Understanding California’s Advanced Clean Truck Regulation

What is ACT, who must comply, and what is required for compliance?

This article is part of a series designed to explain in simple terms the definition of zero-emissions transportation regulations, who must comply, what is required for compliance, and more.

Transportation, as in most states, is the largest source of ozone and greenhouse gas emissions in California. Although trucks only represent a small portion of the total share of vehicles on the road, they result in disproportionately high emissions. California adopted the Advanced Clean Truck Act (ACT) in 2020 to address those emissions. To date, six other states have also adopted this rule: Maryland, Massachusetts, New Jersey, New York, Oregon, and Washington.

What is ACT?

To reduce emissions, ACT requires original equipment manufacturers (OEMs) of medium- and heavy-duty vehicles to sell zero-emissions vehicles (ZEVs) or near-zero-emissions vehicles (NZEVs) such as plug-in electric hybrids as an increasing percentage of their annual sales from 2024 to 2035. The regulation uses a cap-and-trade system, capping the number of fossil fuel vehicles sold by stipulating annual sales percentage requirements. The rule allows manufacturers to comply with the regulation by generating compliance credits through the sale of ZEVs or NZEVs or through the trading of compliance credits. ACT defines ZEVs and NZEVs as follows:

• Zero-emission vehicle: A vehicle that produces zero tail-pipe emissions, including battery-electric vehicles and hydrogen fuel cell vehicles.
• Near-zero-emissions vehicle: A vehicle with an internal combustion engine and an electric energy storage system, including plug-in hybrid vehicles and hydrogen internal combustion engine vehicles.

Who must comply?

OEMs selling more than 500 vehicles per year must report the number of vehicles they sell within the state every year. OEMs selling 500 or fewer heavy-duty trucks are exempt; they do not accrue deficits and are not required to sell ZEVs or NZEVs. They may bank or trade ZEV and NZEV credits and can voluntarily report these credits.

How do ACT credits work?

OEMs can get credits by:

• Selling NZEVs and ZEVs or
• Purchasing credits to meet ACT’s requirements.

There are four important things to know about ACT credits:

1. Credits from NZEV sales are only worth up to 75 percent of a ZEV credit and can only be used to meet up to half an OEM’s annual deficits.
2. Credits are weighted differently by vehicle group based on average emissions factors of each weight class. OEMs can earn credits for the smallest vehicle weight class 2B to class–3, under ACT or the Advanced Clean Cars regulation, but not both.
3. Deficits are based on total truck sales per OEM. Class 2B to call–3 and Class 4 vehicle groups can qualify for ZEV and NZEV credits from any vehicle group or subgroup. Deficits from Class 7 to class–8 tractor trucks must be balanced with credits from that same vehicle group.
4. Credits can be “banked” (saved or used in subsequent years) to meet deficits. Credits accrued from 2021 to 2024 can be used through 2030; however, once the deficit period starts in 2024, annual credits accrued from 2024 onward can only be banked for up to five years.

How does ACT benefit OEMs?

ACT can benefit OEMs in the following ways:

• The enaction of ACT is a signal to the market that the trucking economy is moving towards ZEVs, and early movers can gain a market share advantage by adopting ZEVS early on.
• Overcompliance can generate additional ZEV credits that can be monetized, adding an additional revenue stream.
• OEMs can also earn credits when there are few or no ZEV sales requirements; these credits can be applied in future years toward compliance.

How do OEMs trade and transfer credits?

OEMs can trade the credits generated from the sale of ZEVs and NZEVs within California to other OEMs, creating new revenue streams. At the time of this writing, companies have yet to incur deficits under ACT, so generating ZEV credits is not yet common. Once trading increases, the California Air Resources Board (CARB) will track the number of credits each OEM earns and use that information to compile an annual report. CARB will not report on the value of a credit, as the value is not dependent on market demand. Entities that trade or transfer credits must report these transactions to CARB annually. Manufacturers must include signed documentation from both parties summarizing the transfer.

What is required for compliance?

OEMs are considered compliant when the credits they generate, purchase, or bank equal their deficits within a reporting year per vehicle weight class, of which there are three. Credit and deficit accounting is based on the credits generated and deficits accrued per class.

OEMs incur credits by presenting proof of sale of ZEVs and NZEVs or through the documentation purchased credits to meet their allotted deficit. An OEM has 90 days following the end of each model year to provide documentation of their compliance. While the deficit period does not start until 2024, companies can begin generating credits today to be used when the regulation comes into effect. OEMs are given one model year to make up any outstanding deficits which may only be satisfied with ZEV credits. OEMs that fail to address outstanding deficits will receive a civil penalty that can be equal to penalties applied to OEMs who are not compliant with emissions standards.

How does ACT benefit communities and impact other stakeholders?

By implementing ACT, California expects to accelerate medium- and heavy-duty ZEV truck adoption and cut up to 17 million tons of CO₂ emissions by 2040.

Accelerated ZEV adoption can yield substantial economic and health benefits to local economies and citizens.

• OEMs: Overcompliance can generate additional ZEV credits that can be monetized, adding an additional revenue stream. Credits can be earned when there are no or low ZEV sales requirements and these credits be used in future years for compliance. Early movers can gain a significant market share advantage by acting early; ACT is a powerful market signal, and the trucking economy in California is moving toward ZEVs.
• Charging infrastructure providers can benefit from the accelerated adoption of ZEVs, and should begin preliminary planning processes to plan for the development of ZEV truck charging infrastructure and networks.
• General Public: There are monetizable health benefits from the improvement in air quality that can work to improve the livelihoods and health of all.