From Made-in-North-America vehicle bills to policy recommendations, Canada and the United States are increasingly aligned on clean vehicles. However, a potentially big regulatory gap remains

When it comes to electric vehicles, the conversations occurring on either side of the world’s longest international border have been positive, as of late.

Canada and the United States are pulling together as both countries navigate a transportation revolution on an unprecedented scale. The most recent evidence of this was a late-July diplomatic win. A deal was struck for a proposed bill (Inflation Reduction Act of 2022) to include a provision to treat Canadian and American-made vehicles equally under the U.S. EV tax credit program.

Though the bill is yet to be voted on. But many politicians, lobbyists and advocates in Canada are quick to declare victory.

“We’re extremely pleased that rebate will now include North America, as opposed to only USA-made EVs,” says Vic Fedeli, Ontario minister of economic development, job creation and trade, in an interview with Electric Autonomy Canada. “It supports millions of jobs on both sides of the border. Had they gone ahead and not made this change, I think Canadians would have demanded that the federal government retaliate.”

The Inflation Reduction Act of 2022 is currently in the hands of the Senate to debate and decide to pass or not. This leaves Canada in the unenviable position of being a bystander. Albeit, an active one (“It will continue to be a full court press from us,” says Fedeli), but a spectator nonetheless.

Both countries are waiting for the Senate decision and then, ideally, subsequent passage by the House of Representatives. However, there is an opportunity for Canada to take a leadership role.

There is a need to bring clarity and definition to the cross-border auto trade sector: clean vehicle standards.

Defining a clean vehicle

Birgit Matthiesen is the director of North American manufacturing at ArentFox Schiff LLP. ArentFox Schiff is a Washington D.C.-based law firm specializing in corporate law.

Returning to her office after a campaign rally event, Matthiesen says she is “optimistic” by what she is seeing play out on Capitol Hill.

“It levels the playing field,” says Matthiesen. “[The Canada-United States-Mexico Agreement (CUSMA)] is a reflection of the integration of that supply chain between Canada and the United States and, in many ways, Mexico. Any disruption of that integration is not good news. So, I think, Canadian suppliers in the clean vehicles sector should be should be heartened.”

But there is something nagging at Matthiesen in the discussions about cross-border EV auto trade between Canada and the U.S.

It comes down to vague language.

“When we speak about manufacturing a product, whether it be an uncomplicated item to a very highly complicated product (like an electric vehicle), it’s all in the fine print of production. And the fine print of production is standards and regulations,” explains Matthiesen.

Matthiesen’s concern is that, due to the rapidly evolving nature of the technology, the definition of a “clean vehicle” remains too broad. This is where leadership from Canada to inform and negotiate cross-border EV policy with the U.S. is critical. Especially as the country is investing billions of dollars to retool the auto manufacturing sector to pivot to clean vehicles.

“Canadian manufacturers do not want to make a vehicle or a part of a clean vehicle that doesn’t meet U.S. standards. A U.S. manufacturer who wants to sell into Canada doesn’t want to make two different products that comply with two different standards,” says Matthiesen.

“We have not heard much from either Ottawa or Washington yet on efforts to collaborate on standards for electric vehicles.”

Quebec showing collaboration leadership

Talks about this issue (if occurring) at a federal level are not public. But one province is carving out a name for itself as the U.S.’s trade partner of choice in Canada.

Quebec is taking a proactive and aggressive approach towards enmeshing its EV sector with leading American standards, targets and policy.

Last week a 62-page policy framework, entitled “Multi-State Medium- and Heavy-Duty Zero-Emission Vehicle Action Plan,” was released. There are 17 American state signatories and just one from Canada: Quebec.

“Given the mounting climate and public health consequences of truck and bus emissions, the extended turnover times associated with MHD vehicles, and the potential to create substantial economic and job growth by transitioning to ZEVs, the time for bold action is now,” reads the report.

The document concludes with 65 recommendations for state policy makers. It points to areas where uniform standards between the two countries are needed. This includes everything from charging infrastructure to vehicle requirements.

But the action plan does not offer specifics on exactly where the gaps are. There remains a near complete regulatory void for comparing both zero-emission vehicle and charging infrastructure standards between the two countries. This impedes identifying where the differences lie.

Matthiesen say having this side-by-side comparison is essential to craft cohesive standards between the two countries.

“The technology is evolving and morphing so rapidly, which is exciting news, but I think regulatory agencies in both Canada, United States are grappling to keep up,” says Matthiesen.

“I suspect that regulatory agencies are probably going to move forward rather quickly on standards with charging stations, then for the vehicle itself. That’s what I’m looking for over the horizon.”

A separate EV trade agreement?

One way to address this standards gap, believes Matthiesen, is Canada and the U.S. establishing a dedicated EV trade agreement. That policy would define the unique components of an electric vehicle — from raw minerals to battery to finished product.

“The term ‘final assembly’ is one that’s going to have to be dissected. Not only in terms of does it meet the definition and requirement for the finished vehicle, but for the necessary component parts,” Matthiesen says.

An EV may be distinct from the existing standards that govern combustion vehicles because of the completely different power train. While bumpers and headlight sizes are unlikely to vary from an EV to combustion vehicle, standardizing the battery components is new. Policy must cover raw materials through refinement. And cell manufacturing could require a breakout set of standards to address that big question of what constitutes ‘final assembly’?

Canada’s advantage

Fedeli, however, doesn’t think that a dedicated EV standard or trade agreement is necessary. He believes auto trade is sufficiently covered under CUSMA.

But even if more detailed and specific language comes through that standardizes what the ‘final assembly’ of EV batteries and power trains, Fedeli says he’s not concerned it will negatively affect Canada’s industry, and, in fact, could be a boon.

“Canada is the only G7 country that has a free trade agreement with every other G7 country [and] we have 50 free trade agreements around the world,” says Fedeli.

Plus, at the first stage of the supply chain the EV industry in Canada has an advantage particularly attractive to the U.S., says Fedeli.

“Canada is the only jurisdiction in the Western Hemisphere that has every critical mineral necessary to build a lithium-ion battery. So, in the American critical mineral strategy, yeah, it’s our minerals that they’re talking about.”

Where Matthiesen and Fedeli agree is that cooperation on the EV industry. That could come in the form of trade or standards and is critical for mutual success.

“Nine million Americans wake up every morning just to make products to ship to Canada,” says Fedeli, referencing one of the final points he made during months of consultations with American lawmakers about the Inflation Reduction Act. “About a billion dollars a day goes between Ontario and the U.S. in trade. We are inextricably linked.”