The only surprise was the messenger, not the message. Imparting the most important legislation in Canadian automotive history since 1965’s Auto Pact wasn’t Prime Minister Trudeau. Nor was it Steven Guilbeault, the activist Liberal in charge of environment and climate change who normally treats photo ops involving electric cars like the second coming. Instead, this incredibly important policy unveiling was tasked to his Parliamentary Secretary, Julie Dabrusin, who on Wednesday pulled the wrappers off of Canada’s long-anticipated zero-emission-vehicle mandate. Or, as it is officially called: Proposed Light-Duty Zero-Emission Vehicle (ZEV) Regulations.
No slight to the parliamentary speaker — she is obviously very talented, being seconded to the Minister of Natural Resources as well The Honourable Mr. Guilbeault— but just two weeks ago, the unveiling of the first Brightdrop EV commercial van from GM’s refurbished CAMI plant in Ingersoll, Ontario was so riddled with leading politicians — Prime Minister Trudeau and Premier Doug Ford being the main luminaries — that the security rivalled that which just escorted Ukraine President Volodymyr Zelenskyy to Washington. There was so much pomp and circumstance that it appeared the entire plant was but a prop in an election campaign stop.
Fast forward two weeks, and as I said, the biggest news in the Canadian automotive industry in almost 60 years is being held in a dingy Plug’n Drive office in suburban Toronto with no more political weight applied — and, again, no offence to the Member of Parliament from Toronto-Danforth — than Ms. Dabrusin. As admission that the Liberals were trying to slip this one under the radar — four days before Christmas, no less — there’s no better indication than a question-and-answer period for a major Canadian policy announcement that gets but four questions from the (very sparsely assembled) media. Think of the very opposite of auspicious, and this incredibly important announcement was it.
Much less of a surprise was that said ZEV mandate — officially called Proposed Light Duty Zero-Emission Vehicle (ZEV) Regulations — closely mirrors Quebec’s current plan. It is also obviously much influenced by policy suggestions pushed by Electric Mobility Canada and Clean Energy Canada.
But even if the contents are no surprise — and the announcement itself hardly auspicious — the Secretary’s announcement is no less far-reaching. Essentially, as so many jurisdictions are proposing — led by California and La Belle Province here in North America — the new ZEV regs will outlaw the sales of passenger cars powered by fossil-fuelled internal-combustion engines as of 2035. Yes, starting in 12 short years, piston power will be verboten in Canada’s (new) car dealerships.
Of course, that is — with apologies to Lord Elon — the Twitter version. How we get there, whether we get there, and what happens when we reach that nirvana is hard to explain in just 2,000 words, let alone 280 characters.
Nevertheless, the executive summary is that starting in 2026, the federal government will plot the trajectory of sales of zero-emission vehicles that it expects automakers to sell. Starting in 2026, the program calls for the number of zero-emissions vehicles an automaker must sell to be at least 20 per cent . By 2029, that number rises to 43 per cent, 60 per cent in 2030, and a whopping 83 per cent — more than 10 times current sales — just 10 years from now before a final, more gradual push to 100 per cent in 2035.
Enforcement would appear straightforward. According to the draft legislation, the sale of each true ZEV — classified as battery-electrics, hydrogen FCEVs, or plug-in hybrids with a minimum electric-only range of 80 kilometres — gets one credit in an automaker’s kitty. Garner enough credits — i.e. 60 per cent of your total in 2030 are qualified battery-electrics, FCEVs, and PHEVs — to reach your quota for that year, and you scoot off penalty-free. Fall even one car short of the ZEV percentage mandate — actually, sell one more ICE-powered car than the quota allows — and you will be severely penalized. According to proponents of the plan, the benefit of these strict new rules is that if everything goes right, tailpipe greenhouse-gas emissions — at least for new cars — will indeed be a thing of the past.
There is some valid argument for the government’s heavy-handed approach. Though automakers have jumped on the battery-powered bandwagon to varying degrees, legendary has been the industry’s foot-dragging in reducing its carbon footprints. Save for perhaps Tesla (its battery-electrics) and Toyota (with its 20-plus years of hybridization), automakers have been dragged kicking and screaming into the carbon-reducing arena. If, as some might believe, they have finally gotten the message, perhaps these Draconian measures are a little overdone. On the other hand, if you are of the belief that automakers would backslide the minute their feet are released from the fire, then revenge is best served legislated.
More importantly, as President and CEO of Electric Mobility Canada Daniel Breton points out, these regulated targets will make it much easier for all players in the EV industry — from those rolling out the much-needed charging infrastructure to the mining companies looking to dig up the minerals needed for batteries, not to mention parts suppliers, mineral processors, and even dealers looking to revamp their storefronts — to secure the monies that will be needed to meet the increased demand. And by increasing the target annually, those lending the money are assured that those being financed have a secure growth path. It should also, as Breton points out, increase the relevance — or, at least, shore up the decline — of our auto industry threatened by electrification and the protectionist American Inflation Reduction Act
It’s not all goodness and light, however. The problem with heavy-handed legislation is that it often leaves loopholes big enough to drive an F-150 through. In this case, one of the problems is that clean-energy types don’t like hybrids much. Any hybrids. Even PHEVs. So, while in 2026, when the program starts, an automaker can gain almost half of its ZEV credits from plug-in hybrids (none, however, from regular hybrids), that number decreases to 20 per cent for 2028. That would mean that in 2030, for instance, PHEV-derived credits will only be allowed to represent 12 per cent at most — 0.2 times the necessary 60 per cent — of the credits required.
And that’s where we get into unintended consequences. Let’s imagine that in 2030, a car company — let’s call it Ford, but it could just as easily be GM or Stellantis — ends the year having sold the requisite 60 per cent BEVs and also restricted itself to 40 per cent gas-powered vehicles. For simplicity’s sake, we’ll say the 60 per cent battery-electric are Mustang Mach-Es, and the remainder are all F-150s. They would be 100 per cent compliant with the letter of the law.
Now let’s imagine another automaker. This time, let’s pretend it’s Toyota. A little slow off the BEV mark, the company only manages to sell enough battery-electrics to account for 40 per cent of its fleet by 2030. However, the remainder are split evenly between PHEVs and plain ol’ everyday hybrids. Common sense — actually some pretty detailed calculations on my part — would seem to indicate that the latter fleet would put out a lot less CO2 than the former. And yet, despite every car being at least partially electrified, Toyota would only get their rating to 52 per cent, eight per cent shy of its mandated minimum.
What would be the penalty, you ask?
Well, let’s assume Toyota stays on its current growth path and sells 200,000 cars in Canada in 2030. That would make them some 16,000 credits shy of their minimum number of ZEV-equivalent sales. Officially, each of those credit deficits could cost the automaker $20,000. Oh, credits can be swapped between automakers for a lower price. But as ZEV targets get ever more stringent, automakers — other than, of course, Tesla — will run out of credits that they can afford to sell. That’s all to say that this hypothetical Toyota could well be on the hook for some $320 million.
But, I hear you crowing, that’s not a fair comparison. For one thing, it’s all based on an unreasonable assumption. No way are all of the gas-powered vehicles Ford sells in 2030 going to be gas-guzzling pickups!
Uhm, yes they might. If you assume, like most analysts, that getting to 60 per cent BEV penetration by 2030 will be difficult — it would require an eightfold increase in market share in eight years — that would mean legacy automakers will have to either limit their sales of fossil-fueled vehicles or pay $20,000 for every unit over the mandated threshold. The laws of supply and demand looming ever large, the logical solution would be to ensure that those ICE-powered cars they are allowed to sell be the most profit-laden they can produce, and that, my friends, when it comes to Ford and its domestic counterparts — is big ol’ CO2-belching trucks.
Indeed, the scariest part of this scenario is that, like the recent price hikes caused by supply-chain shortages, automakers which find themselves limited in how many gas-powered cars they are allowed to sell will focus all their efforts on their highest-priced and most profitable models and trims. In other words, if automakers have trouble producing the requisite numbers of EVs — or consumers simply refuse to buy them — they will have to artificially limit the number of ICEs they sell. Just as in 2021’s crisis of auto inflation, here we go again with the price hikes.
Even those restrictions may not dampen the sales of ICE-powered cars as much as the Liberal government might think. There’s already a healthy industry of shipping cars across the border taking advantage of exchange rate fluctuations. But the monies to be made playing currency speculator dim in comparison to the profits available when there’s a guaranteed $20,000 in the trunk. US dealers need only put a few miles on a brand-spanking new ICE and then wheel it across the border for huge profit. And no, the proposed legislation does not restrict the sale of pre-owned cars, no matter how little “used” they might be. If it turns out these new regulations do result in a shortage of Canadian-built (and officially imported) new gas-powered vehicles, cross-border shopping will grow from the niche business it is today to a pervasive part of our automotive landscape faster than an American car dealer can drive to the border.
Of course, I could be worrying for nought, and this could all have a happy ending. Maybe automakers will reach their quotas. Maybe Canadians will go all Norwegian and sales of BEVs will grow organically to 60 per cent by 2030, then 100 per cent by 2035. Maybe battery prices will reverse again and the oft-promised price parity really is just around the corner. Or, if not, maybe Canadian governments, both federal and provincial, will continue their generous consumer subventions for EV purchases. Maybe the mining industry really will open up the 384 lithium, cobalt, and graphite pits which Benchmark Minerals estimates will be necessary by 2035 to meet global EV demands. Maybe there will be sufficient charging stations built across our fair land that EVing won’t turn into some kind of electrified ‘73 Oil Crisis. And maybe, just maybe, all the supply chain woes that currently plague the auto industry will magically disappear. If so, then perhaps these ambitious goals are attainable and our battery-powered future will be as rosy as government edict.
But there do seem to be enough “ifs” involved along the way that perhaps we shouldn’t be betting our entire auto industry on hopes and good intentions.
Keyword: Motor Mouth: Will Canada’s new ZEV mandate punish automakers?