since cut the list price of the e:Ny1 by £5000 and still offers a £3000 deposit contribution.

Leasing deal aggregator Leaseloco.com also reveals significant savings on electric cars if you’re willing to sacrifice the chance to own your car at the end of your contract. At the time of writing, the Vauxhall Mokka Electric can be leased from £175.53 per month, given a £2106.36 initial payment and a mileage limit of 5000 per year, over two years. Leaseloco.com suggests this is a saving of £475 per month compared with an equivalent PCP finance deal.

But if you’re not looking to go electric, it could also be bad news: car makers may also restrict sales of combustion-engined cars to meet their targets. Ford Europe boss Martin Sander recently told the Financial Times’ Future of the Car conference that “we can’t push EVs into the market against demand”. He added that “the only alternative is to take our shipments of [ICE] vehicles to the UK down, and sell those vehicles somewhere else”.