Recommendations for Budget 2005
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Green Cars —
Protecting the Climate and Canadian Jobs

Summary
The global campaign against climate change is going to dramatically alter the domestic auto industry, a pillar of Canada’s economy. The federal government must ensure that this sector remains competitive by creating demand for more climate friendly vehicles while supporting the made-in-Canada manufacture of these same vehicles.

Investment
$500+ million over five years.

Benefits for Canadians

• meet Canada’s Kyoto target for passenger vehicles
• reduce smog causing pollutants such as sulphur dioxide, nitrogen oxides and particulate matter and protect the health of Canadians
• reinforce global progress toward reducing greenhouse gas emissions, spurring investment and employment in fuel cell and hybrid vehicle manufacturing and R&D
• ensure that Canada’s auto industry is strengthened by the global trend toward more climate friendly vehicles

Background and Rationale
Cars and light trucks produce 12 per cent of Canada’s greenhouse gas emissions and are the largest single source of emissions in the transportation sector. Because fuel economy standards have not changed since the mid-1980s, carmakers have directed design improvements to everything but fuel efficiency. Worse, carmakers have also marketed vehicles such as SUVs as passenger vehicles, pushing emissions up still higher. Emissions from light-duty trucks, such as SUVs, have increased 80 per cent since 1990.

The federal government’s Climate Change Plan 2002 commits the federal government to reducing greenhouse gas emissions from passenger vehicles by 5.2 megatonnes by 2010.¹³ To achieve this target, the federal government sought to negotiate a voluntary reduction with carmakers, but after four years of negotiations carmakers have refused to do their part for Kyoto.

Canada should look to California for a new policy framework for getting more climate friendly vehicles on Canadian roads. In 2002, California enacted legislation requiring carmakers to reduce greenhouse gas emissions from their vehicles and is currently considering regulations that set an emissions reduction target of 30 per cent by 2015.¹⁴ North Eastern U.S. states such as New York, Vermont and Massachusetts have already expressed their intention to adopt California’s new regulations, comprising approximately 30 per cent of the North American auto market.¹⁵ Canada would help drive a continental shift to cleaner vehicles by enacting regulations similar to California’s.

This movement toward cleaner cars at the state level in the U.S. should also be a wake-up call for Canada. The auto industry accounts for approximately one-quarter of total Canadian exports, making it Canada’s largest export sector — with 97 per cent of our automotive exports going to the United States.

Internationally, Japan, the European Union and Australia are already reducing greenhouse gas emissions from their vehicle fleet.

Automakers are attempting to resist and forestall these global trends toward more climate friendly vehicles. To protect Canadian jobs and the environment, the federal government must be proactive and develop a strategy to ensure that Canada’s auto industry adapts and is strengthened by the global campaign against climate change.

Regulation is key to any policy package that aims to reduce greenhouse gas emissions from vehicles, especially if the federal government is to ensure fair competition among carmakers. The federal government also has a role to play in building demand for more climate friendly vehicles. Both consumer incentives and an effective government procurement policy are two means of building demand.

On the supply side, the federal government should encourage the production of greener vehicles in Canada by supporting investment in manufacturing facilities for the production of climate friendly vehicles. Opportunities already exist - General Motors is evaluating whether to build hybrid vehicles at both its Ingersoll and Oshawa facilities.

Recommendations

• Establish regulations to reduce greenhouse gas emissions from passenger vehicles, co-ordinating efforts with California and other U.S. states.
• Speed the market penetration of cleaner vehicles by mandating that all government vehicle purchases be low emission vehicles (any car that emits less than 130 grams of GHG per km). Presently less than 15 per cent of the 3,000 vehicles purchased annually by the federal government meet its own definition of a green vehicle.
• Establish a 100,000 “Green Car” campaign (any car that emits less than 130 grams of GHG per km or any light-truck that emits less than 190 grams of GHG per km¹⁶) providing $4,000 to consumers as well as a $500 incentive to dealer for the purchase of a low-emission vehicles. This performance based rebate would be eliminated when Canada’s regulations limiting greenhouse gas emissions from passenger vehicles come into effect in 2010. This measure would cost approximately $450 million over 5 years.
• Provide businesses with an immediate tax deduction of 100 per cent of the cost of vehicles that emit less than 130 grams of carbon dioxide per kilometre. Under current rules low-emission vehicles are treated the same as inefficient vehicles and can be expensed at the rate of 30 per cent per year (40 per cent for taxis and rental vehicles). The UK introduced such a measure in 2002.
• Introduce a sliding scale for the inclusion into income of the use of a company car by an employee. Currently 24 per cent of the vehicle list price is added to an employee’s taxable income for the personal use of a company vehicle. All vehicles are currently treated the same from the dirtiest to the most efficient. The UK recently introduced a tax measure whereby inefficient vehicles, such as the Ford Expedition, are taxed at 35 per cent and lower emission vehicles, such as the Honda Civic, are taxed at only 15 per cent.
• Support and encourage investment in climate friendly car manufacturing in Canada. General Motors is evaluating whether to produce hybrid vehicles at its Ingersoll and Oshawa plants. (The federal government has established a $500 million fund for supporting auto investment in Canada. Ontario has matched that amount.)

Alternative and Complimentary Policies
The federal government is already pursuing a number of policy initiatives to increase the market penetration of climate friendly vehicles and to encourage better fuel consumption habits among Canadians. The effectiveness of these initiatives will dramatically increased by implementing regulation and incentive programs as outlined above.

Aside from the aforementioned fiscal recommendations, the federal government could enact market share regulations similar to California whereby carmakers must meet increasingly stringent minimum sales criteria for specific vehicle types. California’s Zero Emission Vehicle (ZEV) program, for instance, requires that 10 per cent of each carmaker’s sales must meet ZEV equivalency.¹⁷ A feebate system could also be implemented to increase market penetration of low emission vehicles. Under this policy, a fee is placed on the sale of inefficient vehicles and the revenue from the fee is used to finance a rebate for the purchase of climate friendly vehicles. The rebate for “Green Cars” as described in this text, would support and enhance all of these policy alternatives.

Contact
Shawn-Patrick Stensil
Sierra Club of Canada
613-241-4611

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