Interim report from the Advisory Council on Climate Action

Minister Morneau and Minister McKenna:

In our capacity as Co-Chairs of the Advisory Council on Climate Action, we have been working in recent months to develop our advice to you on cost-efficient ways to reduce pollution from transportation and buildings. While we are continuing to prepare our final report, which will focus predominantly on the building and transportation sectors, this short interim report offers a small number of targeted recommendations in the transportation sector for your consideration in advance of Budget 2019.

In our view, there is an immediate opportunity for the Government of Canada to expand the availability of measures proven to make electric and plug-in hybrid vehicles more affordable to a maximum number of Canadians. A federal purchase incentive, supported by clear signals to manufacturers to increase supply and investments in enabling measures, would complement other federal polices such as the clean fuel standard, carbon pricing, and investment in public transportation.

This letter outlines our key recommendations, which can be summarized as follows:

The federal government should provide an incentive of up to $5,000 to help Canadians purchase zero emissions vehicles or plug-in hybrids. The incentive should be available for at least a two-year period to help close the gap between the upfront costs of electric vehicles relative to gasoline or diesel models, making electric vehicles more affordable for middle- and lower-income Canadians.

To address other barriers to accelerating the adoption of zero emissions vehicles across Canada, the federal government should also:

Encourage manufacturers to set zero emissions vehicle sales targets: As an initial step, the federal government should work with manufacturers to set voluntary sales targets for zero emission and hybrid vehicles. If this measure proves over time to be insufficient to address supply shortages, the government should be prepared to introduce mandatory targets.

The federal government should scale up investment in enabling measures, including charging infrastructure, ongoing research and development efforts, and consumer awareness programs: Improving access to charging infrastructure in apartments and condominiums as well as in workplaces should be a priority, alongside continuing investment in charging stations along major transportation routes.

As you well know, transportation is the second largest source of Canada’s greenhouse gas (GHG) emissions and contributes significantly to climate change and air pollution. The success of Canada’s commitment to leave a clean environment for future generations while continuing to grow the economy will depend in large part on the ability of Canadians to make sustainable choices about how they get around their towns and cities and move the goods that they need.

A majority of Canadians rely on personal vehicles to do things like commute, run errands, and take weekend road trips. Electric vehicles, or other types of zero emissions vehicles (ZEVs) or low emissions ones such as plug-in hybrids, have quickly emerged as a viable alternative to gasoline or diesel vehicles. Choosing a zero emissions vehicle as their next car is a meaningful way that Canadians can have a positive environmental impact without major changes to their lifestyle. Canada has the advantage of a cleaner electricity grid to power electric vehicles. ZEV technology has improved by leaps and bounds in recent years, including innovation to create cheaper batteries that can power vehicles for hundreds of kilometers on a single charge.

ZEVs are on the cusp of moving from a niche market into the mainstream. Right now, only about 2% of new vehicles sold in Canada are ZEVs. The Government of Canada recently announced targets to increase ZEV sales to 10% of new vehicle sales by 2025, 30% in 2030, and 100% by 2040. These targets are a good first step and aligned with actions that other countries are taking. For example, a number of countries – including the UK, France and Spain – have all announced that they plan to fully phase out the sale of gasoline and diesel vehicles by 2040, while Norway has announced its intention to do so by 2025. California’s plan aims to have 5 million zero emission vehicles on its roads by 2030, a significant increase over its 2025 target of 1.5 million.

There are, however, remaining barriers to transitioning to zero emissions vehicles. Our recommendations focus on key measures – in particular a purchase incentive – that the federal government could take to accelerate the uptake of ZEVs across Canada.  

Purchase incentives

A car is a major purchasing decision. While the cost of zero emissions vehicles continues to fall as technology improves, the difference in price between a fully electric vehicle and a comparable gasoline model is typically in the range of about $10,000. Although electric vehicles are less expensive to fuel and operate, this additional upfront cost is a major deterrent for many Canadians who might otherwise consider an electric car. There are almost 2 million new cars sold in Canada each year. Shifting more of these new car owners into electric and hybrid vehicles in the near term would have positive environmental impacts over the next decade and accelerate market growth.

There is ample evidence that incentives work to encourage consumers to purchase electric vehicles. Within Canada, 97% of electric vehicles sold to date have been in provinces with purchase incentives. Norway has achieved an impressive 40% share of ZEVs in new vehicle sales, largely through generous purchase subsidies.

We recommend that the federal government provide an incentive of up to $5,000 to help Canadians purchase zero emissions vehicles, for at least two years.

An incentive of $5,000 for a fully electric vehicle would close about half of the price gap relative to a comparable alternative fueled by gasoline. Incentives could vary by vehicle type. For instance, smaller incentives could be offered for plug-in hybrid vehicles. To limit free-ridership and encourage uptake among middle- and lower-income Canadians, a maximum vehicle purchase price could be set as an eligibility condition for the incentive. The examples of Quebec at $75 000 and British Columbia at $77 000 might serve as a basis for such a threshold. After about two years, the federal government should re-evaluate this program to determine whether a subsidy is still required or if the amount should be adjusted, since many experts expect a price parity between internal combustion engine and electric vehicles in the 2022-2023 period.

Federal support would ensure that all Canadians have the opportunity to benefit from an incentive. Some provinces have already taken important steps to help consumers purchase zero-emissions vehicles. Provincial programs should be continued or expanded and would be complemented by the federal incentive. The federal government should align its program with provincial approaches that are working well where appropriate, such as British Columbia’s existing point of sale credits through dealership networks. 

Manufacturer supply targets

Even Canadians who are actively seeking to purchase an electric vehicle may encounter challenges such as low inventories, long wait times, lack of test vehicles, and limited knowledge among sales personnel. The selection of makes and models has proliferated as many manufacturers have started to shift towards prioritizing ZEVs, but this has not consistently translated into readily available supply and a positive purchasing experience for consumers.

We recommend that the federal government encourage manufacturers to establish ZEV sales targets.

These supply agreements could initially be voluntary targets. The federal government should, however, be prepared to implement mandatory sales targets if voluntary measures do not sufficiently address supply issues. A regulatory approach could be modelled on Quebec’s ZEV mandate or the policy currently under development in British Columbia. A strong signal from government, including clear willingness to adopt new regulations if required, will improve the likelihood of success of a more flexible voluntary approach.

ZEVs represent major economic opportunities for Canada along the full supply chain – from rare and other minerals used in components, to batteries, to manufacturing – and clear policy is needed to ensure that Canada does not get left behind. Global auto manufacturers have announced more than $150 billion in investments in a spectrum of new electric vehicle models, with the objective of increasing their collective production from about 1.2 million electric vehicles in 2017 to over 13 million by 2025. There is currently only one major electric vehicle manufactured in Canada (the Chrysler Pacifica plug-in hybrid).  This points to a need for ongoing engagement with industry to retain and build Canada’s auto sector footprint in a way that aligns with current market trends.

Enabling measures

Lack of information, concerns about access to charging infrastructure and range anxiety, and the need for ongoing improvements in technology are other remaining challenges that dissuade Canadians from considering ZEVs.

We recommend that the federal government scale up investment in enabling measures, including charging infrastructure, ongoing research and development efforts, and consumer awareness programs.

Charging infrastructure is being built across Canada while vehicle batteries are simultaneously able to hold longer charges, but the prospect of running out of battery power in between charging stations remains a major concern for many prospective electric vehicle owners. In addition to continuing to build charging infrastructure along major transportation corridors, further investments are needed to ensure that Canadians have access to convenient charging at work and at home, including in apartment and condo buildings. Support for charging infrastructure will need to evolve as the demographics of electric vehicle ownership diversify from early adopters who tend to live in single-family homes to a broader cross-section of the population – including at least a third of Canadians who live in multi-unit residential buildings. For example, a U.S. program evaluation found that employees with access to workplace charging infrastructure were six times more likely to drive an electric vehicle. Jurisdictions leading the adoption of electric vehicles, like Norway, the Netherlands, and California, have funded targeted programs for curbside and multi-unit residential charging infrastructure and also have the highest concentrations of public charging infrastructure. 

In addition, investment in information tools – for instance to help Canadians better understand their driving habits and vehicle needs – could also help to reduce range anxiety.

Finally, ongoing investment in research and development will help Canada to continue to grow its expertise in clean vehicle technologies, and remain competitive in global export markets.  

Next steps

Our recommendations represent an initial step to achieve the ZEV targets recently set by the federal government, which will require ongoing action to achieve. Provincial and municipal governments also have a major role to play in developing and adopting effective clean transportation policies.

We are continuing to develop advice for our final report, to be delivered later this spring. While the initial analysis and recommendations we have presented here pertain to the transportation sector, the advice in our final report will also focus on cost-efficient measures to reduce emissions from buildings. Energy efficiency improvements can deliver major environmental and economic benefits, and there are opportunities to learn from and enhance current federal programs such as the Low-Carbon Economy Fund.

Our preliminary analysis and consultations in this sector have underscored the importance of supporting local actors, who have in-depth understanding of specific market conditions and needs. As a next step, we intend to examine experiences to date within Canada and internationally with policies to catalyze the building retrofit market, including tax treatments, information measures, and financing tools. This will build on the work completed to date by the Expert Panel on Sustainable Finance. We will consider which solutions might best fit the needs of priority segments of Canada’s building sector, such as affordable housing, with an emphasis on opportunities for multiple benefits, like enhanced resilience and job creation.

We appreciate the opportunity to provide near-term advice as the Government of Canada prepares to release its 2019 budget, and look forward to providing a more complete set of recommendations over the coming months.

Tamara Vrooman, Co-chair
Advisory Council on Climate Action

Steven Guilbeault, Co-chair
Advisory Council on Climate Action