The Liberals’ incomplete lane change on EVs

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The Liberals have shifted gears on their electric-vehicle policy, largely abandoning the rigid regulations of the Trudeau government in favour of a more flexible, and practical, approach.

But the Carney government has unfortunately opted to keep in place the split-screen approach of the Trudeau era, which was partly about encouraging EV adoption by making gas-powered vehicles gradually less available – but also about creating a domestic industry for electric automobiles. Those are very different, and sometimes conflicting, goals.

The policy, announced with much fanfare last week, could drive the adoption of lower-emission vehicles. That would be a good outcome. But it will also funnel billions of dollars to the auto industry as part of what the plan’s backgrounder calls an attempt to make Canada “a global leader in vehicle electrification.” That’s not the role of government.

The Trudeau-era policy mandated that EVs had to make up a growing percentage of automobiles sold. Automakers that missed targets faced big penalties, a blunt approach that focused on the tactic instead of the desired outcome.

The more pragmatic way is to determine the preferable result and reverse-engineer how to get there. That approach is reflected in the new policy, which will over time make existing tailpipe emissions rules more strict.

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The effect of this would logically be that automakers compete to make their vehicle more fuel-efficient while also offering more zero-emission vehicles as part of their product line. According to Prime Minister Mark Carney, the new rules will lead to a drop in emissions by 2035 that would be equivalent to a 75-per-cent EV adoption rate.

To encourage more take-up of electric vehicles, the government will re-introduce rebates. Consumers will get $5,000 back on eligible electric vehicles purchased this year, and half that for plug-in hybrid vehicles. These rebates decline to $2,000 and $1,000 by 2030.

Subsidies are notoriously inefficient; consumers that would have purchased an EV in any case will still be able to receive a cheque from Ottawa. But there are some saving graces in the subsidies that the federal government proposes.

First, they are time-limited, and decline over time. That reduces the incentive to delay purchases and (hopefully) they will be allowed to simply expire after 2030.

For imported EVs, subsidies will be available only on vehicles worth up to $50,000. This means they will not become a subsidy for buyers of imported luxury vehicles. They also apply only to imports from countries with which Canada has a free-trade agreement. Which means the Chinese-built EVs that Mr. Carney has opened the door to will not be eligible.

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But that rebate price cap does not apply to domestically made vehicles. So wealthy Canadians who buy pricey domestic EV models can rest assured that they too will receive their share of Ottawa’s largesse. In reality, the structure of the rebates functions as a subsidy to domestic industry.

The automotive strategy also includes $1.5-billion, through the Infrastructure Bank, to find private-sector partners to build out the country’s charging infrastructure. So-called range anxiety – not being sure of finding a charger when needed – is a key drag on EV adoption. More chargers are certainly needed.

Now to the fundamental flaw in the new strategy. The plan includes up to $3.1-billion in government support for the auto industry. A small part of this – $100-million – is specifically billed as tariff relief, but most is from the Strategic Response Fund. This is a government program aimed at helping Canadian companies innovate and adapt in a changing economy.

There’s no doubt that the auto industry is changing, with plenty of signs that conventionally powered vehicles are becoming the technology of the past. However, that does not make it the responsibility of the federal government to help create an electric vehicle industry in Canada. Auto makers have been aware of these accelerating trends for years.

Mr. Carney himself pointed out the right approach when asked about the future of the domestic auto industry, given this year’s review of the continental trade agreement. “In an industry as dynamic as autos, it’s constantly being reinvented, there’s always changes in market share, investment and competitiveness,” he began his response. “And that’s why the best companies adapt.”

It’s a good thought. Taking those words to heart would have allowed the Liberals to fully break with the split-screen distractions of their predecessors.