Automotive
The government’s zero-emission vehicles mandate is an arrogant, unnecessary gamble
From the MacDonald Laurier Institute
By Jerome Gessaroli
This poor policy will disproportionately hurt middle- and working-class Canadians.
In December 2023, Steven Guilbeault, the federal minister of environment and climate change, announced that all new auto sales in Canada must be zero-emission vehicles by 2035. The Liberal government’s mandate to restructure the auto sector is industrial policy on a massive scale. Whether one agrees or disagrees with the mandate, there is general consensus on the substantial nature of this government intervention.
Many people write about whether wholesale government mandates will benefit or harm Canadians. Pundits of all stripes invoke their favoured political and economic ideologies (whether it is capitalism, command socialism, dirigisme, or economic nationalism) when discussing the government’s actions. When evaluating the efficacy of these government mandates, I will refrain from using polarizing labels and instead apply a first principles approach to assess how successful products, markets and entire industries are created.
To illustrate this approach, I reference a classic essay written in 1958 by Leonard E. Read, “I, Pencil.” In this essay, Read questions whether anyone truly knows how to produce a pencil from scratch, a simple commodity that has been mass-produced for over 300 years.
Read describes a pencil’s components, including wood, lacquer, graphite, a bit of metal, an eraser, and labelling. He delves into the intricacies of each element needed for pencil production. For instance, harvesting wood involves using saws, trucks, railcars, radios, and other equipment. The extensive skills, knowledge, and capital needed to design and manufacture this equipment are immense. Motors, railcars, trucks, and radios all require mining and refining ores, engineering design, manufacturing, distribution, and deployment, just so loggers can do their job.
After the wood arrives at the sawmill, it is cut, machined, and dried. The equipment and expertise needed for this second step are too long to list. Power for the mill and kiln, generated by a hydroelectric dam and transmitted through power lines, requires its own design, construction, and operation—a testament to human ingenuity.
The pencil’s graphite must be mined and imported. Transforming raw graphite into the final pencil material involves mixing it with various compounds at the mine site, moulding, cutting, multiple drying rounds, and quality checks. The graphite then travels to the pencil plant, where it undergoes further mixing, moulding, and cutting and is then placed inside the pencil. Chemists, manufacturing engineers, production workers, millwrights, and truck drivers, not to mention the specialized equipment for graphite manufacturing, all play crucial roles in this intricate process.
The pencil lacquer, made up of various compounds, is applied to the wood, and then the pencil runs through a specialized machine multiple times to get the desired finish. Inputs, including the chemical process, labour, and co-ordination for this procedure are too lengthy to detail. The aluminium band around the pencil serves to secure the eraser.
The eraser must be abrasive enough to remove the graphite from the paper without damaging the paper itself. Over time, chemists have changed the eraser’s composition, using their knowledge of polymers and other chemicals. The intricate production of a simple pencil requires diverse material inputs from various sectors and production processes, all of which must be cost-efficient to keep the pencil’s cost very low.
The collective knowledge, capital, and materials needed to produce a pencil are dispersed among millions of individuals and companies throughout society. No single person, even the CEO of a pencil company, possesses anything but a tiny fraction of the knowledge needed to make a pencil.
Despite this diffusion, spontaneous order emerges, driven by individuals pursuing their own interests, needs, and wants. As Read argues, those involved in the pencil’s production from miners, loggers, and engineers to CEOs, perform their tasks not because they desire a pencil but for other motivations. Instead, each participant exchanges their specific ability for the goods and services they need, with the pencil potentially being one of many items in this exchange.
Creating a zero-emission vehicle sector is vastly more complicated than a pencil. Given this complexity, the feasibility of any single entity, including the government, to successfully direct an auto sector restructuring is doubtful. Sustainably producing zero-emission vehicles instead will require decisions, capital, and resources dispersed throughout society that spontaneously arrange themselves in a manner that responds to the demand for such vehicles.
The federal government has assured Canadians that they will help with this transition, primarily through government subsidies to consumers and businesses. Money is given to subsidize zero-emission vehicle purchases to make them a bit less costly.
A total of $43 billion will be provided by the federal, Ontario and Quebec governments in subsidies for three battery plants, enabling the companies to manufacture batteries profitability. As well, funding is provided for 42,000 electric chargers, which are in addition to the 40 percent of existing chargers that the government has already subsidized to help keep drivers’ vehicles on the road.
The federal government cannot be certain its decisions are correct. It might be better to not subsidize battery plants and instead relax restrictions on supply chain development. This would involve ensuring the supply of critical minerals, chemicals, electrode production, transportation services, testing equipment, recycling, and more.
The government’s approach bypasses the price system and diverts money from its best use. The subsidies are artificial. While companies may initially react to these subsidies, their response is contingent upon the government’s continued support.
Without the millions of people making individual decisions that are spontaneously organized through the price system to create a sustainable zero-emission car market, the federal government’s mandate will likely fail.
It is the height of hubris to assume that the government can restructure the auto industry in such a fundamental way. More likely, the massive subsidies will financially burden Canadians for many years, leading to a disarray of misallocated resources that will take years to correct. Indeed, the Parliamentary Budget Office estimates that the debt charges for the federal and participating provincial governments subsidizing battery manufacturing will increase the total cost by $6.6 billion over 10 years.
This poor policy will disproportionately hurt middle- and working-class Canadians, through lower employment and higher taxes that would otherwise be unnecessary.
Jerome Gessaroli is a senior fellow at the Macdonald-Laurier Institute and leads The Sound Economic Policy Project at the British Columbia Institute of Technology.
From the Daily Caller News Foundation
The future direction of federal energy policy related to the transportation sector is a key question that will be determined in one way or another by the outcome of the presidential election. What remains unclear is the extent of change that a Trump presidency would bring.
Given that Tesla founder and CEO Elon Musk is a major supporter of former President Donald Trump, it seems unlikely a Trump White House would move to try to end the EV subsidies and tax breaks included in the Inflation Reduction Act (IRA). Those provisions, of course, constitute the “carrot” end of the Biden-Harris carrot-and-stick suite of policies designed to promote the expansion of EVs in the U.S. market.
The “stick” side of that approach comes in the form of stricter tailpipe emissions rules and higher fleet auto-mileage requirements imposed on domestic carmakers. While a Harris administration would likely seek to impose even more federal pressure through such command-and-control regulatory measures, a Trump administration would likely be more inclined to ease them.
But doing that is difficult and time-consuming and much would depend on the political will of those Trump appoints to lead the relevant agencies and departments.
Those and other coercive EV-related policies imposed during the Biden-Harris years have been designed to move the U.S. auto industry directionally to meet the administration’s stated goal of having EVs make up a third of the U.S. light duty fleet by 2030. The suite of policies does not constitute a hard mandate per se but is designed to produce a similar pre-conceived outcome.
It is the sort of heavy-handed federal effort to control markets that Trump has spoken out against throughout his first term in office and his pursuit of a second term.
A new report released this week by big energy data and analytics firm Enverus seems likely to influence prospective Trump officials to take a more favorable view of the potential for EVs to grow as a part of the domestic transportation fleet. Perhaps the most surprising bit of news in the study, conducted by Enverus subsidiary Enverus Intelligence Research (EIR), is a projection that EVs are poised to be lower-priced than their equivalent gas-powered models as soon as next year, due to falling battery costs.
“Battery costs have fallen rapidly, with 2024 cell costs dipping below $100/kWh. We predict from [2025] forward EVs will be more affordable than their traditional, internal combustible engine counterparts,” Carson Kearl, analyst at EIR, says in the release. Kearl further says that EIR expects the number of EVs on the road in the US to “exceed 40 million (20%) by 2035 and 80 million (40%) by 2040.”
The falling battery costs have been driven by a collapse in lithium prices. Somewhat ironically, that price collapse has in turn been driven by the failure of EV expansion to meet the unrealistic goal-setting mainly by western governments, including the United States. Those same cause-and-effect dynamics would most likely mean that prices for lithium, batteries and EVs would rise again if the rapid market penetration projected by EIR were to come to fruition.
In the U.S. market, the one and only certainty of all of this is that something is going to have to change, and soon. On Monday, Ford Motor Company reported it lost another $1.2 billion in its Ford Model e EV division in the 3rd quarter, bringing its accumulated loss for the first 9 months of 2024 to $3.7 billion.
Energy analyst and writer Robert Bryce points out in his Substack newsletter that that Model e loss is equivalent to the $3.7 billion profit Ford has reported this year in its Ford Blue division, which makes the company’s light duty internal combustion cars and trucks.
While Tesla is doing fine, with recovering profits and a rising stock price amid the successful launch of its CyberTruck and other new products, other pure-play EV makers in the United States are struggling to survive. Ford’s integrated peers GM and Stellantis have also struggled with the transition to more EV model-heavy fleets.
None of this is sustainable, and a recalibration of policy is in order. Next Tuesday’s election will determine which path the redirection of policy takes.
David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.
From the Canadian Taxpayers Federation
Author: Kris Sims
The Trudeau government’s ban on new gas and diesel vehicles is a nonstarter for three powerful reasons.
First, Canadians want to drive gas-powered minivans and diesel pickups.
Second, Canada does not have the electrical power to fuel these battery-powered cars.
Third, Canadians do not have the money to build the power-generating stations that would be needed to power these government-mandated vehicles.
Let’s start on the showroom floor.
The Trudeau government is banning the sale of new gasoline and diesel-powered vehicles by 2035.
In about 10 years’ time, Canadians will not be allowed to buy a new vehicle powered by an internal combustion engine because the government will forbid it.
Canadians disagree with this.
The Canadian Taxpayers Federation released Leger polling showing 59 per cent of Canadians oppose the federal government’s ban on new gas and diesel vehicles.
Among those who are decided on the issue, 67 per cent of Canadians, and majorities in every demographic, oppose the Trudeau government’s ban.
Now let’s look under the hood.
Canada does not have the electricity to charge these battery-powered cars. The government hasn’t presented any plan to pay for the power plants, transmission lines and charging stations for these government-mandated vehicles.
That leaves a big question: How much will this cost taxpayers?
Canada’s vehicle transition could cost up to $300 billion by 2040 to expand the electrical grid, according to a report for Natural Resources Canada.
Let’s look at why this will cost so much.
The average Canadian household uses about 10,861 kWh in electricity per year. The average electric car uses about 4,500 kWh of energy per year.
The average household’s electricity use would jump by about 40 per cent if they bought one EV and charged it at home.
Canada is home to 24 million cars and light trucks that run on gasoline and diesel, according to Statistics Canada.
If all those vehicles were powered by electricity and batteries, that fleet would use about 108 million mWh of power every year.
For context, one large CANDU nuclear reactor at the Darlington nuclear plant in Ontario generates about 7,750,000 mWh of power per year.
Canada would require about 14 of these reactors to power all of those electric cars.
Building a large nuclear reactor costs about $12.5 billion.
That’s a price tag of about $175 billion just for all the power plants. The Natural Resources report estimates the transition to electric vehicles could cost up to $300 billion in total, when new charging stations and power lines are included.
Who would be paying that tab? Normal Canadians through higher taxes and power bills.
Canadians cannot afford the cost of these mandatory electric vehicles because they’re broke.
Canadians are broke largely because of high taxes and high inflation, both driven by the Trudeau government’s wasteful spending.
About half of Canadians say they are within $200 of not being able to make the minimum payments on their bills each month. That’s also known as barely scraping by.
Food banks are facing record demand, with a sharp increase in working families needing help. That means parents who are holding down jobs are still depending on donated jars of peanut butter to feed their kids.
Rubbing salt into the wound, the federal government also put taxpayers on the hook for about $30 billion to multinational corporations like Honda, Volkswagen, Stellantis and Northvolt to build EV battery factories.
The roadside sobriety test is complete, and the Trudeau government is blowing a fail on this policy.
Canadians are opposed to the Trudeau government banning the sale of new gasoline and diesel-powered vehicles.
Canada does not have the electricity to charge these battery-powered cars.
Canadians don’t have the money to build the new power plants, transmission lines and charging stations these vehicles would demand.
It’s time to tow this ban on new gas and diesel vehicles to the scrapyard.
Franco Terrazzano is the Federal Director and Kris Sims is the Alberta Director of the Canadian Taxpayers Federation
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