California Air Resources Boardinitially proposed a ZEV program in 1990 in order to clean up the rampant air pollution - an obvious negative externality associated with driving a car. Originally, the plan called for 2% of new cars in the state to be ZEVs. A ZEV has no tailpipe emissions, no evaporative emissions, no emissions from gasoline refining or sales, and no onboard emission control systems that can deteriorate over time.
In 1998, car companies convinced CARB that they could not meet the deadline, and the 2% mandate was delayed until 2003. In 2002, the car companies sued the state, to which the state decided to sidestep the legal problem and continue to restore the ZEV program for 2005.
On one hand, the ZEV program has done alot in the name of progress towards increasing the potential we have to reduce air pollution stemming from vehicles. However, it has done so in an extremely inefficient manner, and has had little effect on the air quality so far.
From an econonmist's perspective, I would recommend the state cancel the ZEV program. Forcing a company to produce and sell a car that is not high on their efficiency list is just not the solution to the air problems in the state. The state should provide an incentive for consumers to purchase the more efficient products. One incentive that comes to mind is a tax credit equal to the pollution saved in a given year. Simply test the car to see it's pollution per mile, and record the mileage of the car for tax records.
From an efficiency standpoint, it helps the manufacturers utilize the market to decide what is best for them. It helps the state because more people will see the incentive in tax savings and the incentive to help clean the air and make a judgement on whether or not to buy the more efficient vehicle.