Could proposed U.S. auto emission rules be a ‘golden egg’ for Canada’s economy?

Strict new automobile pollution limits proposed in the U.S. are good news for the climate and Canada’s economy, say several energy think-tanks.

The regulations — proposed Wednesday by the U.S. Environmental Protection Agency (EPA) — will help encourage more Americans to buy electric vehicles (EVs) and reduce greenhouse gas emissions and other pollutants, Adam Thorn, director of the Pembina Institute's transportation program, told Canada’s National Observer in an interview. “Overall, it's excellent.”

The ambitious new regulations would limit pollution from the tailpipes of passenger vehicles, effectively requiring up to two-thirds of new passenger vehicles sold in the U.S. to be EVs by 2032. Last year, only 5.8 per cent of vehicles sold in the U.S. were fully electric.

If these rules pass, American automakers will also have to go pedal to the metal on producing EVs, which means lower prices for consumers and more EV models for sale, said Thorn. “That will certainly have an impact on the Canadian economy given how intertwined our automotive markets are. More than half of the vehicles produced here are sold in the U.S.”

EPA administrator Michael Regan described the regulations as “the strongest-ever federal pollution standards for cars and trucks.”

Canada, with its rich supply of critical minerals, is a natural trading partner, and the rapid rise in demand for these minerals “could be a golden egg for the economy,” said Thorn.

Matt Halliday, president and COO of Canada Silver Cobalt Works Inc., said the EPA’s announcement is good news for Canadian companies that mine the critical metals needed to produce EVs and their batteries. This includes his company, “which has underway a number of projects in nickel, copper, cobalt and lithium, all of which will be needed in increasing amounts if the EPA targets are to be achieved,” Halliday told Canada’s National Observer in an emailed statement.

Transportation accounts for more than a quarter of the U.S.’s carbon emissions — 27 per cent in 2020 — making it the country’s single largest source of planet-warming greenhouse gas emissions, according to the EPA. In Canada, the transportation sector took second place in 2020, accounting for 24 per cent of the country’s total emissions.

The two countries are taking different approaches to tackling this large source of emissions.

Canada has mandated that at least 20 per cent of car sales must be zero-emission vehicles by 2026, with that rising to 60 per cent by the end of the decade and 100 per cent by 2035. The EPA, on the other hand, doesn’t have a sales mandate, but by imposing strict pollution limits on vehicles, companies will be forced to manufacture zero-emission vehicles.

“While it’s encouraging to see a more unified North American approach to electric transportation, it is vital that Canada continues to implement — and strengthen — its own regulations,” Ekta Bibra, senior policy adviser at Clean Energy Canada, said in a news release. Bibra cautioned that if a U.S. government — as happened during former president Donald Trump’s term — were to roll back the regulations, “Canada would lose its EV policy seatbelt.”

“Canada is its own country, and it should not be beholden to voters in another jurisdiction for its policy decisions, especially when it could impact Canadians’ access to cost-saving EVs,” said Bibra’s statement.

The David Suzuki Foundation also welcomes the proposed regulations, noting North America’s integrated automobile market means the standards will likely be “adopted by reference” in Canada, senior policy adviser Tom Green said in an emailed statement.

“While stringent, the standards announced today retain loopholes that favour larger, less energy-efficient vehicles such as SUVs,” Green pointed out. “With 80 per cent of new vehicles sold in North America being SUVs, these loopholes may undermine efficiency gains in both electric and gas-powered motors.”

Budget 2023 announced details for several investment tax credits that will apply to the processing of critical minerals and the manufacturing of battery and electric vehicles, among other things. A few weeks before the budget was tabled, Volkswagen announced it will build its first overseas “gigafactory” manufacturing EV batteries in St. Thomas, Ont.

Ontario, Quebec and, in particular, the federal government have really made a push to develop Canada's presence in the EV market over the last year or so, James Meadowcroft, a professor of political science and public policy and administration at Carleton University, told Canada’s National Observer in an interview. The ample investments in green technology contained in the Biden administration’s Inflation Reduction Act require Canada to come up with a strong response, he said.

Last spring, the federal government announced a new investment of up to $529 million to support automaker Stellantis in modernizing its assembly plants in Windsor and Brampton, Ont., to increase the production of electric vehicles. Ontario also pledged up to $513 million to support the project.

Last fall, Ottawa proposed the Strategic Innovation Fund invest up to $222 million to help Rio Tinto Iron and Titanium’s Quebec Operations increase critical mineral production. Federal Natural Resources Minister Jonathan Wilkinson also rolled out a critical minerals strategy, which includes $3.8 billion to support mining companies in activities like exploring for new mines, manufacturing and recycling.

We now have all the basic technologies for passenger vehicles, Meadowcroft said. “It's just a question, really, of ... speeding up the way the technology is being rolled out, which will also drive down the cost of battery manufacture and lead to further improvements of the vehicles themselves.”

Canada’s EV sales mandate is “reasonably well-aligned” with what the EPA has put forward, said Meadowcroft, who is also a research director at the Transition Accelerator and sits on the governing council at Efficiency Canada, an independent think-tank.

Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers’ Association, told Canada’s National Observer the federal government should “reconsider” its zero-emission vehicle sales mandate in light of the EPA’s announcement Wednesday.

“We already have emission standards, and as we've learned today, they are becoming increasingly stringent,” said Kingston. “Adding yet another regulation on top of this, it's like a belt and suspenders, it makes no sense in the context of an integrated North American market.”

If the federal government goes ahead with its sales mandate, “that puts Canada outside of this North American integrated market,” said Kingston, calling the mandate a “redundant” and “unnecessary” policy that will decouple the Canadian auto industry from the U.S.

Climate groups say the timeline of Canada’s sales mandate is even more ambitious than the EPA rules because it includes the 2035 deadline to hit 100 per cent ZEV sales.

The climate benefits of slashing tailpipe emissions are clear, but there are other significant benefits to human health, Dan Lashof, U.S. director for the World Resources Institute, pointed out in a statement.

“If implemented, the Biden administration’s plan is destined to prevent millions of asthma attacks and other harmful health effects and will keep America competitive as the global automotive industry shifts away from the antiquated internal combustion engine,” said Lashof.

The World Health Organization identifies air pollution as one of the greatest environmental risks to human health, saying outdoor air pollution caused an estimated 4.2 million premature deaths in 2019.

The EPA’s proposed rules will go through a public comment period before being finalized.

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer