OTTAWA — Canada’s alliance with California in a battle over greenhouse-gas emissions could erase hard-won trade protections, deter investment and drive up prices for car buyers, auto industry officials warn.
Federal Environment Minister Catherine McKenna signed a memorandum of understanding (MOU) in June that Canada will align with California in a plan to maintain stringent fuel-economy standards even if U.S. federal regulators dial back the limits scheduled for model-year 2021-2025 vehicles.
The agreement contains no commitments beyond a pledge to work together on regulations to cut greenhouse-gas production and promote clean vehicles.
“In our view it’s premature to be saying this is the road we’re going to go down without understanding all the consequences and costs of going down that road,” said David Adams, president of the Global Automakers of Canada.
“It would have been our preference that Canada work with the U.S. and California to come up with a single, integrated system of standards.”
Automakers now build to a single set of standards adopted by the United States and California in 2012. A U.S.-California split could force them to produce separate vehicles for two markets, or build vehicles to the higher standard.
The Canadian Vehicle Manufacturers’ Association (CVMA), representing the Detroit Three, said any dual-market system could undermine the still-to-be ratified treaty that will replace the North American Free Trade Agreement.
“Why did we just spend the last two years renegotiating an agreement that underpins North America as a trade bloc, that preserves the three country approach, preserves our integrated industry and supply chains, and is designed to remove technical barriers to trade and to align regulations ultimately because of the efficiencies?” said CVMA president Mark Nantais.
Canada has long matched the United States on safety and emissions regulations. But McKenna’s announcement signals that Canada won’t follow U.S. Environmental Protection Agency (EPA) recommendations to freeze tailpipe standards at 2020 levels through 2026 instead of requiring yearly improvements to reach a fleet average of 54.5 mpg in government testing, or about 36 mpg in on-road driving.
Carmakers had lobbied for lower yearly increases to the 54.5 mpg target — though not a freeze — arguing that the Obama-era federal regulations they signed on to in 2012 didn’t anticipate softening fuel prices and rising consumer demand for larger vehicles.
It also inserts Canada into a political confrontation typical of the President Trump era. California is leading a coalition of 17 states and the District of Columbia in a federal court suit to overturn the EPA plan, while the Trump administration is seeking to revoke the right of California — long a driver of U.S. emissions policy — and other states to set their own limits.
IS TOUGHER BETTER?
McKenna said aligning with California’s mileage targets and zero-emission vehicle program could spur investment in clean transportation in Canada. The two jurisdictions represented four million of the 19 million new light vehicles sold in Canada and the United States in 2018.
“We can build the vehicles of the future here at home, create good jobs, and remain competitive, all the while reducing pollution and helping Canadians save hundreds of dollars a year at the pump,” McKenna said in a statement.
Industry groups say a more likely result would be reduced product offerings and higher prices as consumers compete for fewer available vehicles.
“Any movement away from a harmonized approach will hinder choice and increase costs for Canadian consumers,” warned the Canadian Automobile Dealers Association (CADA), representing 3,200 franchised new -car and truck dealerships across the country.
CADA didn’t estimate how much prices could rise, but spokesman Huw Williams suggested some shoppers could end up keeping their old cars instead of moving to cleaner, less thirsty vehicles.
“That’s a consumer cost as well, and an economic cost,” Williams said.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said that Canadian assembly plants now are chiefly devoted to crossovers and larger vehicles. McKenna’s contention that the MOU would encourage automakers to change the type of vehicles they build in Canada is unrealistic, he said.
“You would put companies into a difficult position of not selling locally what they make locally, increasing their cost per unit and decreasing the competitiveness of local manufacturing,” he said. “And you would de facto put a cloud over the Canadian automotive value proposition.”
Still, Volpe believes the federal Liberals took a “prudent step” with the non-binding agreement, which conveys opposition to lower limits on emissions but doesn’t lock Canada in. He said government officials, who are conducting their own midterm review of the fuel-economy standards, heeded industry advice in devising Canada’s strategy.
FEAR OF TWO STANDARDS
If automakers sought relief from the Obama-era reductions — which could still remain as the effective standard if enough states side with California — they’re more concerned at the prospect of building to two markets even as they invest hundreds of millions in electric vehicles and other alternatives to meet longer-term emissions goals.
Adams and Nantais said their groups have joined their U.S. counterparts in pressing for a single standard acceptable to California, Canada and U.S. federal regulators.
“We want a reasonable standard or regulation that’s achievable, recognizes the dynamic in the marketplace, recognizes fuel costs, recognizes technology costs,” said Nantais.
Any resolution, however, could be far off.
“I think the drama on this is far from over, and that’s both political and litigious,” said Volpe. “It is still very early days.”