Regulations set to lower emissions from highly polluting transportation sector

VANCOUVER | UNCEDED xʷməθkʷəy̓əm (MUSQUEAM), Sḵwx̱wú7mesh (SQUAMISH) AND səlilwətaɬ (TSLEIL-WAUTUTH) TERRITORIES — The federal zero-emissions vehicle sales regulations released today (the New Electric Vehicle Availability Standard) promise to bring more electric vehicles into car lots at lower prices. The regulations will require auto manufacturers to sell a rising proportion of electric vehicles. All new passenger cars sold in Canada will need to be zero-emissions by 2035.

Road transportation accounts for one-fifth of Canada’s emissions. Eliminating carbon dioxide from passenger cars is a key part of the federal emissions-reduction plan. Pollution from gas-powered cars and trucks is also a major contributor to health problems, with air pollution causing more than 1,200 premature deaths in 2015.

Tom Green, Senior Climate Policy Adviser, David Suzuki Foundation, said:

“Many Canadians are ready to trade in their gas-powered vehicles for clean electric ones, but are discouraged by long wait times. These regulations will help address supply shortages by ensuring EVs are for sale in all provinces. Consumers will also pay less.

“During the current climate crisis, the auto industry continues to fill lots with gas-powered vehicles, lobbying government to water down these regulations. We’re pleased to see the government resist industry pressure, putting climate and affordability first, rather than allowing automakers to profit with outdated, polluting technology that costs us all.

“As we’ve seen in places with high EV sales, regulations effectively help the auto sector stop dragging its feet. To meet sales targets, automakers will be forced to reinvest the profits they make from gas-powered vehicles into expanding EV production, bringing in more affordable EV prices.

“Mandates work: B.C., Quebec and California have standards in place and they all have significantly higher EV market shares than the national averages.

“While these are important climate regulations — marking a win for more affordable, cleaner vehicles — taking transit, walking or biking remain the best options for the climate and human health.”

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Backgrounder: Zero-Emissions Vehicle Sales Regulations: Canada’s plan to phase out the sale of new gasoline cars by 2035

Policy context

  • Environment and Climate Change Minister Steven Guilbeault is expected to soon announce the federal government’s final regulation for phasing out the sale of new gasoline cars by 2035. Canada posted draft regulations for implementing this policy in December 2022.

How does it work?

  • Given that new light-duty vehicles (passenger cars and trucks) typically last 15 years on the road, it is essential to phase out the sale of gasoline-powered vehicles by 2035 at the latest to achieve net zero carbon emissions by 2050.
  • The policy achieves this by setting a target for automakers’ fleets, enforced with a credit and penalty system. Like vehicle emissions standards, this ZEV regulation applies to automakers, not consumers. The regulation sets a target that specifies what percentage of all light-duty vehicles available for sale must be fully zero-emissions each year.
  • The federal government plans to gradually increase this zero emissions vehicle sales target each year until it reaches 100 per cent in 2035. Automakers would earn credits for selling ZEVs, buy credits from over-compliant automakers or be penalized if they sell more emitting vehicles than the target.

Where else do policies like this exist?

  • California and 15 other U.S. states have ZEV policies. Quebec and British Columbia have adopted ZEV regulations. The European Union will phase out the sale of new gasoline cars by 2035 by ramping up vehicle emissions standards. The U.K., China and South Korea are developing or have their own regulatory versions.

What are the benefits?

  1. An insurance policy
    • The regulation allows Canada to achieve more ambitious climate targets than the U.S. without significantly disrupting existing regulatory alignment on tailpipe emissions standards. Canada does not have full control over vehicle emission standards regulations, as we adopt by reference the fuel economy rules written in Washington. The regulation gives us an “insurance policy” by allowing Canada to independently meet ZEV adoption targets regardless of the outcome of U.S. presidential elections, or potential court challenges of U.S. tailpipe emissions standards.
  2. A direct (rather than indirect) regulatory tool
    • The indirect tool — tailpipe emissions standards adopted from the U.S. — have failed to achieve meaningful emissions reductions due to design loopholes. Automakers have avoided reducing emissions by shifting their production of vehicles away from compact sedan cars toward larger and heavier SUVs and pickup trucks. The International Energy Agency estimates that 40 per cent of the fuel economy improvements in the United States from 2010 to 2019 have been cancelled out by increased vehicle size and weight associated with this trend.
  3. Emissions reductions and public health benefits
    • The regulatory impact statement of Canada’s draft ZEV regulation estimates the impact of this policy as driving a GHG emission reduction of 430 million tonnes by 2050.
    • Canada’s federal ZEV regulation will result in over $90 billion in health benefits for Canadians over the next 25 years, including up to 11,000 avoided premature deaths, according to the Atmospheric Fund.
  4. Alleviate supply shortages
    • Canadians are facing long wait times and low availability of ZEVs due to a limited supply being manufactured. Automakers have larger profit margins on gasoline vehicles than they do on zero-emission vehicles. They have a vested interest in keeping ZEVs confined to a niche, luxury market.
    • One study by Dunsky Energy + Climate Advisors found that in March 2022, 82 per cent of dealerships across Canada did not have any ZEVs in stock.
    • Jurisdictions such as B.C. and Québec with ZEV regulations have a disproportionate percentage of ZEV sales because automakers send their currently limited supply of ZEVs to jurisdictions where ZEV requirements are most stringent. A national ZEV regulation would mitigate regional inequities and increase ZEV availability across the country along with prompting automakers to scale production.
  5. Drive down ZEV prices
    • A ZEV regulation will change automakers’ behaviour. Car companies won’t be able to base their business plans around shifting their product mix toward high-polluting, expensive cars anymore. Introducing a ZEV regulation would require automakers to respond by taking the profits they make from selling gasoline cars to lower the price of ZEVs in order to meet sales requirements. To expand their profit margin, car companies will need to invest in cutting production costs and take market share from their competitors by supplying a more attractive ZEV product to consumers at a better price. Modelling finds that prices for the median EV could fall by more than 20 per cent.
  6. Create market certainty for charging infrastructure investment
    • Canadians want the certainty that when they buy an electric vehicle, they can get a charge when they need one.
    • The market certainty provided by a ZEV sales regulation will help drive private investment in charging infrastructure.