In March 2022, through its Emissions Reduction Plan, Canada made official its zero-emission vehicle (ZEV) sales target of 100% by 2035 and adopted new targets of 20% by 2026 and 60% by 2030. However, recent modeling shows that the policies announced or in effect as of September 2021 were much too weak to reach these targets.98 This challenge is compounded by Canadians’ preferences towards large, high-fuel-consumption SUVs and light-duty trucks, which in 2021 represented 81% of new vehicle sales, while ZEVs accounted for just 5.6% of new vehicle sales. As a result, Canada has the world’s highest emitting vehicle fleet in the world.
Increasing the cost of fuel-inefficient vehicles
Achieving these new targets and reducing carbon emissions from the transport sector will require a combination of measures that rapidly boost both demand and supply of ZEVs while disincentivizing large, inefficient internal combustion engine (ICE) vehicles. Representing the second largest household expense after housing, transportation – especially clean transportation – needs to be less of a burden for Canadians.
On the demand side, the Green Budget Coalition welcomed recent investments in Budget 2022 to replenish the iZEV program launched in 2019, which has contributed to the recent uptick in ZEV sales; as of March 2022, it had supported the purchase of more than 136,000 ZEVs. Still, even taking the $5,000 iZEV rebate into account, there is a considerable upfront price differential between most ZEVs and gas vehicles in the same class, and this influences consumer choices—even if ZEVs are the better deal when full costs of ownership and fuel are accounted for, a factor that many consumers fail to consider.
To both increase the effectiveness of the Green Levy program and complement the federal government’s iZEV program by reducing its cost, the Green Budget Coalition recommends introducing an environmental fee that is negatively correlated with a vehicle’s fuel efficiency, on sales of all ICE vehicles, and which would be phased in over time. Revenues could then be recycled to offset federal spending on ZEVs.
The proposed fee would modernise and expand or replace the Green Levy program, which applies primarily to large SUVs and luxury vehicles, and the luxury vehicle tax announced in the 2021 federal budget. Such initiatives only cover a small portion of passenger vehicles, involve weak disincentives, and have proven inefficient in driving emissions reductions. The Green Levy should signal the full costs of fuel-inefficient vehicles by being added to their sticker price.
European success stories of ZEV uptake offer inspiration. For example, Sweden, which set 2030 as the year by which it will have phased out ICE vehicles, has a feebate system and has seen ZEV uptake increase from just above 5% at the end of 2017 to almost 45% by the end of 2021.
Recommendation:
Modernise and expand or replace the Green Levy program with a comprehensive, emission-based fee on the purchase of ICE vehicles, aligned with Canada’s climate policy. By 2024, coordinate the fee structure with the iZEV purchase incentive for a revenue-neutral feebate system. [NRCan, FIN, TC]
Rewarding sustainable mobility choices through electric-assisted bike subsidies
For a fair transition to low-emission, energy-efficient mobility, policies should focus on moving away from personal vehicles and towards collective and active modes of transport such as car sharing and cycling. Literature is clear on the fact that transitioning Canada’s vehicle fleet to fully electric vehicles will not be enough to reach our climate targets, nor will it solve any of the other car-related issues, such as traffic, safety and public health. To reduce the number of vehicles on the roads, rewarding individuals who leave their car at home or get rid of it is the way to go. As such, the federal government could take inspiration from Nova Scotia’s EV Assist and France’s Bonus vélo programs, both of which provide a partial refund of the costs associated with the purchase of an electric-assisted bike. In the former, it has been the most subscribed portion of the ZEV incentive program in Nova Scotia and has helped increase the socioeconomic diversity in program participants, offering equity and affordability benefits, in addition to the co-benefits associated with bike travel.
Recommended Investment:
$50 million over two years to expand the iZEV program to help support the purchase of 50,000 electric-assisted bikes by offering a 40% purchase subsidy (up to $1,000). [TC]
Making zero-emission vehicles more accessible
To increase ZEV accessibility among Canadians, the House of Commons Standing Committee on Environment and Sustainable Development recommended that the Government of Canada allow used ZEVs to be eligible for incentives, taking inspiration from Québec, Nova Scotia and British Columbia among others, as well as scaling iZEV’s incentives to income.
Such considerations can play an important role in broadening ZEV uptake by targeting low-income individuals. In contexts in which alternatives to automobile ownership are not viable, low-income households must not be left behind and should be able to afford a ZEV. Studies show that, in addition to increasing equity, targeting incentives to low-income households makes purchase subsidy programs more cost-effective, “as wealthier households are more likely to buy an EV without any subsidy.”
For example, Québec’s Roulez vert program offers a rebate for used vehicles that is equal to 50% of the rebate that would be offered for the same vehicle if it was new (up to $3,500), but the vehicle can only be eligible for a rebate once. Ontario offers a smaller rebate of $1,000 when registering a used, fully electric car without any limit on the number of registrations that qualify for the rebate. However, it has to be registered and insured under the same owner for at least 12 months in order to be eligible another time.
Furthermore, an income cap for admissibility to the iZEV program could benefit more families throughout Canada. As such, California’s approach shows great promise: it has set an income cap for rebate eligibility at USD$150,000 per year for single filers, and higher incentives are offered to low- income households, with a maximum qualifying income based on the household size (from USD$51,520 to USD$178,640).
Recommendations:
- Make used EVs eligible for the iZEV subsidy program. [TC]
- Scale ZEV purchase incentives to household income and put a cap on eligibility based on household income (e.g., $150,000). [TC]