David Adams is the president of Global Automakers of Canada, representing the world’s leading manufacturers from Europe, Japan and South Korea in Canada.
The transition to electrified vehicles in Canada is becoming bogged down by sand in the gears; perhaps well-intentioned, but sand nonetheless. Here’s what I mean.
The governments of both British Columbia and Quebec have proposals currently out for consultation that will make their respective zero-emissions vehicle (ZEV) mandates significantly more stringent for auto makers.
ZEV mandates require auto makers to meet an escalating percentage of zero-emission vehicle sales and leases over time. The current goal in B.C., for instance, is to ensure that 10 per cent of total new car sales are ZEV vehicles by 2025, 30 per cent by 2030 and 100 per cent by 2040. But those targets are scheduled to change under the Clean BC Roadmap to 2030 such that 26 per cent of new car sales would have to be ZEV by 2026, 90 per cent by 2030 and 100 per cent by 2035. The continually changing targets from jurisdictions make planning certainty that much more problematic for manufacturers.
A ZEV mandate usually works with credits. Auto makers get credits for ZEV sales, depending on the type and range of vehicle sold. Typically, the longer the range and the fewer emissions, the more credits. Auto makers are also penalized financially if they don’t meet the ZEV targets and sell too high a proportion of gas-powered vehicles.
These regulations are also currently under review in Quebec with the stated goal of tightening the targets further.
The provinces revised targets are similar in a number of ways, such as restricting the credits available. What this means is that instead of manufacturers earning potentially four credits for each ZEV they place on the road, they will now earn one. Likewise, in both provinces, it is proposed that the penalty would increase fourfold to $20,000 a vehicle from $5,000.
The intention seems to be to force manufacturers to put more zero-emission vehicles on the road as opposed to using credits as a compliance mechanism, as well as make it very costly for manufacturers that do not maintain their ratio of ZEV sales to total sales. However, at the end of the day, a ZEV mandate does not guarantee more ZEVs sold; it only guarantees that there will be a certain ratio of ZEVs sold compared with gas-powered vehicles.
Despite the good intentions, the reality will likely be that manufacturers may well aggressively restrict their vehicles for sale to consumers through dealerships to ensure they don’t have to pay those sizable penalties.
It also seems plausible (especially in a microchip-constrained world) that manufacturers may opt to skew their new offerings to those vehicles that make the most profit (for example, larger vehicles, SUVs, pickups and higher trim levels) in case they have to pay such penalties, and so they can continue to fund the transition to electrification. The end result? Less selection and fewer affordable models of new gas-powered vehicles.
So we could end up with more, generally less fuel-efficient new vehicles on the road from a more restricted selection, leaving some consumers with little choice but to buy used, generally less fuel-efficient vehicles to get the vehicle they want or a vehicle they can afford. All of which is likely to increase overall transportation greenhouse-gas (GHG) emissions.
At the same time, both provinces, in their own ways, are restricting consumer access to vehicle incentives, which in our view are necessary to encourage people to switch to ZEVs. In Quebec’s spring budget, the government announced it was reducing the provincial incentive for full battery-electric vehicles (BEVs) to $7,000 from $8,000 and for plug-in hybrid electric vehicles (PHEVs) to $5,000 from $8,000. This decision was, according to budget documents, to “reflect the reduction in additional costs of electric vehicles on the market relative to comparable internal combustion models while encouraging the acquisition of vehicles with greater electric range and GHG emission reduction potential.”
But what’s been happening to EV prices? They’ve been going up, not down, for a variety of reasons. In the case of B.C., the government recently said that it would be increasing the provincial incentive to $4,000 from $3,000, which sounds great until you realize that the incentive is tied to income. If you earn more than $100,000 annually or your family earns more than $165,000 a year – there is no rebate. The maximum rebate occurs for individuals earning $80,000 or less ($100,000 as a household).
Again, while the intention of providing rebates to individuals and households of more modest means is laudable, it’s doubtful many such people will take the plunge when the price of an average EV in the No. 1 segment in Canada (compact SUV) is $60,400, according to J.D. Power, which is close to the average annual income. Additionally, the B.C. government has effectively removed the incentive for the folks who are actually purchasing EVs. While some might say the so-called “rich” don’t care about incentives and will purchase EVs anyway, I would only say that is a risky assumption.
Further, when you combine tightened incentives with near record-high inflation and higher interest rates disproportionately affecting the carrying costs of higher-priced EVs (versus gas-powered cars), I don’t think I’d be taking the bet that ZEV sales will continue to tick along.
Another complicating factor here is that drivers who hope to qualify for the incentive will first have to certify their income by submitting an application through a Government of B.C. website that they can then take to a dealer.
It is really difficult to see how all of these changes are going to assist in moving the needle on EV uptake. What we really need is for governments to reduce the friction for consumers and businesses, as opposed to making it more difficult, complicated or less compelling.
The challenges aren’t just related to our own country, however, as the United States recently passed the Inflation Reduction Act, which includes EV incentives to help the United States meet its own goals for ZEV adoption (50 per cent by 2030). Fortunately for Canadian manufacturers, EVs built here will also qualify for the rebate, but the rebate may well be irrelevant, owing to the caveats around battery and battery component sourcing and production that would need to be done in North America. While again, it is laudable to want to build up North American security of supply and have all of that work done here, the reality is that it’s going to take a while before production and sourcing can be brought on stream. So while the U.S. EV tax credit is great, the fact is at least 70 per cent of EVs sold in the U.S. won’t qualify for the U.S. tax credits.
The new U.S. credit will also mean that Canada would need to increase its incentive to about $9,600 – from the current $5,000 – to match the U.S. program, otherwise we run the risk of ZEV arbitrage across the border, where the vehicles attract a higher incentive.
Given that our national ZEV sales target is higher than that of the United States (”at least 60 per cent by 2030,″ according to the federal government’s 2030 Emissions Reduction Plan), we need to ensure that we can get all of the ZEVs we can into the hands of Canadian consumers. With that in mind, we need to avoid any consideration of adding the same battery and critical minerals caveats to incentive eligibility that the U.S. has done.
It’s just more sand in the gears of ZEV adoption in Canada.
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