Regulatory and EU Alignment Impacts

Intra-UK Trade

It has been assessed that there is no impact on intra-UK trade.

The ZEV mandate will apply to Scotland, Wales and England from January 2024. The intent of the Department for Infrastructure (NI) remains that Northern Ireland will join the mandate when the Assembly is able to pass the required legislation. In the interim, Northern Ireland will retain an appropriately scaled version of the existing CO2 emissions regulation for new cars and vans.

International Trade

The ZEV mandate could be thought of as a non-tariff measure in that it will affect trade through a kind of product regulation – elements of this could be thought of as a technical barrier to trade, although there are similarities to quantity restrictions in that it will apply differentially based on the number of ZEVs and non-ZEVs already traded. That said, the mechanism is atypical as instead of imposing more stringent requirements on all vehicles traded, or greater costs on vehicles traded above a certain quota, the regulations will require the sale of a non-ZEV to be compensated by a given number of ZEV sales. This will cause some degree of trade friction for non-ZEVs.

The regulations will apply equally to imports, exports, and domestic trade as they apply to GB registrations regardless of product origin. The regulations impose no explicit barrier or cost on production and exports; manufacturers would be free to produce ICEVs for international trade. It may, in fact, facilitate exports of non-ZEVs to economies without ZEV mandates and/or with less stringent regulations, because the domestic non-tariff measure imposed through the ZEV mandate would likely lead to greater implicit costs associated with domestically-produced (and sold) ICEVs, relative to the costs they incur when exported to these other nations.

That said, these regulations would be very unlikely to be viewed as trade-promoting or protectionist measures, for several key reasons. Firstly, there is no distinction between domestic and foreign producers; secondly, the majority of both domestic and foreign vehicle manufacturers produce a mix of ZEV and non-ZEVs. For these reasons it is not likely to have a differential effect on domestic versus foreign producers or trading partners in a way which may lead to trade issues.

The overall effect on the UK trade balance is not clear. Trade modelling is generally based on large amounts of historic data; given the nascent nature on the BEV market; challenges modelling non-tariff measures in general; and broader challenges regarding modelling the effect of quantity-based non-tariff measures (as which the ZEV mandate could be conceived), it is unlikely that bespoke trade modelling (e.g. structural gravity) would deliver proportionate value. However, the effect on domestic/foreign manufacturers and the trade balance will be considered in the development of the monitoring and evaluation plan.

For the years following 2035, where the ZEV mandate will require 100% of standard cars and vans to be zero emission, the regulations should be thought of as a technical barrier to trade. This period is, however, outside the scope of this cost benefit analysis. Further analysis will be conducted to assess the trade impacts of subsequent regulations at the appropriate time.

The regulations may require WTO notification, given that they will affect UK trading partners. They are, however, considered unlikely to lead to any dispute, unless specific provisions are made which favour domestic over foreign producers.

EU Alignment

The EU objective is to reach zero-emission road mobility by 2035. This target is expressed as an EU fleet-wide target to reduce the CO₂ emissions produced by new passenger cars and light commercial vehicles by 100% compared to 2021. This is similar to the proposals consulted on – ZEV mandate targets have been set out to 100% by 2035 but we are only legislating to 2030 initially.

This legislation, while similar to the EU’s proposals, is not wholly aligned. The EU scheme focuses on reducing the CO2 emissions of the manufacturers new fleet of cars and vans, rather than sales of zero emissions vehicles. Critically, unlike the ZEV mandate, the sales incentive mechanism (the EU equivalent of the ZEV mandate) is not a mandated target for manufacturers and is rather an incentive for manufacturers.

Fundamentally, even if the ZEV mandate was closely aligned with the EU schemes, the UK is not part of the EU market and the EU schemes have been designed for compliance across the whole of the EU rather than within individual member states.