Liberals should abandon EV mandates outright: C.D. Howe Institute

An economic think tank is calling on the Liberals to walk back their 2026 Zero Emissions Vehicle mandate altogether, which it said “faces mounting evidence it was unlikely ever to be met.”

Source: Wikimedia Commons

An economic think tank is calling on the Liberals to walk back their 2026 Zero Emissions Vehicle mandate altogether, which it said “faces mounting evidence it was unlikely ever to be met.”

The Carney government is expected to announce changes to its EV mandate in the coming months, which currently requires 20 per cent of new light-vehicle sales to be electric by next year.

However, a new report by the C.D. Howe Institute said the mandate “remains unrealistic beyond 2026.”

“Even if incentives return, the targets far exceed what consumers are willing or able to buy,” said Brian Livingston, author of the report. “Mandates alone won’t generate the demand or the vehicles needed to meet these goals.”

According to Livingston’s analysis, under the 2026 requirement, automakers would collectively be forced to spend hundreds of millions of dollars to comply or face more than $200 million in penalties.

“The ZEV mandate is usually portrayed as a requirement for Canadian companies to sell a minimum number of ZEVs as a percentage of their total light vehicle sales (their ZEV target). Much like Prohibition in the United States a century ago, the obligation is on the sellers to comply, not the purchasing public,” reads the report.

“A more subtle but more realistic portrayal of the regulations is that they operate as a cap on the number of non-ZEVs that can be sold in Canada, with non-compliant firms potentially facing criminal prosecution.”

For example, if a manufacturer sells 50,000 vehicles, it would then be required to sell at least 10,000 ZEV units to comply with its 20 per cent obligation.

Additionally, the report noted how this burden falls more heavily on domestic automakers, such as GM, Ford, Toyota, Stellantis, and Honda. They would bear higher costs while also facing reduced competitiveness, compared to their foreign-based counterparts.

The government’s credit system is also bound to create significant winners and losers, notes the study.

“Tesla alone could realize significant revenue from these sales. In effect, companies such as Tesla are compensated twice – once when they sell a vehicle and again when they sell the associated credits,” it said.

Prime Minister Mark Carney announced that the federal government would pause its 2026 ZEV target back in September, with plans to unveil proposed changes to targets and credit rules sometime this winter.

Meanwhile, Livingston recommends that Ottawa either “abandon or substantially revise the ZEV mandate.”

If the government decides not to cancel the program outright, the report suggests revising percentage targets to align with market realities, such as “counting increasingly popular hybrid vehicles toward compliance.”

It also recommends “redirecting credit proceeds to the federal government,” or suspending the mandate until trade negotiations between the Canadian auto sector and its trading partners, China and the United States, have reached some sort of agreement.

“The waiver of the 2026 target is only a first step,” said Livingston. “Unless the policy is recalibrated to reflect consumer demand and production capacity, Canada’s ZEV mandate risks driving up costs, shrinking supply, and undermining competitiveness – without delivering meaningful emissions reductions.”