An auto sector bailout? Green strings attached, please
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Jun 4, 2020
Dan Woynillowicz

Forget blanket scrappage programs. Smart federal stimulus for carmakers should speed progress toward Canada’s zero emission vehicle sales and climate targets, and bolster a ZEV future for our domestic supply chain

Forget blanket scrappage programs. Smart federal stimulus for carmakers should speed progress toward Canada’s zero emission vehicle sales and climate targets, and bolster a ZEV future for our domestic supply chain

Day by day, province by province, Canadians are slowly emerging from the COVID-19 lockdown and returning to some semblance of daily life. At the same time, governments have begun to look beyond emergency relief, to citizens and businesses alike, and toward a plan for economic recovery.

Since practically the start of the pandemic, oil and gas executives have been calling for a targeted bailout. More recently they have been joined by airline executives. But the auto sector — which many Canadians will recall was the beneficiary of a nearly $14-billion public bailout in the aftermath of the 2009 Great Recession — has been much quieter.

But that isn’t because the auto sector hasn’t been lobbying for government support, it just hasn’t been as publicly vocal. In mid-April, after seeing first-quarter sales fall 20 per cent (48 per cent in March alone), the industry began quietly encouraging Ottawa to suspend sales taxes on vehicle purchases through the summer, and to introduce a scrappage program over the medium term. 

Scrappage proposal problematic

Vehicle scrappage programs are pretty straightforward: take an old car off the road and get a cash incentive towards the purchase of a new car. Those pushing the idea in Ottawa right now are making the case, in part, on environmental grounds, noting that 35 per cent of vehicles on the road are 10 years or older and pollute more than newer models. But while the sector would accept “bonus” subsidies for zero emission and hybrid vehicles, they want it to be available across the board.

That would be problematic. While the scrappage program Canada implemented in 2009-’11 delivered an estimated 37,000-tonne reduction in carbon pollution, much has changed in the auto market over the last decade. Most notably, the dramatic shift in Canadian consumer preference towards SUVs.

Image: Statistics Canada. Chart by Blake Shaffer.

Were somebody to scrap a 2005 Toyota Corolla and upgrade to a 2020 Toyota RAV4, scrappage cash in hand, the emissions performance of their chosen vehicle would worsen (from 170 g CO2/km to 184). Only if that RAV4 is a hybrid would this program deliver environmental benefits (139 g CO2/km). A more targeted approach, focused on emissions performance, is warranted.

Bailout needs a ZEV focus

Canada has ambitious, but unregulated, targets for zero emission vehicle sales — 15% by 2020, 30% by 2030 and 100% by 2040 — and a significant gap toward delivering the pollution cuts needed to achieve its Paris climate change agreement target in 2030. Considering the contribution that driving personal vehicles makes to Canada’s carbon pollution profile (57 per cent of carbon pollution from road transportation in 2018), a shift towards more polluting SUVs, and the pending weakening of North American vehicle emission regulations, it’s simply untenable to consider a public bailout that would further entrench these trends.

Any consideration of an auto sector bailout needs to focus on opportunities to enhance progress toward our zero emission vehicle sales and climate targets. Which is why any public support offered to the Canadian auto sector needs to include “green strings” and cast an eye toward a zero-emission future for our domestic auto manufacturing and supply chain.

Recent moves in France are instructive. 

Last week, the French government announced it would put C$12 billion towards a plan to “make France Europe’s top producer of clean vehicles by bringing output to more than one million electric and hybrid cars per year over the next five years,” according to Prime Minister Macron. For consumers, the government is doubling the existing scrappage scheme, which is considerably more generous for electric purchases, as well as increasing its EV purchase incentive. 

France linking loans to production

On the industrial side, meanwhile, Macron is playing hardball, using the prospect of a bailout loan to Renault to ensure it ramps up manufacturing of EVs in France. He announced that Renault will be joining Groupe PSA and Total, the French energy company, in an all-French venture to manufacture EV and hybrid batteries, with production now planned for France rather than Asia. This builds on France’s participation in the public-private European Battery Alliance, an industrial development initiative aimed at “creating a competitive and sustainable battery cell manufacturing value chain in Europe.”

So, what lessons can we take and apply in Canada? 

Despite a federal commitment to develop a zero-emission vehicle strategy we have nothing of the sort. There was stakeholder consultation and an effort to develop such a plan in partnership with the provinces. But as governments changed, notably the election of Doug Ford in Ontario — who promptly cancelled purchase incentives and ripped out EV charging infrastructure — that effort withered.

Meanwhile, the federal Strategic Innovation Fund’s biggest investment in the Canadian auto sector was $110 million to Toyota Canada in 2018 to ramp up production of RAV4s — including its conventional hybrid — which it has been manufacturing since 2016. Meanwhile, Toyota’s new 2021 plug-in-hybrid version of the RAV4 will be made in Japan. Clearly a missed opportunity.

Ottawa should take the lead 

Post-COVID, the federal government should take the initiative, unilaterally if necessary, to weave stimulus and recovery investments (and any bailouts) with a stronger policy framework and a zero-emission vehicle industrial strategy.

As stimulus, a scrappage program could prove helpful, but only if the cash can only be put towards hybrid and zero emission vehicles. That could be paired with an accelerated buildout of electric vehicle charging infrastructure within and between towns and cities. Both would spur economic activity and job creation, while cutting pollution.

Policy-wise, it’s clearly time to push the auto sector harder. Made-in-Canada vehicle emission regulations are needed, paired with a national zero-emission vehicle mandate. A schedule for phasing out purchase incentives by the mid-2020s is needed, and until then it should be funded through a feebate, which makes more polluting vehicles more expensive.

Benefits hinge on industrial strategy

And fundamentally, if we are to capture the economic benefits of the domestic and global shift to EVs, we need an industrial strategy. We have a mining sector that produces many of the metals and minerals needed for batteries, world-leading battery researchers, and an auto parts supply chain positioning to be part of this transition. As for manufacturing, which gets a disproportionate amount of attention, research by the Pembina Institute and International Council for Clean Transportation suggests that local demand will drive local production.

The auto sector has a long and storied history in Canada. How it navigates the transition to electrification in a post-COVID era is the next chapter to be written. Done right, it won’t be the last.

Dan Woynillowicz

Dan Woynillowicz is the principal of Polaris Strategy + Insight, a strategic advisory firm helping accelerate the energy transition and deliver climate solutions.

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