Federal Law. Under the federal Clean Air Act (CAA), states have the option to adopt federal motor vehicle emissions standards or California’s motor vehicle emission standards. Washington is one of Section 177 states that adopt some or all of California’s motor vehicle emission standards. 

California Vehicle Emissions Standards.  California's motor vehicle emission standards include, in part, low-emission vehicle (LEV) and zero-emission vehicle (ZEV) requirements. LEV requirements establish that all vehicles sold in states subject to California's standards must exceed emissions performance standards for certain criteria air pollutants and for greenhouse gases. ZEVs, including battery-electric vehicles and hydrogen fuel cell engine vehicles, must produce zero exhaust emissions of air pollutants and greenhouse gases. ZEV requirements specify that a certain percentage of vehicles delivered for sale in the state by manufacturers must be ZEVs. Manufacturers must either deliver the required percentage or obtain credits. 

Washington Clean Vehicles Program. In 2005, the Legislature directed the Department of Ecology (Ecology) to implement California's LEV standards, and in 2020, to implement California's ZEV standards. Ecology implemented LEV and ZEV standards through adopting, by reference, the Clean Vehicles Program (CVP).

The CVP requires, among other things, that a specified percentage of vehicles delivered for sale in the state by manufacturers be ZEVs. The most recent standards applying to new passenger cars, light-duty trucks, and medium-duty vehicles require manufacturers of vehicles delivered for sale or lease in Washington obtain ZEV credits equal to a specified annual percentage beginning at 35 percent with model year 2026, and increasing annually to 100 percent beginning with model year 2035. 

ZEV credits may be earned by delivering ZEVs for sale in the state, delivering ZEVs for sale in another state with ZEV requirements, purchasing ZEV credits from another manufacturer, or through certain other methods.  Manufacturers may earn partial ZEV credits by producing transitional ZEVs, including plug-in hybrid vehicles, meeting specified minimum requirements. Subject to certain conditions, ZEV credits may be traded between manufacturers, banked for use in a future compliance year, or transferred and used in another state with ZEV requirements.

Electric Vehicle Incentive Account. The Electric Vehicle Incentive Account (EVIA) was created in 2022. EVIA may be used for programs and incentives that promote the purchase or conversion to alternative fuel vehicles to further state climate goals and environmental justice goals.

Carbon Emission Reductions Account. The 2021 Climate Commitment Act created several accounts to receive revenues from the Cap-and-Invest Program. One of these accounts is the Carbon Emissions Reduction Account , which must be used for specified transportation purposes.

Public Records Act. The Public Records Act (PRA) requires state and local agencies to make public records available for public inspection and copying. PRA includes exemptions for certain types of information, including certain financial, commercial, and proprietary information.

Tax Preference Review Requirements. State law provides a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics the Joint Legislative Audit and Review Committee (JLARC) can use to review the effectiveness of the preference in achieving its stated public policy objectives. Tax preferences must be reviewed by JLARC at least once every ten years, unless state statute requires otherwise. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided or the tax preference is exempted from expiration.

Excise Tax on Zero-Emission Vehicle Credits. This bill imposes a new excise tax on the pooling, banking, and sale of surplus ZEV credits.

Taxable Value. The taxable value for a ZEV credit sold to another manufacturer is the sale price reported to the Department of Revenue (DOR). The taxable value for a ZEV credit banked or pooled is the average ZEV credit price calculated by DOR and published on Ecology's website.

Tax Rate. The tax rate is 2 percent for ZEV credits sold and 10 percent for banked credits, including both credits banked after the effective date and credits banked before the effective date that continue to be banked.

For credits pooled after the effective date of this bill, the tax rate depends on the model year and the manufacturer's ZEV delivery rate in Washington compared to other states with similar ZEV programs. The base tax rate is 10 percent. Beginning with model year 2025, if a manufacturer reports delivering ZEV in Washington at a rate less than their average rate in other similar states, the tax rate is increased to 50 percent.

Exemption. An exemption is provided for manufacturers that bank or sell credits associated with a total of less than 25,000 zero-emission vehicles or qualifying plug-in hybrid zero-emission vehicles for a model year. The exemption is not subject to the automatic ten-year expiration date or JLARC review.

Revenue. Seventy percent of proceeds from the ZEV credit taxes are deposited into the General Fund-State until June 30, 2027, and into the Carbon Emissions Reduction Account beginning July 1, 2027. The remaining 30 percent are deposited into the Electric Vehicle Incentive Account. 

Data Reporting and Notification Requirement. By October 31st of each year, beginning in 2025 for model year 2024, manufacturers must report to Ecology, for the prior model year, the number of credits generated, banked, and sold. Ecology must share this information with DOR.

Manufacturers must report the ZEV credit sale price for each transaction to DOR. Using the information, DOR must calculate the average credit sales price after November 1st, starting in 2026, and each year thereafter. The amount is considered final and cannot be altered based on amended information after being published on Ecology's website. DOR must notify manufacturers of their tax liability by January 31st of the following calendar year.

Unaggregated or individual information submitted to DOR pertaining to the sales price of ZEV credits in transactions between manufacturers is exempt from the PRA.