How To Reboot Ottawa’s Zero Emission Vehicle Mandate

The federal government has proposed regulations requiring the sale of a minimum numbers of Zero Emission Vehicles (ZEVs) in Canada (20 percent of all light vehicles in 2026, ramping up to 60 percent in 2030 and 100 percent in 2035). The flip side of this requirement is that the sale of internal combustion engine (ICE) light vehicles will be reduced and eventually prohibited in 2035.

• This ZEV mandate will require an increase in ZEV sales from about 100,000 ZEV light vehicles in 2022 to 300,000 in 2026, 900,000 in 2030 and 1.5 million in 2035.
• This paper examines whether or not Canadians will be able to buy enough ZEVs (either domestically produced or imported) to meet this ZEV mandate requirement. The findings show that Canada should be able to meet the 2035 100 percent ZEV mandate for about 270,000 passenger cars (only 18 percent of the market) but will be unlikely to meet the 2035 ZEV mandate for the 1,240,000 remaining light vehicles (pickup trucks, vans and SUVs/crossovers) comprising 82 percent of the market.
• Canada cannot wait until 2035 to realize that the federal ZEV mandate will not be met. The gap between light-vehicle demand and forecasted ZEV light-vehicle supply will cause severe market disruptions. A better approach would be to reject a hardline ZEV mandate and instead to substitute a more flexible Plan B. Plan B should focus more on emissions rather than ZEV targets. For example, permitting some ICE light vehicles to be sold, particularly ones that can use renewable fuels. In addition, permitting plug-in hybrids (PHEVs) and hybrids to be included as ZEVs.
• Finally, the federal government may have to accept that the 100 percent ZEV target is not feasible by 2035, and therefore must include flexibility in the federal ZEV mandate to back away from the 100 percent ZEV target.

A ZEV mandate is government legislation that imposes a requirement on the sellers of light vehicles to sell a certain minimum of ZEVs in a year. (ZEV is used interchangeably with BEV for battery electric vehicle in this paper. PHEVs can also qualify as ZEVs to a limited extent). The theory is that this minimum requirement will give certainty to vehicle sellers that there will be a market for ZEVs, and will therefore give an incentive to companies to construct ZEV manufacturing facilities. In essence, the ZEV mandate assumes that the demand for ZEVs will be there and will displace the demand for ICE light vehicles, and therefore the increase in supply of ZEVs will occur.

The federal government has introduced a ZEV mandate for all of Canada. In December 2022, the federal government issued proposed regulations under the Canadian Environmental Protection Act (CEPA). Section 30.3 of these proposed regulations state that all sales of light vehicles (passenger cars, pickup trucks, vans and SUVs/crossovers) must meet the thresholds for ZEV sales in a year shown in the table to the right.

The flip side to a ZEV mandate is that it imposes a prohibition on the sale of ICE vehicles, plus a penalty for contravening this prohibition. A company selling light vehicles in effect has an ever-shrinking quota for the maximum number of ICE light vehicles that it can sell in a year (none in 2035).

A company creates one credit for each battery electric vehicle (BEV) it sells. A sale of a PHEV with a range of more than 80 kilometres can also create a credit, but this ability is capped at 20 percent from 2028 onward. For example, a company selling 100 percent PHEVs in 2028 would only get credits for 20 percent.

If a company’s sales create fewer credits than required by the ZEV mandate, it can still remain in compliance by using two mechanisms. First, it can buy credits from another ZEV company that has exceeded its ZEV mandate. This mechanism will likely provide hundreds of millions of dollars of extra revenue to companies such as Tesla. An alternative second mechanism would allow the company to create a credit by contributing about $20,000 to specified ZEV activities such as supporting charging infrastructure. This second mechanism is capped at 10 percent of the ZEV mandate for the particular year, and is only available for the years prior to 2031.

For the Silo, Brian Livingston/The C.D. Howe Institute.

The author thanks Benjamin Dachis, Daniel Schwanen, Dave Collyer and anonymous reviewers for comments on an earlier draft. The author retains responsibility for any errors and the views expressed.