Last week, the U.S. Environmental Protection Agency and Department of Transportation released their final rulemaking, rolling back fuel efficiency standards for new passenger cars and light trucks. Not only is this a significant blow for the climate and U.S. consumers; it is a major loss for Canada, too. As I referenced in this post when the U.S. federal government first proposed weakening its regulations, Canada’s standards are tied directly to U.S. rules. Hence, Environment and Climate Change Canada’s regulation has now automatically adjusted to remain aligned with the reduced U.S. efficiency requirements. However, there are a few actions Canada can take to not only ensure the continued production of cleaner cars, but also to make sure its auto manufacturing industry remains viable in the future.
One way that Canada can mitigate some of the environmental and economic damage resulting from the U.S. vehicle standards rollback is by significantly ramping up national policies to support domestic electric vehicle sales and manufacturing. Currently, Canada is the 12th largest passenger vehicle producer, but electric vehicle production, accounting for only 0.4% of the country’s total, is 80% lower than the global average. Canada currently ranks sixth in the world in zero-emission commercial truck and bus manufacturing, but with only 0.1% of the world’s total production, there are significant opportunities for securing a larger share of this market. In order to assure Canada’s auto industry remains viable as many major markets are transitioning to electric vehicles, and to help the country meets its climate goals, policymakers should:
- Initiate a rulemaking to establish Canada-specific passenger vehicle efficiency standards. Canada should have the ability to control the direction of its own vehicle fleet in order to accomplish the country’s environmental goals, and the only way to do that is to implement a stand-alone, Canada-specific regulation for improving the fuel efficiency of passenger cars and trucks. Canada’s original efficiency standards are readily achievable with established technologies and would provide significant benefits to Canadian consumers. Keeping the more stringent standards would also ensure the country can achieve its 2030 climate goals for the transportation sector.
- Aggressively ramp up zero-emission vehicle incentives for Canadian consumers and businesses. The federal government has established a goal to reach 30% zero-emission vehicle (ZEV) sales in the new passenger car market by 2030, and 100% by 2040. In order to support ZEV sales, Canada has introduced several financial incentives for consumers and businesses. But to fully transition to ZEVs by mid-century, there is a critical need for increased—and sustained—incentives for both the public and industry. There also needs to be a well-designed and well-executed plan for sunsetting these incentives over time as the ZEV market matures.
- Revitalize the domestic auto sector and supply chains with ZEV-promoting policies. As global auto production accelerates towards electric drive, Canada’s passenger vehicle manufacturing industry is increasingly vulnerable as currently only one ZEV model—the Chrysler Pacifica plug-in hybrid—is assembled domestically. Sales of this vehicle model represent less than half a percent of Canada’s total light-duty vehicle production. However, while Canada has fallen behind many other auto-producing countries, the global ZEV market is still relatively young and there are many options for Canada to boost its ZEV manufacturing and related supply chains. Our recent paper and a companion study outline several policy interventions that can help attract more investment in Canadian ZEV production. Our analysis shows that the clearest path to boosting domestic auto manufacturing is increasing demand for ZEVs. This increase in demand can be achieved with policies aimed at consumers, such as financial incentives or zero-emission vehicle mandates and emissions standards in the auto sector. An ambitious ZEV-supportive policy package—including federal ZEV sales requirements for passenger cars and commercial trucks and buses, as well as ZEV manufacturing subsidies to reduce production costs by 10%—would lead to nearly 800,000 new ZEV-related jobs and $110 billion in related GDP by 2040.
Early last month, Prime Minister Trudeau visited Lion Electric, a Canadian startup that is manufacturing electric school buses and heavy trucks. He called electric vehicles the “economy of the future.” I couldn’t agree more. But even so, it’s time for the country to fully embrace that future right now.