BILL ANALYSIS �
AB 2042
Page 1
Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 2042 (Levine) - As Amended: March 27, 2014
SUBJECT : ZERO-EMISSION VEHICLES: CONSUMER OPTION TO PURCHASE
KEY ISSUE : IN ORDER TO PREVENT ANY INADVERTENT UNDERMINING OF
THE AIR RESOURCES BOARD'S ZERO EMISSION VEHICLE (ZEV) PROGRAM
OBJECTIVES, SHOULD ELECTRIC VEHICLE MANUFACTURERS MAKE SURE TO
ALLOW THEIR LEASED ELECTRIC VEHICLES TO BE PURCHASED BY THE
LESSEE AT THE END OF THE TERM OF THE LEASE, AS IS THE CASE WITH
OTHER TYPES OF VEHICLES, IF THAT IS THE LESSEE'S DESIRE?
SYNOPSIS
This environmental protection measure seeks to clarify the
state's Vehicle Leasing Act. Specifically, the bill seeks to
ensure that motor vehicle manufacturers who lease electric
vehicles (EVs) and thereby receive credits toward the state's
Zero Emission Vehicle program, allow EV lessees to purchase the
vehicle at the end of the lease term, as is the practice with
non-EV leased vehicles - or otherwise reasonably forfeit the
credits received initially. Leasing electric vehicles is one
way in which many motor vehicle manufacturers fulfill California
Air Resources Board (ARB) zero emission requirements which
require that a certain percentage of vehicles leased or sold by
manufacturers in California be ZEVs.
According to the author, the purpose of ARB's ZEV program is to
reduce emissions and pollution by turning over the number of
vehicles on the road in order to increase the percentage of
vehicles that are ZEVs and other lower polluting vehicles. The
author states that some auto manufacturers who make EVs have
been unreasonably requiring their EV consumers to return their
ZEVs to the manufacturer at the end of the lease without the
option to purchase them, thereby thwarting the intent of ARB's
ZEV program which can effectively take the cars off the road
even though the manufacturer already got credit towards keeping
the EVs on the road. The author contends that when a consumer
is not able to purchase their previously leased vehicle, they
are likely to lease a new ZEV model. This phenomenon, the
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author states, allows manufacturers to get additional credits
toward their mandatory percentage without actually putting more
ZEVs on the road, thus undermining the ZEV program and the
state's important air pollution and greenhouse gas reduction
objectives.
The bill's supporters, representing several EV user and industry
groups, state that the bill will help create a more robust
secondary market for electric vehicles, making them more
affordable for a broader array of people and furthering the
state's environmental goals. Honda North America, Inc., which
makes and leases EVs, writes in opposition among other things
that if the ARB does not like the company's approach on this
issue, it should be the entity to address this issue rather than
the Legislature.
SUMMARY : Requires vehicle manufacturers to allow their leased
ZEVs to be purchased by the lessee at the end of the lease term
if the vehicle is counted for the purposes of compliance with
the ARB's ZEV Program. Specifically, this bill :
1)Requires that a lease contract for the lease of a ZEV to
contain the option for the lessee to purchase the vehicle at
the end of the lease term if that lease was counted by the
manufacturer towards meeting the requirements of the
California Air Resources Board.
2)Exempts a violation of these requirements from the misdemeanor
provision of the Act.
EXISTING LAW , under Sections 2985.7 through 2994 of the
California Civil Code, also known as the Vehicle Leasing Act,
specifies requirements for contracts for leases of motor
vehicles. Among other things, the Act:
1)Requires that lease contracts be in writing and conform to
particular format restrictions, defines required provisions
particular to leases of used vehicles, and declares that any
person who knowingly and willfully violates any provision of
the chapter is guilty of a misdemeanor. (Civil Code Section
2985.5(a), Section 2986.5 and Section 2989.8.)
2)Allows a lessee to terminate a vehicle lease at any time prior
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to the expiration date. (Civil Code Section 2987.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : This environmental protection measure seeks to
clarify the state's Vehicle Leasing Act. Specifically, the bill
seeks to ensure that motor vehicle manufacturers who lease
electric vehicles (EVs) and thereby receive credits toward the
state's Zero Emission Vehicle program, allow EV lessees to
purchase the vehicle at the end of the lease term, as is the
practice with non-EV leased vehicles - or otherwise reasonably
forfeit the credits received initially. Leasing electric
vehicles is one way in which many motor vehicle manufacturers
fulfill California Air Resources Board (ARB) zero emission
requirements which require that a certain percentage of vehicles
leased or sold by manufacturers in California be ZEVs.
According to the author, the purpose of ARB's ZEV program is to
reduce emissions and pollution by turning over the number of
vehicles on the road in order to increase the percentage of
vehicles that are ZEVs and other lower polluting vehicles. The
author states that some auto manufacturers who make EVs have
been unreasonably requiring their EV consumers to return their
ZEVs to the manufacturer at the end of the lease without the
option to purchase them, thereby thwarting the intent of ARB's
ZEV program which can effectively take the cars off the road
even though the manufacturer already got credit towards keeping
the EVs on the road. The author contends that when a consumer
is not able to purchase their previously leased vehicle, they
are likely to lease a new ZEV model. This phenomenon, the
author states, allows manufacturers to get additional credits
toward their mandatory percentage without actually putting more
ZEVs on the road, thus undermining the ZEV program and the
state's important air pollution and greenhouse gas reduction
objectives.
The Governor Has Set Ambitious Goals for the Widespread Public
Adoption of Zero-Emission Vehicle Technologies : In March of
2012 Governor Brown signed Executive Order B-16-2012 ("the
Order") declaring that California should encourage the
development and success of zero-emission vehicles ("ZEVs") to
protect the environment, stimulate economic growth and improve
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the quality of life in the State. The Order states that the
State should support and encourage car manufacturers' plans to
build and affordably sell tens of thousands of zero-emission
vehicles in California in the coming years and directs state
agencies to support and facilitate the rapid commercialization
of ZEVs, with a target of having 1 million ZEVs on California
roadways by 2020 and 1.5 million ZEVs by 2025. (Cal. Exec.
Order No. B-16-2012 (Mar. 23, 2012), http://gov.ca.gov/news.php
?id=17472 .)
The Air Resources Board's ZEV Program Has The Potential To
Contribute Significantly To The Success of the Governor's Goals :
In 1990 the ARB first adopted regulations establishing its
Zero-Emission Vehicle Program. The ZEV Program required large
manufacturers of motor vehicles to produce a certain amount of
ZEVs based on a percentage of the overall number of vehicles
that each manufacturer makes for sale in California, among other
factors. At that time, the Board required that in 1998, 2% of
the vehicles that large manufacturers produced for sale in
California had to be ZEVs, increasing to 5% in 2001 and 10% in
2003. The vehicle production percentages and standards set up
by the regulation have been modified several times since their
1990 introduction, but the ZEV mandate remains in place. (See
"Air Resources Board Zero-Emission Vehicle Legal and Regulatory
Activities and Background,"
http://www.arb.ca.gov/msprog/zevprog/zevregs/zevregs.htm ; See
also Cal. Code Regs., tit. 13, � 1962.)
The ZEV Program's System of Manufacturer Credits and Arguable
Loophole: As noted, the overarching goal of the Zero-Emission
Vehicle Program is to reduce emissions from mobile sources. By
requiring that manufacturers place into service a certain number
of vehicles every year that have little to no harmful emissions,
a significant number of pollution-causing conventional vehicles
are intended to be taken off of California roadways. Under the
ZEV Program, the ARB also grants special credits to vehicle
manufacturers who produce and place into service in California
more ZEVs than they are required to by law. These credits are
awarded based on equations that take into account the specific
type of ZEV produced, among other factors. Credits for the
vehicles, however, are earned in the same amount irrespective of
whether the ZEV is sold or leased. (Cal. Code Regs., tit. 13, �
1962(g).)
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In an apparent loophole, under current law, a ZEV can be leased
for a set term and, at the end of the term, the EV manufacturer
may refuse to allow the lessee to purchase the vehicle in order
to keep the non-polluting vehicle on the road. Instead, EV
manufacturers may currently reclaim the EV, remove it from use,
sell or lease another one and get additional ZEV program
credits. The loophole is such that under this set of facts the
EV manufacturer will have earned the same amount of credit for
this temporary lease as it would have had it sold the ZEV
instead. This creates an apparent unintended incentive for EV
manufacturers to lease EVs and then pull them out of service in
order to get additional credits by leasing new EVs instead.
The Bill Addresses This Apparent Loophole to Increase the ZEV
Program's Effectiveness: The purpose of this bill is to close
this gap in the regulation and to eliminate the unwarranted
earning or duplication of ZEV Program credits in the case of EV
leases. In further describing the bill's purpose, the author
states:
AB 2042 strengthens the ZEV mandate by providing an avenue
that will help keep more clean cars on the roadways.
Currently, the law allows manufacturers to take back
electric vehicles that customers wish to purchase. Under
existing law CARB mandates that auto manufactures produce
ZEV vehicles. The purpose of the mandate is to reduce
emissions and pollution by turning over the number of
vehicles on the road to increase the percentage of vehicles
that are ZEV. However, nothing in current California law
requires that manufacturers allow motorists to purchase
their perfectly good ZEVs and nothing prevents them from
receiving credit for lease only vehicles.
Unfortunately this has allowed for some manufacturers to
require that their consumers return ZEVs to the
manufacturer at the end of the lease, which effectively
takes the cars off the road and does not help meet the
long-term goals of the mandate. We all remember that this
occurred in 1996 with the General Motors EV1, where
vehicles were leased and then later reclaimed and
destroyed. AB 2042 would prevent history from repeating
itself in this manner.
Moreover, when a customer is not able to purchase their
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vehicle, they are likely going to lease a new ZEV model
allowing the automaker to be eligible for additional
credits. This weakens the mandate because automakers could
be getting additional credits, without actually putting
more cars on the road. Under AB 2042, consumers would have
the option of purchasing their leased zero-emission vehicle
(ZEV) when the lease ends, if their vehicle earned the
manufacturer credits towards to the California Air
Resources Board (CARB) Vehicle mandates.
The Bill Exempts Violations of Its Provisions From The
Enforcement Provision of The Vehicle Lease Act : Because the
bill expressly exempts enforcement of violations through the
misdemeanor criminal provisions of the Act, it is apparently
envisioned that its primary enforcement will be achieved through
ARB's awarding/denial of credits to manufacturers through the
existing Zero-Emission Vehicle Program.
ARGUMENTS IN SUPPORT : Supporters state that the bill is an
important step in continuing to get more electric vehicles on
California roadways. The Golden Gate Electric Vehicle
Association states:
California drivers cannot switch to zero-emission electric
vehicles if the manufacturers are not making these vehicles
available to consumers. AB 2042 ensures that those
manufacturers who are receiving CARB credits actually do
make the vehicles available for consumers to drive for the
life of the vehicle
Many drivers attending our events promoting electric
vehicles have expressed their desire to purchase used
electric vehicles that are typically lower priced than new
vehicles. AB 2042 will help to ensure that there will be
more used electric vehicles on the market and therefore
more California drivers will have the opportunity to switch
to a zero-emission vehicle.
The North Bay Chapter Electric Auto Association states:
It has come to our attention that the auto manufacturers
are not complying with the spirit of the existing laws
requiring that they provide zero emission vehicles in
California by not allowing the lessees of their zero
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emission vehicles to purchase their leased vehicle when the
lease period ended. The lessees of these manufacturer's
gas vehicles would not accept this obligation and neither
should the lessees of electric vehicles. The purpose of
the law is to get electric vehicles on the road and not
allowing the lessee of the electric vehicle to purchase the
vehicle at the end of the lease discourages the use of
electric vehicles.
The Sacramento Electric Vehicle Association (SacEV) states:
One important step in the integration of EV's in the
California fleet is the creation of a secondary, or used
car market. Many people choose to purchase used cars
instead of new cars as they are less expensive than new
cars. Your legislation will strengthen California's mandate
by requiring that all EVs manufactured and leased to
receive credit for complying with that mandate be made
available for purchase at the end of the lease term. By
creating that secondary market we will make EVs affordable
to a broader array of people and increase the stock of
vehicles on the road.
As you know, EVs are significantly better than gas powered
cars for the environment and public health, with zero toxic
or greenhouse gas tailpipe emissions. Additionally, the
electricity that powers them is cleaner and cheaper to
produce than gasoline, especially in California. In
addition to those benefits, EVs are much less expensive to
operate than a gas powered car. These benefits should not
be available only to those who can afford a new car. Nor
should we reduce the benefits to California's air quality
by removing perfectly viable, clean vehicles from the road.
Richard Titus, Executive Producer of "Who Killed the Electric
Car?" states in support of the bill:
While I strongly support your AB 2042, I am chagrined that
it is even necessary. When we made the film "Who Killed the
Electric Car" we assumed its success would mean that no car
company would make that mistake again. Unfortunately that
doesn't appear to be the case? I understand this bill
doesn't address the current situation, but I'm glad to know
that companies will be prohibited from doing this again in
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the future. Electric Vehicles are superior to gas powered
vehicles and are increasing in their market share, but if
not for the leadership of California's policy makers, the
manufacturers would not have made any electric vehicles.
The manufacturers must continually be pushed and held
accountable.
ARGUMENTS IN OPPOSITION : Honda North America, Inc. writes in
opposition to the bill. Among other things, they contend that
the ZEV Mandate is a product of the ARB's administrative
regulations and thus any changes that impact the mandate should
go through, and be made by, the ARB. However it must be noted
that the Legislature clearly has the authority to make changes,
as it has done on frequent occasions to the state's Leasing Act.
Honda also contends that it uses leased cars that are returned
to them after the lease for analysis and research to study the
effects of wear on the vehicle, and that the bill would
eliminate their ability to use these cars for studies and
impedes their research and development. However it should be
noted that this measure does not eliminate Honda and other EV
manufacturers' ability to prohibit their EV lessees from
purchasing their EVs at the end of the lease. Rather the
measure states in such instances the manufacturer simply can't
keep the earlier credits received under the ZEV program. It
thus appears that Honda and other EV manufacturers could, under
this measure, still prohibit some of their EV lessees from
purchasing their EVs but they would in turn be choosing to
extinguish their earlier-received ZEV credits.
The Association of Global Automakers currently opposes the
measure. They write that while the Association supports the
author's intent behind the bill, namely that California policy
should encourage a long life for ZEV vehicles, they see a
problem with the bill:
The problem is this: ZEV technology is in its earliest
stages of development. Electric vehicles are fairly new to
the market and the first hydrogen fuel cell vehicles won't
even hit the market until May of 2014. With notable
exceptions, our vehicles are typically leased to consumers.
We lease our ZEV vehicles (from here on out acknowledging
several exceptions) in order to learn and perfect battery
electric and hydrogen fuel technology vehicles after the
first and second generation of these vehicles. As these
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technologies mature, and are improved from the earliest
generations of experience, our cars will become better and
cheaper? In short, a mandate to offer a buy option at the
end of the lease for a nascent technology ZEV sounds better
in theory than it actually would result in practice. We
want to learn from the experience of the first and second
generation of our vehicles and eventually build ZEVs that
consumers have confidence in based on that experience and
will be eager to buy.
POSSIBLE COMMITTEE AMENDMENT : In order to clarify the bill's
intent that EV manufacturers shall relinquish the ZEV credits
they received when they leased an EV if they refuse to allow the
lessee to purchase the EV at the end of the lease, the Committee
may wish to discuss with the author amending the bill as
follows:
SECTION 1. Section 2986.55 is added to the Civil Code, to read:
2986.55. (a) (1) A lease contract for the lease of a
zero-emission vehicle that was counted by the manufacturer
towards meeting the requirements of the zero-emission vehicle
standards of the State Air Resources Board shall contain the
option for the lessee to purchase the vehicle at the end of the
lease term.
(2) A leased zero-emission vehicle, the lease contract for which
is not in conformity with paragraph (1), may not be counted
toward meeting the requirements of the zero-emission vehicle
standards of the State Air Resources Board or toward the earning
of ZEV credits pursuant to Section 1962 of Title 13 of the
California Code of Regulations.
(b) Section 2989.8 shall not apply to a violation of subdivision
(a).
REGISTERED SUPPORT/OPPOSITION :
Support
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Electric Auto Association - North Bay Chapter
Golden Gate Electric Vehicle Association
Sacramento Electric Vehicle Association
Opposition
Association of Global Automakers
Honda North America, Inc.
Analysis Prepared by : Drew Liebert and Drew Williams / JUD. /
(916) 319-2334