How new U.S. emissions standards could affect Canada and its ZEV sales mandate

New vehicle emissions standards proposed April 12 by the U.S. Environmental Protection Agency will force Ottawa to either dial back its zero-emission vehicle adoption timeline to match Washington’s, or double down on its own, more stringent ZEV sales mandate, according to industry stakeholders.

If passed, the U.S. standards will clamp down on permitted fleet-wide emissions for model years 2027-2032, and result in electric vehicles making up 67 per cent of new light-duty sales by 2032, the EPA estimates. This compares to a planned sales mandate in Canada that would require 83 per cent of new light-duty vehicle sales be ZEVs by 2032.

The proposed EPA standards, which are “even more stringent than anticipated,” should prompt Ottawa to rethink its ZEV sales mandate, said David Adams, CEO of the Global Automakers of Canada, which represents overseas car companies in the country.

“It makes our ZEV mandate redundant [and] an unnecessary piece of regulatory burden in Canada as we will incorporate by reference the U.S. standards,” he told Automotive News Canada in an email.

The federal government has a long history of aligning itself with EPA vehicle emissions requirements, though it partially decoupled from Washington in 2019 in favour of more aggressive state regulations in California.

STATUS QUO IN CANADA?

Cecelia Parsons, a spokeswoman for Environment and Climate Change Canada, said Ottawa has no plan to change this. The country will continue to align its vehicle emissions standards with “the most stringent ones in North America,” she said in an email.

As part of this approach, Ottawa is working toward implementing a ZEV sales mandate, similar to one approved last summer in California, which will require all new light-duty vehicles be electrified by 2035. Unlike governments in California and Canada, the Biden administration has not committed to banning internal combustion engine (ICE) vehicles by 2035.

The consultation period for Ottawa’s planned ZEV mandate ended on March 16. Parsons would not provide a timeline for when Ottawa will finalize the ZEV rules, but the ministry initially said it will enact the legislation this year.

Adams sees this as a mistake.

“The federal thought process seems to be that if we have a ZEV mandate that that will guarantee supply,” but Ottawa’s rules only mandate a certain ratio of ZEVs to ICE vehicles, not higher volumes of ZEVs, Adams said.

Because the global shortage of ZEVs will only become more acute as the EPA rules pull more vehicles into the United States, Canada could see automakers limit overall vehicle sales to meet their ZEV obligations — to the detriment of dealers, automakers and consumers, he added.

Daniel Breton, CEO of EV advocacy group Electric Mobility Canada, on the other hand, said enacting the mandate will ensure Canada is not dependent on the United States to hit its dual vehicle emissions and ZEV adoption goals.

“We have to have good GHG regulations, but we have to have good ZEV adoption regulations as well,” he told Automotive News Canada.

INVENTORY A PROBLEM

Breton said some automakers will run into trouble producing enough vehicles to meet their ZEV sales obligations as requirements become more stringent in the late 2020s. But car companies have had ample time to prepare over the past 15 years, he added, and those that have planned “the right way” will have supply to match demand.

“Not everybody is at the same stage of the evolution regarding EV supply chain. That’s where we will see some winners and some losers.”

But this singular focus on ZEV adoption by a certain date misses the wider goal of creating sustainable ZEV supply chains within North America, said Flavio Volpe, president of the Automotive Parts Manufacturers' Association.

Both Canada’s ZEV mandate and the new EPA targets “are stretch goals, at their most polite,” Volpe said. They will only be achieved through importing vehicles, at the expense of automakers that are building cars in North America, he added.

“If we’re in a race for who can import more cars from other places to meet targets made by [Canada], then we’ve missed the objective.”

The ZEV imports, Volpe added, are certain to rely heavily on battery supply chains centred in China that have been built with little concern for the environment. This undercuts the wider emissions-reduction goals Canada and the United States are working to achieve, while hurting the automotive, battery and critical minerals industries in North America, he said.

“You are indebting future generations of automotive and technology manufacturers in your own country, and you’ve met a phony target.”

Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, echoed the need for harmonized standards across North America.

“The EPA’s proposed emissions standards released “underline the importance for Canada to continue to align with the U.S. on these aggressive emissions standards as part of the integrated North American automotive industry,” said Kingston, who represents the interests of the Detroit Three in Canada.

“Alignment with the U.S. EPA ensures Canadians benefit from automaker investments into electrification and puts Canada on the path to achieving its greenhouse gas emissions reduction goals.”