Government of Canada review of fuel efficiency standards confirms the economic and environmental benefits of ambitious action

February 12, 2021 – Ottawa, Ontario

Canada is taking action to cut pollution from the transportation sector, which accounts for one-quarter of our overall emissions. By requiring light-duty vehicles (LDV) to be less polluting over time, Canada’s fuel efficiency standards have the potential to cut fuel costs in Canada, and to create good jobs in the automotive sector by encouraging the adoption of cleaner vehicles.

The North American automotive sector is deeply integrated, and a common set of requirements for reducing LDV emissions in Canada and the U.S. has historically provided maximum benefits to Canadians at the lowest cost, while contributing towards the competitiveness of the Canadian auto sector.

Government of Canada review of fuel efficiency standards confirms the economic and environmental benefits of ambitious actionGovernment of Canada review of fuel efficiency standards confirms the economic and environmental benefits of ambitious actionThe initial regulations took effect with model year 2011. The regulations were amended in October 2014 to establish GHG standards for the 2017 to 2025 model years. In 2014, as a part of the amendments to these regulations, Canada committed to conducting a midterm evaluation (MTE) of the regulations. Both the U.S. and Canada committed to conduct an MTE of their respective regulatory programs, for the 2022 to 2025 model years.

In the last two years, Canada has undertaken a wide range of consultations on the path forward on light-duty vehicles. During these consultations, Environment and Climate Change Canada (ECCC) took into account factors such as: Canada’s 2030 and 2050 emissions reductions targets; monetary savings for consumers that result from more fuel efficient vehicles; the competitiveness of the Canadian auto industry within an integrated North American market for vehicle manufacturing and trade; and Canada’s zero-emissions vehicle sales targets.

Today, Minister Wilkinson published the outcome of that review. ECCC has determined the current standards are achievable, but not rigorous enough to allow Canada to meet its emissions reduction objectives. ECCC’s analysis included a high-level cost-benefit analysis, which compared the new less stringent U.S. standards (1.5% per year for the 2021 through 2025 model years) to an alternative where Canada’s regulations would be amended to restore the original increases in stringency (about 5%) beginning with the 2023 model year. The analysis indicates that adopting more stringent standards for the 2023 to 2025 model years could result in net benefits of approximately 2.5 billion (2018 Canadian dollars), and would support the attainment of Canada’s ZEV sales targets.

Under Canada’s strengthened climate change plan, released in December 2020, the Government of Canada committed to align Canada’s LDV regulations with the most stringent performance standards in North America post-2025. Going forward, we will work with stakeholders and governments on both sides of the border to establish a clear path forward for these regulations. This year presents an opportunity for Canada to work with the U.S. partners in developing stringent, harmonized Canada-U.S. standards for LDVs while providing the greatest economies of scale and lowest costs for the automotive industry and Canadian consumers.

This will complement the support we are providing to the automotive, clean technology, clean fuels, and mines and minerals sectors to ensure that the Canadian economy takes advantage of emerging low carbon market opportunities. We will also engage with the U.S. Administration on approaches to increase the consumer availability of zero-emission vehicles in both countries, and will work with partners in the year ahead on supply-side policy options to achieve additional reductions from Canada’s light-duty vehicle fleet.

Quotes

“This review confirms that by moving ambitiously with smart fuel-efficiency standards, we can cut pollution and fuel costs for Canadians, and create good jobs in our automotive sector by encouraging the adoption of cleaner vehicles. We look forward to working with the Biden administration in developing a stringent, harmonized standard for LDVs to position North America as a global leader in climate action and to protect the planet for future generations.”

-The Honourable Jonathan Wilkinson, Minister of Environment and Climate Change

“There is growing momentum in the North American auto industry to reduce emissions from new vehicles and accelerate towards a zero-emissions future. Several automakers, have announced significant investments to re-tool their Canadian factories towards electrification of vehicles and our Government will continue to support and accelerate those efforts for the good of our economy and environment.”

-The Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry

Quick facts

• Transportation is one of the largest sources of carbon pollution in Canada. Automobiles and light trucks account for about 11 per cent of Canada’s total greenhouse gas emissions.
• Canada’s regulations for greenhouse gas emissions from automobiles and light trucks have been aligned with those of the U.S. since the 2011 model year.
• While the US EPA first determined that their existing vehicle emissions standards were feasible in 2017, a new determination was made in 2018 that they were no longer feasible and that decision was followed with the publication of new regulations in April 2020 that reduced the annual increase in stringency from approximately 5% to approximately 1.5% for the 2021 through 2026 model years.
• The U.S. has begun a review of these standards in support of establishing ambitious, job-creating fuel economy standards as outlined in the Executive Order signed by President Biden on January 20, 2021.
• In August of 2020, California signed voluntary agreements with five automakers (BMW, Ford, Honda, Volkswagen and Volvo). Under these agreements, automakers voluntarily committed to comply with national standards which increase in stringency by about 3.7% per year, beginning with model year 2022. In June 2019, Canada and California entered into a Memorandum of Understanding to work together on their respective regulations to cut down on GHGs from vehicles like cars, pickup trucks and SUVs.
• The Government of Canada and Government of Ontario recently announced their commitment to Ford Motor Company of Canada’s investment in its Oakville Assembly Complex. This project, valued at $1.8 billion, will help secure 5,400 well-paying middle class jobs at the Oakville Assembly Complex. This is the first plant to be wholly dedicated to the production of full battery-electric vehicles in Canada for the North American market.
• Through the Incentives for Zero-Emission Vehicles (iZEV) program, which was extended until March 2022 in Canada’s strengthened climate plan, the Government is providing a rebate of up to $5000 to Canadians who purchase a light-duty zero-emission vehicle.
• In Canada’s strengthened climate plan, the Government announced an investment of $3 billion over five years for the new Strategic Innovation Fund – Net Zero Accelerator. This initiative will cut pollution and create good jobs in Canada by rapidly expediting decarbonization projects with large emitters, scaling up clean technology and accelerating Canada’s industrial transformation across all sectors – including in the auto sector.