Trading zero emission credits to comply with state regulations

An article in Bloombergbusinessweek (June 7, 2012) describes California’s regulation requiring 2 % of cars sold by automakers selling 60,000 cars annually to be zero emission by 2014 and 15 % by 2025. But automakers can also buy credits from manufacturers whose cars exceed the limit – such as the Nissan Leaf that gets three credits to trade and the Tesla Model S with seven credits. These credits trade for $ 5000 to 10,000 dollars each, but credits beyond 2012 do not expire while credits before 2011 expire in three years. Thus, a Tesla Model S that retails for $ 70,000 earns an additional $ 35,000 in credit trading. Will the incentive to trade credits lower prices for electic cars ? Will the ability to buy credits decrease the incentive for automakers to manufacturer electric cars by permitting an easier route to comply with laws ? Given that the credit purchase costs are purely market driven, will automakers preempt such price increases and establish competitive advantage by signing long term credit purchase agreements from electric car makers, such as Honda’s deal with Tesla ?

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About aviyer2010

Professor
This entry was posted in Operations Management, Supply Chain Issues, Sustainability and tagged , , , , , , . Bookmark the permalink.

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