1. (a) Annual Compliance Determination. For each model year, compliance is achieved when the manufacturer's Class 7-8 tractor credits retired offset their Class 7-8 tractor deficits except as specified in 1963.3(c)(3) and when the manufacturer's total credits retired offset their total deficits.
2. (b) Flexibility to Make Up a Deficit. A manufacturer that has a cumulative net deficit after the end of a given model year may use this flexibility to make up the deficit in a consecutive three-model year period. The three-model year period begins with the first model year following the model year in which the manufacturer had a net deficit. In accordance with section 1963.3(d), up to 50 percent of the deficits generated in a model year may be made up with NZEV credits. The total net deficit balance for all model years must be offset by the end of the three-model year deficit makeup period, and the manufacturer may not start a new deficit makeup period until all existing deficits are offset. If the net deficit balance is more than 30 percent of the deficits generated from the most recent model year, the net deficit must be reduced to below 30 percent by the end of the first and second years of the makeup period. For example, a manufacturer that accrues 1,000 deficits in the 2024 model year must have a net deficit balance below 300 deficits (below 30 percent of the 1,000 deficits) by the end of the 2025 model year and must have a deficit below 30 percent of the manufacturer's 2025 model year net deficits (added together with the deficit balance from 2024) by the end of the 2025 model year. By the end of the 2027 model year, the manufacturer's total net deficit balance for all model years in this example must be offset. A manufacturer making up a deficit may not transfer ZEV nor NZEV credits to other manufacturers until the deficit is made up by the end of a compliance year.

3. (c) Credit Retirement Order. Credit accounts are debited using the following conventions, except as provided in section 1963.3(c)(3):

   1. (1) First, credits must be retired by order of model year expiration, starting with the earliest expiring credit.

   2. (2) Second, credits must be retired in the following order by credit type and weight class group:

      1. (A) First, Class 7-8 tractor group NZEV credits to meet Class 7-8 tractor group deficits up to the cap specified in 1963.3(d);
      2. (B) Second, Class 2b-3 group and Class 4-8 group NZEV credits to meet Class 2b-3 group and Class 4-8 group deficits up to the cap specified in 1963.3(d);
      3. (C) Third, Class 7-8 tractor group NZEV credits to meet Class 2b-3 group and Class 4-8 group deficits;
      4. (D) Fourth, Class 7-8 tractor group ZEV credits to meet Class 7-8 tractor group deficits;
      5. (E) Fifth, Class 2b-3 group and Class 4-8 group ZEV credits to meet Class 2b-3 and Class 4-8 group deficits; and
      6. (F) Sixth, Class 7-8 tractor group ZEV credits to meet Class 2b-3 group and Class 4-8 group deficits.
   3. (3) Low Tractor Volume Flexibility. A manufacturer who generates 25 or fewer Class 7-8 tractor deficits in a model year and has tractor deficits remaining after retiring credits per the credit retirement order in sections 1963.3(c)(1) and 1963.3(c)(2) can use a maximum of 25 Class 2b-3 or Class 4-8 group ZEV credits, starting with the earliest expiring credits, to satisfy their Class 7-8 tractor group deficits.
4. (d) NZEV Credit Limit. A manufacturer may use NZEV credits to satisfy, at maximum, 50 percent of the annual summed deficits for the Class 2b-3 group and the Class 4-8 group, and may use Class 7-8 tractor NZEV credits to satisfy, at maximum, 50 percent of the annual summed deficits for the Class 7-8 tractor group.
5. (e) Tractor Deficits Must Be Met With Tractor Credits. Annual deficits accrued in the Class 7-8 tractor group can only be met with Class 7-8 tractor credits, except as described in section 1963.3(c)(3).
6. (f) Compliance Determination. Compliance by the end of each model year is achieved when the cumulative credits exceed the total net deficits retired in prior model years. A manufacturer's compliance status for a given model year is determined based on the reported sales of vehicles delivered for sale in California.

Note: Authority cited: Sections 38501, 38510, 38560, 38566, 39500, 39600, 39601, 39650, 39658, 39659, 39666, 39667, 43013, 43018, 43100, 43101, 43102 and 43104, Health and Safety Code. Reference: Sections 38501, 38505, 38510, 38560, 38580, 39000, 39003, 39650, 39655, 43000, 43000.5, 43013, 43016, 43018, 43100, 43101, 43102, 43104, 43105, 43106, 43205 and 43205.5, Health and Safety Code.

History

1. New section filed 3-15-2021; operative 3-15-2021 pursuant to Government Code section 11343.4(b)(3) (Register 2021, No. 12). Transmission deadline specified in Government Code section 11346.4(b) extended 60 calendar days pursuant to Executive Order N-40-20 and an additional 60 calendar days pursuant to Executive Order N-71-20.

2. Amendment filed 5-9-2025; operative 5-9-2025 pursuant to Government Code section 11343.4(b)(3) (Register 2025, No. 19).