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As the Ford Motor Company announces an investment of $2 billion alongside a reported federal government offering of $500 million to manufacture electric vehicles in Oakville, Ontario, it’s clear that zero-emission vehicles are on the Canadian government’s radar. We’ve put together a summary of one of the key policy measures Canada needs to ensure it doesn’t miss out on the EV opportunity: a zero-emission vehicle standard.
Demand for electric vehicles is rising, both at home and around the world. Nearly 12,000 EVs were sold in Canada in the first three months of 2020, 50% more than the same period last year. In the European Union, EV sales surged by 45% in the first half of 2020.
But Canada has an EV supply problem. The majority of car dealerships in the country don’t have a single electric car on the lot. While the picture is better in B.C. and Quebec (the two provinces with their own zero-emission vehicle standards), many Canadians struggle to find an EV to test drive, let alone buy. Supply is simply not keeping up with demand.
There are several things contributing to the supply crunch, including battery shortages and manufacturers prioritizing markets like the EU and China.To help address this, Canada could implement its own zero-emission vehicle standard. This brief explores what the policy is and where it’s already working.
THE PROBLEM
Supply:
- A recent study prepared for Transport Canada found that Canada saw a 24% decrease in new EV inventory compared to 2018, despite growing demand and an increasingly supportive policy environment.
- At the end of 2019, only 31% of dealerships in Canada had a single zero-emission car in stock. The majority of over 1,000 dealerships surveyed suggested a three to six month wait time for an EV.
- In 2019, a large majority of Canada’s total electric vehicle stock (78%) and total EV sales (80%) were found in just two provinces, Quebec and British Columbia. Both provinces have ZEV standards and purchase incentives in place.
Pollution:
- Canada has pledged to meet or exceed its Paris climate targets of reducing emissions 30% below 2005 levels by 2030 and achieve net-zero emissions by 2050.
- Transportation accounts for 25% of total national emissions, and passenger vehicles represent nearly half of that amount. Canadians drive the most polluting vehicles in the world. While other economic sectors are seeing a downward trend in emissions, over the past 20 years, pollution from transportation has grown by nearly 30%.
- With recent rollbacks on U.S.-Canada vehicle emission standards for model years 2021-2025 and consumer preference rapidly shifting toward pickup trucks and SUVs, transportation-related emissions will continue to climb.
- Canada has set light-duty zero-emission vehicle sales targets of 10% by 2025, 30% by 2030, and 100% by 2040. But under current policies, Transport Canada indicates that zero-emission vehicles could make up only 4% to 6% of all new light-duty vehicles purchased by 2025 and 5% to 10% by 2030. With low gas prices and weaker vehicle emission standards, these gaps could be even greater.
Missing out on manufacturing:
- Canada is the 12th largest vehicle producer in the world but significantly trails other countries on electric vehicles, with only 0.4% of global production.
- Last year, Reuters analyzed recent budget announcements made by global automakers and found that $300 billion was earmarked for EV technologies. None of that investment is currently destined for Canada.
- The Ford Motor Company has announced it will invest $1.95 billion in its Canadian plants, including $1.8 billion toward the production of five electric vehicles in Oakville, Ontario. The announcement followed reports that the Canadian government will contribute half a billion dollars to the Oakville plant.
THE SOLUTION
What is a ZEV standard?
- A ZEV standard is a supply-focused policy that requires a gradually rising percentage of vehicles sold by auto manufacturers to be zero-emission (i.e. battery-electric, plug-in hybrid or hydrogen fuel cell vehicles). While purchase incentives help drive demand, ZEV standards secure supply.
- A ZEV standard works by specifying mandatory ZEV credit requirements for manufacturers that increase over time. Automakers get credit for each ZEV they make available for sale, and the number of credits awarded per vehicle correlates with the electric battery range of the vehicle (i.e. more credits are awarded for vehicles with higher electric ranges).
Where is it in place?
- British Columbia and Quebec, California and 10 other U.S. states, and China have adopted ZEV standards for passenger vehicles to date. The European Union has taken a similar but voluntary approach, offering manufacturers the option of meeting ZEV quotas in return for offsets that can be used to comply with post-2021 corporate average standards. These are some of the most stringent vehicle emission standards in the world, effectively requiring a certain percentage of ZEV sales in order to achieve compliance. According to the International Council for Clean Transportation, these jurisdictions collectively account for about 90% of the global ZEV market.
- In North America, California and the 10 other states with a standard represent roughly a third of new car sales in the United States. If Canada adopts a similar policy, this would represent a significant portion of the Canada-U.S. vehicle market being covered under a ZEV standard.
Does it work?
- Research evaluating different policy options, conducted by Simon Fraser University’s Sustainable Transportation Action Research Team, concluded that a ZEV standard or “mandate” would be “the most effective, low-cost and transformative policy” to transition to EVs.
- Results for Quebec’s first compliance year show that all manufactures complied, with several manufacturers greatly outperforming the standards. In fact, 70% of manufacturers—including General Motors, Honda, and Toyota—collected more than double the number of credits they needed.
- As the upfront cost of EVs continues to drop, meeting sales requirements will get easier still. Bloomberg New Energy Finance projects that price parity between EVs and internal combustion vehicles will be reached by the mid-2020s.
