Supporting the right set of incentive policies will be more effective than imposing mandates that could potentially slow the adoption of ZEVs among consumers.
The automobile industry fully shares and values the commitment of the federal government to reducing greenhouse gas emissions and tackling climate change. We understand the need to improve fuel efficiency, and the environmental benefits of alternative fuel sources such as electricity and hydrogen.
In fact, our industry has invested billions of dollars in greening vehicles and on improving fuel economy. Over the last decade, more innovation has taken place in the sector in terms of fuel efficiency than in the previous 90 years. Today’s new vehicles are far cleaner and more efficient than anything the industry has ever produced. This is the result of massive investment by manufacturers, ever-increasing consumer demand for greener vehicles, and government climate regulation.
No matter the direction of environmental regulations, these investments will continue to take place and fuel economy gains will continue to be made by automotive manufacturers.
The reason is simple: consumers increasingly are putting fuel economy at the top of their list of specifications for new vehicles, and manufacturers are responding by bringing to market vehicles that are more efficient and cleaner than ever before in the industry’s history.
And it’s not just Zero-Emission Vehicles (ZEVs) that have improved; the eco-footprint of vehicles in all segments is smaller. Internal combustion engines (ICE) now use technology that makes them more fuel-efficient — a trend driven by market alignment with consumer demand.
That being said, historic low oil prices, consumer preference for relatively larger vehicles such as SUVs and pickup trucks, and the absence of a reliable network of charging infrastructure mean ZEVs still represent a small share of total vehicle sales — even in Quebec and British Columbia — with less than 10 per cent market penetration.
In other parts of the country, demand for ZEV is on average far less than one per cent of the market. This is not to say that demand isn’t increasing. It has increased significantly all over Canada, thanks to federal incentives. But it is still very much concentrated in provinces with local incentive programs. Some 80 per cent of our ZEV market is in Quebec and B.C. — provinces with provincial and federal incentives to purchase these vehicles.
ZEV mandate policies, such as the ones in Quebec and British Columbia, will however dictate what products manufacturers should bring to market and what vehicles the consumer should purchase. This kind of government interference in market dynamics without consideration for consumer preference and choice almost always leads to market failure.
The reality is that consumer demand and incentives drive trends in the automotive market. Phasing out gasoline vehicles and ordering manufacturers and dealers to sell a certain percentage of ZEVs in a jurisdiction absent any evidence that such demand exists is not sound policy.
A mandate at the national level will effectively amount to picking winners and losers. Dealers, seeking to meet ZEV sales targets in jurisdictions where there is no demand for such vehicles, will be forced to sell fewer internal combustion vehicles, hurting their businesses, jobs, and generating fewer tax revenues for the provincial and federal governments.
Consumers, faced with limited choices that may not respond to their needs, will move to purchase the vehicles they need in another jurisdiction or keep their older vehicles. The result will be a massive disruption to the market with no positive impact on the environment.
The EV “boom” in Quebec and B.C. over the last couple of years is the direct result of consumer demand supported by the right set of incentive policies. The record sales numbers in these two provinces occurred before a ZEV mandate was in place and exploded after the introduction of the federal incentive program.
In Ontario for example, ZEV demand tanked by close to 44 per cent between 2018 and 2019, when the provincial government scrapped its incentive program, indicating that government policy should be focused on addressing demand-side barriers to adoption.
While government mandates are focused on increasing supply, it is as critical to overcoming barriers on the demand side. Evidence across many jurisdictions strongly suggests that incentives drive EV sales, not mandates.
The auto industry is committed to developing fuel-efficient, greener vehicles, and has made impressive progress in improving internal combustion engines (ICE), while also bringing ZEV technologies to market. Models and supply are increasing in every segment of the market and manufacturers are making the necessary adjustments to production patterns in order to meet increasing ZEV demand all across the globe.
Governments should abandon the failed strategy of interfering in market dynamics, and instead keep working closely with the industry to promote consumer demand of ZEVs through incentive programs, investment in charging infrastructure and consumer awareness.
Quite frankly, there exists in Canada, North America, and around the world a powerful market force in favour of continued gains in fuel economy, and these gains will continue to be achieved now and in the future.
