Oops…. they did it again

March 23, 2018

Quebec government’s ZEV strategy is like “déjà vu all over again”

If you are under 30, the headline of this article “Oops, I did it again!” will be lost on you.

Even so, I found it hard to believe myself that Britney Spears came out with her hit song “Oops! I Did It Again” almost two decades ago. Time flies. The headline of this article is a bit of a word play on the action that the Government of Quebec has once again taken around the Christmas holidays to effectively regulate greenhouse gas emissions from the automotive industry.

Almost a decade ago, in late 2008, the Quebec Government introduced its “Regulation respecting greenhouse gas emissions from motor vehicles” under the Environment Quality Act, that would become effective and applicable for the 2009 model year.

This regulation, modeled on California’s GHG emissions regulation, preceded the Canadian federal regulation by two years and was largely unworkable when introduced because, while it was intended to be the same as California’s regulation, it had a number of differences which actually made the regulation in Quebec more stringent than that in California, creating effectively a unique global standard for the 650,000 vehicles that are sold in Quebec.

Nonetheless, after establishing a government/industry working group to work through the challenges and difficulties with the regulation over about an 18-month period, the difficulties were overcome and the Quebec GHG regulation ultimately became harmonized with the Canadian and North American GHG emissions regulation that the industry remains bound by today.

Fast-forward to December 18th 2017, to the press announcement made by newly-installed Minister of Sustainable Development, the Environment, and the Fight Against Climate Change, Isabelle Melançon at which it was noted that the Quebec Government had finalized a regulation respecting the implementation of Quebec’s Zero Emission Vehicle Standard.

While announced at the December 18th press conference, the final “Regulation respecting the application of the Act to increase the number of zero-emission motor vehicles in Québec in order to reduce greenhouse gas and other pollutant emissions” was formally published on December 27th 2017, going into effect 15 days later on January 11th 2018.

“Déjà vu all over again,” as Yogi Berra would say, or the ghost of Christmas past. Take your pick of analogy.

The industry was hopeful of not having to replicate the process of working with government — after the fact — to try and find ways to make an unworkable regulation address the objectives of the government, without throwing a spanner in the gears of the automotive industry.

The challenge for the industry remains finding an avenue to work with the government to make the regulation something that can actually be achieved by industry

However, our efforts at attempting to have a constructive dialogue with the government to arrive at a win-win situation were largely rebuffed.

It needs to be remembered that the legislation that this regulation operationalized was passed back in 2016. From the industry’s perspective, we accepted the fact that the legislation had been passed unanimously by the National Assembly and the objective was not to overturn the legislation, but rather to work with the government to find ways within the regulation to actually achieve their objective of putting more zero emission vehicles on
the road.

Quebec has once again tried to emulate California, only this time it is that states’ Zero Emission Vehicle Regulation that has also been adopted by nine other states known as the “Section 177” states, which include Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont.

Once again, however, the Quebec government has introduced a California-like regulation that is actually more stringent that California’s own GHG regulation.

The challenge for the industry remains finding an avenue to work with the government to make the regulation something that can actually be achieved by industry — as opposed to simply filling the Green Fund coffers with non- compliance penalties in the millions of dollars.

This is especially important given that the government’s objective was to put more zero emission vehicles (think electric vehicles and hydrogen fuel cell vehicles) on the road.

So what is a Mazda or a Subaru supposed to do? Neither of these companies has a zero emission vehicle in its portfolio.

The answer, according to Quebec, is to simply purchase the credits necessary for compliance from another manufacturer that either has too many or is not covered by the regulation (i.e. those companies selling under 4,500 units in Quebec).

The problem is there are not likely to be enough credits available to be sold to either of those companies — or any other companies that may need them — to comply with the regulation. The end result of this is fees being paid to the government.

No additional EVs on the road. No additional GHGs reduced — another objective of the legislation and its attendant regulations.

Ironically, for the last three years Mazda has been at the top of the EPA’s list of manufacturers with the highest average fuel economy and lowest average GHG emissions. This is largely due to the company’s investment in and application of its SkyActiv technology. However, Mazda gets no credit for the application of this technology across its fleet that reduces GHG emissions by about 20 per cent.

This can’t be the result the government was looking for.

The inherent challenge of trying to simply “cut and paste” a legislative and regulatory solution from one jurisdiction and tweaking it and applying it to another is that you get unintended consequences.

Interestingly, on the government’s webpage pertaining to the ZEV standard it is noted in bold letters that the purpose of the standard “is thus to spur the automobile market to develop greater numbers of models that rely on increasingly efficient low-carbon technologies.”

Unfortunately, the reality is that the Province of Quebec (a 650,000 vehicle market) or even the country of Canada (a 2,000,000 vehicle market) is not going to drive
global automakers to produce new, and different models of zero emission vehicles. Our market is simply too small.

That said, the aforementioned GHG regulations in place across North America are actually responsible for driving the increased electrification of the vehicle fleet, because that is one of the only ways that manufacturers will be able to meet the ever more stringent GHG emissions standards in place out to 2025. The industry is thus committed to electrification — it is just a matter of how quickly we can get there.

The inherent challenge of trying to simply “cut and paste” a legislative and regulatory solution from one jurisdiction and tweaking it and applying it to another is that you get unintended consequences.

California has worked with the automotive industry and has advised the industry since 2012 what the 2018 ZEV regulation would be, along with the credit mechanisms associated with it and a determination of the credits that could be carried over from the previous ZEV regulation and applied to the 2018 regime.

Quebec had no previous ZEV regulation, so the credit mechanisms available in California to assist manufacturers in complying with the 2018 regime are simply not available in Quebec.

If this fact was understood by officials, it has gone unrecognized by the government making it much more difficult for manufacturers to meet their obligations under the regulation.

The other wild card with the application of this regulation will be the reaction of consumers. I sincerely hope that the latent demand for zero emission vehicles in Quebec is a lot higher than most in the industry have assessed that it is. Otherwise it will be the automobile dealers — whom the government has pledged will be unaffected by this regulation — that will be left holding an inventory of expensive zero emission vehicles.

So, there are some significant challenges with the Quebec government’s new zero emission vehicle standard. As in 2009 we firmly believe that these challenges can be resolved through collaboration and constructive dialogue — but the opportunity for such dialogue needs to exist.

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