Canada ZEV sales mandate, including incentives to build infrastructure, released

Editor’s note: All dollar figures in this story are for Canadian currency.

The Canadian government unveiled one of its worst-kept secrets Tuesday when it released details of its zero-emissions vehicle sales mandate.

The final version of the Electric Vehicle Availability Standard requires auto manufacturers and importers to meet annual regulated sales targets, which are unchanged since the government released draft legislation a year ago.

Targets begin for the 2026 model year, with a requirement that at least 20 percent of new light-duty vehicles offered for sale be ZEVs. They tick upward from there, culminating with 100 percent of sales being ZEVs by 2035.

Automakers will be awarded credits for their ZEV sales. The main structure of the system has not changed from the proposed regulations. 

ZEVs accounted for a record 12.1 percent of all new-vehicle registrations in Canada in the third quarter of 2023. Year to date, 10 percent of sales have been ZEVs. Essentially, ZEV sales would need to double by the end of 2025 to kick off the 2026 model year.

However, automakers and their dealers say electric vehicles remain too costly for the average consumer.

Tim Reuss, CEO of the Canadian Automobile Dealers Association, told Automotive News Canada prior to the federal government’s announcement that EVs are unaffordable for many Canadians at the moment.

“Canadians expect certainty that they can afford, use and charge their EVs in a manner that suits their different lifestyles and geographical requirements before making one of the most important purchasing decisions in their lives,” he said Dec. 16. “Further, with the current high interest rates and high inflation severely impacting consumer affordability, many consumers lack the means to purchase EVs, as evidenced by the rising inventory levels on our members’ lots.”

In a recent report, Scotiabank calculated that EV prices will have to fall by about one-third to be affordable for middle-income households and by half for those in lower-income brackets.

Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association, which represents the interests of the Detroit 3 in Canada, previously said bigger government incentives are required to boost sales.

“Regulating vehicle sales will make life even more unaffordable for Canadians,” Kingston said. “Achieving 100 percent ZEV sales requires a comprehensive, long-term plan to support ZEV adoption that includes stronger consumer purchase incentives, a widespread public charging network and enhancements to the electricity grid to prepare Canada for more ZEVs on the road.”

Companies that perform better than their ZEV targets generate credits that they can bank for up to five model years or trade. Companies that do not meet their targets generate a deficit, which must be discharged within three model years. No accumulated or banked credits can be used to offset a deficit in model year 2035 and beyond. 

Automakers can buy credits
The penalty for automakers who don’t sell enough ZEVs is monetary, but the actual cost is unknown.

Automakers that are in a credit-deficit situation can purchase credits from other automakers — the price will be determined by the market at that time. 

Another compliance pathway is to invest in charging infrastructure. Automakers will be given one credit for every $20,000 invested. The idea is to incentivize construction of fast-charging EV infrastructure. 

David Adams, CEO of Global Automakers of Canada, which represents the interests of overseas automakers in Canada, said car companies that can’t extinguish their credit deficit over three years will be forced to pay a penalty of $20,000 per credit. Ultimately, noncompliance is a criminal offense under the Canadian Environmental Protection Act, he said.

The regulations will be phased in over the next 12 years. New light-duty gasoline or diesel-powered vehicles will still be available after 2026. They can still be driven after 2035 and be bought or sold as used vehicles. 

Canada’s regulations are similar in structure to those in California and other U.S. states in their definition of ZEVs, and in giving partial or full credit to plug-in hybrids, depending on their electric-only range. 

Critics, particularly automakers and dealers, say the government’s plan accelerates sales too quickly, citing lack of consumer demand and charging infrastructure and the high cost of building — and selling — new technology.

But the government on Tuesday said that “by the end of the decade or early 2030s, the purchase prices of gas-powered and electric cars will be comparable.”

“This would mean that more consumers would start seeing overall savings due to lower charging and maintenance costs as soon as they drive a new vehicle off the lot,” the government said. 

The government also promised it would support consumer purchases of ZEVs with a $2 billion investment in the Incentive for Zero Emissions Vehicle Program, which offers buyers up to $5,000 in new EV purchase incentives. 

While critics also point to Canada being woefully short on EV charging infrastructure, the government insists the regulated ZEV targets “will spur private-sector investment in charging infrastructure and enable utilities to plan for the power generation and transmission to provide charging.”

Travis Allan, chief legal and public affairs officer at Flo, a Canadian manufacturer of EV chargers, says sales mandates create certainty and offer a plan that companies such as his can work with to project and meet infrastructure demand. 

“This is a really encouraging signal for all companies that are investing in charging stations because it gives us a clear road map that allows us to assess where the electric vehicles will be,” he said. “And we can also track when they are expected to be sold. So it provides really clear investment signals that are going to help get more charging stations in the ground.”

As of this month, Ottawa had committed funds for the installation of more than 43,000 chargers across Canada. More than 10,000 have been built and another 30,000 are slated to be built, more than doubling the existing number of public charging stations. 

Back in July, Canada’s Zero Emission Vehicle Infrastructure Program approved and funded 33,887 charging ports. About 13 percent were already operational, and the rest are supposed to be up and running by March 2026, federal environment commissioner Jerry DeMarco said in November when he tabled a report in the House of Commons.

However, almost 9 in 10 of the ports funded were in Ontario, Quebec or British Columbia, he said. There were no targets set to identify where need was the greatest, or to ensure that lower-income communities and rural and remote areas were served by the program, the report found.

With Canada mandating that all new passenger vehicles sold be electric by 2035, every Canadian will be affected by charging infrastructure or the lack of it, DeMarco said.

The Canadian Press contributed to this report.

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