Climate Becomes Industrial Policy, Cities Jump Onboard as EV Popularity Surges

Governments around the world are doubling down on commitments to EV mandates, incentives, supply chains, and jobs, while many cities look at how to electrify fleets and meet demand for EV charging.

This story was originally published by The Energy Mix and is part of Covering Climate Now, a global journalism collaboration strengthening coverage of the climate story.

With public demand for electric vehicles rising fast and an EV price war picking up steam, all signs suggest a tipping point for a technology shift that has long been expected to undercut demand for fossil fuels, reduce greenhouse gas emissions, improve air quality, and offer car owners a more affordable, convenient ride.

There are just as many reasons not to see the shift to EVs as a one-stop silver bullet to transform energy use and get emissions under control. But the federal and some provincial governments in Canada are still doubling down on their commitments to EV mandates, incentives, supply chains, and jobs, while many cities large and small look carefully at how to electrify their fleets and meet demand for EV charging.

The International Energy Agency (IEA) leapt into the conversation in late April with the release of its Global EV Outlook 2023, the latest in an annual series of market assessments. By then, the federal government had committed up to C$13 billion to an EV battery plant in St. Thomas, Ontario that will be Canada’s biggest factory when it goes into operation.

But in a complex, chicken-and-egg dance, where manufacturers need customers, drivers need charging infrastructure, charging station installers don’t want to get too far ahead of demand, and local regulation can be an obstacle, cities play an important role in either accelerating or impeding the transition.

Cities and Towns Push for EV Charging

Generous EV incentives have long made two provinces the epicentre of Canadian EV sales. In March, the Globe and Mail identified Squamish, British Columbia, Vancouver, and eight metropolitan areas in Quebec as the top ten “hot spots” for zero-emission vehicle acquisition, with 4.8 to 6.9 registered ZEVs per 1,000 population in 2022.

But other communities aren’t standing still. News headlines over the last couple of months have touched on:

• Communities like Chilliwack and Duncan, B.C. installing new EV charging stations, while a community planner in Courtenay calls [pdf] for charging stations no more than 25 kilometres apart to combat range anxiety;

• B.C. introducing new rules to ease home EV charging in stratas (condominiums);

• Canada Post rolling out its first all-electric delivery fleet on Vancouver Island;

• Calgary-based utility Enmax Power projecting a massive surge in the city’s EV use, from about 3,000 today to 200,000 by 2035;

• Local surveys that indicate growing interest in EVs in Lethbridge, Alberta, the majority of Alberta EV owners satisfied with their choice, but a northern Alberta driver cautioning that Highway 43 between Grande Prairie and Edmonton still needs charging infrastructure;

• Barrie, Ontario “playing catch-up” with other cities as it moves to electrify its municipal fleet;

• Montreal taking its place as an emerging hotspot for electric medium- and heavy-duty trucks;

• EV demand in Halifax sparking a need for trained technicians.

EVs are still seen as a largely urban opportunity, with smaller towns at risk of being left behind as “charging deserts”. But the balance is starting to shift, with analysts in Canada and elsewhere arguing that electrification is a boon to rural communities and lifestyles.

“Rural communities across the country have their own distinguishing characteristics,” wrote Maria Cecilia Pinto de Moura, senior vehicles engineer with the Cambridge, MA-based Union of Concerned Scientists, in a November, 2021 blog post. “But certain shared characteristics such as driving distances, the type of vehicles driven, and socio-economics are factors which contribute to this larger potential to benefit from vehicle electrification.”

Longer driving distances—an average 38% longer in the U.S.—amplify the savings on repairs and operating costs that city drivers are already taking away from their EVs, Pinto de Moura said. Those savings are even greater when an EV replaces a larger, older, less fuel-efficient vehicle. And rural communities are often more vulnerable to the impacts of climate change, making EVs an important source of backup power when the lights go out.

Those factors have seen the Federation of Canadian Municipalities’ Green Municipal Fund (GMF) support a community-led vehicle charging network in rural B.C., FortisAlberta launch a rural smart charging pilot, and Toronto-based Plug ’n Drive call for a “strategic approach” to EV charging in Ontario’s Bruce, Grey, and Huron counties.

“To stay competitive and relevant in attracting tourists, regions across the province must be prepared for EV drivers looking for easy access to the kinds of charging stations they want,” said Bruce Wallace, president and CEO of the Bruce-Grey area’s Nuclear Innovation Institute. “The charging infrastructure needs to be here.”

More broadly, “most small or rural communities don’t have the resources or population to support public transit or other forms of alternative transportation, so residents and visitors rely on personal vehicles for travel,” the GMF added in a project case study for its project in B.C.’s Kootenays region. “In this context, building a charging network to support a shift toward electric vehicles was the region’s best bet to reduce GHGs while bolstering the local economy through tourism and increasing the adoption of electric vehicles.”

Soaring EV Sales, Exponential Growth

For the Paris-based International Energy Agency, those local factors combined with financing and industrial development add up to exponential growth in global EV sales continuing through the end of the year. The IEA’s 2023 outlook concluded that:

• EV sales exceeded 10 million last year, and are expected to hit 14 million in 2023, for a torrid 35% annual growth rate that is expected to accelerate in the second half of the year. Those vehicles cut greenhouse gas emissions by 80 million tonnes of carbon dioxide equivalent (CO2e).

• EV spending topped US$425 billion last year, a 50% increase over 2021, and only one-tenth of the money traced back to government subsidies—the rest came from car buyers.

• By 2030, the IEA projected EVs will account for more than one-third of all new car sales. The agency’s previous outlook put that figure at just 25%.

• China accounted for about 60% of EV sales last year and has already blown through its 2025 target for “new energy” vehicle sales. EV sales increased by more than 15% in the European Union last year, accounting for one in five new vehicle sales. U.S. sales grew 55%, for an 8% share of all sales. Both the EU and the U.S. “have passed legislation to match their electrification ambitions,” and the IEA also tracked emerging EV markets in India, Thailand, and Indonesia.

• Electric two- and three-wheelers already outnumber cars in emerging markets and developing countries, offering affordable access to the mobility people need. “Over half of India’s three-wheeler registrations in 2022 were electric,” the IEA wrote, “demonstrating their growing popularity due to government incentives and lower life cycle costs compared with conventional models, especially in the context of higher fuel prices.”

• The number of EV models available around the world hit 500 last year, more than double the number on the market in 2018.

• Even if countries adopt no new policies to encourage EV adoption or rein in climate change, the IEA sees oil demand from road transport peaking in 2025, then declining by more than five million barrels per day by 2030. By the end of this decade, EV use drives down global climate pollution by 700 million tonnes.

• But a continuing cultural preference for SUVs and other big cars could offset those gains. “Last year, the growth in sales of these large, energy-intensive models nearly cancelled out the emissions reductions from record electric vehicle sales,” Carbon Brief writes. Larger models accounted for 60% of the available options in China and Europe, and an even larger share in the U.S., the IEA found.

• New battery manufacturing announced through March 2030 will be “more than sufficient to meet the demand implied by government pledges,” and would even be sufficient to meet higher EV demand under the IEA’s Net Zero Emissions by 2050 scenario. “It is therefore well possible that higher shares of sales are achievable for electric cars than those anticipated on the basis of current government policy and national targets.”

• While soaring EV sales are driving up demand for critical minerals, alternatives to lithium-ion batteries—including lithium-free, sodium-ion units—are also on the rise.

And all of these trends are likely to accelerate, with EVs on track to match the price of traditional internal combustion vehicles.

“Our current expectation is that we can see price parity in small and medium-sized electric cars in North America and European markets somewhere in the mid-2020s,” said Timur Gül, head of the IEA’s energy technology policy division. “For larger cars like SUVs and pickups, purchasing parity is likely to come later, probably into the 2030s.”

Climate Policy Is Industrial Policy

By the time the IEA released its findings, Canada had unveiled a series of budget measures that put electric vehicle development and other forms of clean manufacturing at the centre of the country’s industrial strategy. Then in April, Ottawa announced its blockbuster, $13-billion incentive package that lured Volkswagen to build a new EV battery plant in St. Thomas. The CEO of VW’s battery subsidiary, PowerCo, said the plant will be the company’s largest in North America, and possibly in the world.

“St. Thomas was the capital for trains and Volkswagen is the capital for automotive, so we fit well together,” Frank Blome said last month. “Congratulations on outperforming the competition and bringing this factory to St. Thomas.”

The VW plant was already a matter of public record, but its total cost had not yet been announced, when Finance Minister Chrystia Freeland released her 2023 budget in late March. The C$491-billion plan earmarked tens of billions for mostly clean energy technologies, including:

• An 11-year, $25.7-billion investment tax credit for clean electricity that covers 15% of investment costs for more than a dozen power generation, energy storage, and grid transmission technologies;

• A 12-year, $11.1-billion investment tax credit for clean technology manufacturing that covers 30% of project costs;

• $20 billion in redeployed funding through the Canada Infrastructure Bank for clean power and green infrastructure;

• $3 billion to renew the government’s Smart Renewables and Electrification Pathways (SREP) and smart grid programs and invest in Canada’s offshore wind potential, particularly off the Nova Scotia and Newfoundland and Labrador coasts;

• $1.5 billion for infrastructure to extract critical minerals to support battery and electric vehicle manufacturing;

• $1.4 billion over 12 years in income tax reductions for zero-emission technology manufacturers.

“While the transition to clean energy is a nation-building project that won’t be complete in one fell swoop, Tuesday’s budget builds on Canada’s pre-existing climate measures while injecting capital into a clean industrial strategy, helping secure our nation’s many competitive advantages,” Clean Energy Canada Executive Director Mark Zacharias said at the time.

The investments were enough to vault Canada to second place, behind the U.S., in public support for clean energy technology development, independent analysts at Oslo-based Rystad Energy concluded in late April. “The renewable energy investment tax credit raises the value of some projects more than 50% over their lifetime,” Bloomberg Green wrote, citing the Rystad report. “The offering of a 30% tax write-off for renewable technology deployed before 2034 pushes the country ahead of six others, including Turkey, Portugal, Vietnam, the United Kingdom, Sweden, and Germany in the support offered for green energy.”

Meanwhile, the EV mandate released late last year by Environment Minister Steven Guilbeault calls for 20% of all new cars, SUVs, and light trucks sold in Canada in 2026 to run on electricity, rising to 60% by 2030 and 100% by 2035. And Natural Resources Minister Jonathan Wilkinson is working on a mandate letter assignment to get 50,000 new EV chargers and hydrogen stations in place.

In a media explainer published last month, Clean Energy Canada traces the detailed workings of the EV mandate and compares it with similar measures in 16 U.S. states, China, and the European Union. It points to serious problems with the availability of EVs outside British Columbia and Quebec, but notes that almost all popular EV models—all except the Ford 150 Lightning—cost less to own and operate than their internal combustion equivalents.

“Almost six in ten (59%) Canadians correctly believe that an electric vehicle will end up being cheaper for them over a gas vehicle,” CEC writes, citing a December, 2022 poll. And “72% of Canadians believe that it is certain, very likely, or likely that a majority of consumer vehicles sold around the world will be electric.”

Those cost reductions are already a reality, with Tesla accused of setting off a global price war last month by slashing the price of its Model Y electric SUV below the cost of an average new vehicle in the U.S. “People who watch the industry say the Tesla move is just one indicator of a global transformation in the automotive sector, as legacy car makers learn how to make EVs as efficiently as the internal combustion vehicles that still provide most of their income,” writes CBC business columnist Don Pittis.

“Some automakers may be dragging their feet to profit—while they still can—from selling fossil fuel cars and trucks that have been cheaper to build using old technology,” Pittis added. “But once manufacturing costs equalize, the justification for producing internal combustion cars and trucks begins to disappear.”

Far from being a sign of strength, Tesla’s price move might be an attempt to grab market share while it still can, auto historian Dimitry Anastakis, a professor at the University of Toronto’s Rotman School of Business, told Pittis. “There’s going to be dozens of new vehicles that are going to compete directly with Tesla,” he said, so “Musk is really trying to lower costs.”

But with legacy automakers like Ford embracing the price competition, a number of news outlets reported that the price drop had put a damper on Tesla’s financial results, while driving down output from its gigafactory in Shanghai, China.

Embracing the Clean Energy Trade War

In her budget speech in late March, Freeland framed the package of clean economy investments as part of “the most significant economic transformation since the Industrial Revolution,” in which Canada’s major trading partners are investing heavily in the clean economy and net-zero industries. After the U.S. poured US$369 billion into mostly clean energy transition technologies through the 2022 Inflation Reduction Act (IRA), “the sheer scale of U.S. incentives will undermine Canada’s ability to attract the investments” without swift action, the budget document stated. “If Canada does not keep pace, we will be left behind. If we are left behind, it will mean less investment in our communities, and fewer jobs for an entire generation of Canadians.”

It added: “We will not be left behind.”

Less than a month later, Ottawa announced $8 to $13 billion over 10 years to attract VW’s St. Thomas plant, a massive megaproject expected to employ 3,000 people, create as many as 30,000 indirect jobs, churn out a million batteries per year across six production lines, and cover as much ground as 391 football fields, making it the country’s biggest manufacturing plant.

“This is game-changer for our nation,” Innovation Minister François-Philippe Champagne said at the time.

Leading up to the federal budget, news coverage was full of dire warnings of a looming clean energy trade war, with some EU countries objecting to the scope of the IRA incentives in the U.S. as they scrambled to keep up. Days after the VW announcement, analysts at one of Canada’s biggest banks concluded that Freeland’s incentives would keep the country competitive with the wave of investment rolling out south of the border.

The report by TD Economics “essentially refutes the arguments made in recent months by Canadian business leaders [many of them lobbying for carbon capture and storage subsidies—Ed.], who have held up the U.S. IRA as the gold standard in the global race for energy transition investment,” The Canadian Press wrote at the time.

“TD said it has crunched the numbers and the government of Canada has spent $139 billion since budget 2021, or 5% of the country’s nominal GDP, on supports for clean energy development,” CP reported. “The bank said this compares favourably to the U.S. Inflation Reduction Act’s estimated US$393-billion in spending, or 1.5% of that country’s nominal GDP.”

Which meant that, “despite criticism, Canada’s financial support for the clean energy transition is yielding positive results and has established a competitive position relative to the U.S,” wrote TD managing director and senior economist Francis Fong.

Within not very many hours of the St. Thomas announcement, Opposition leader Pierre Poilievre had asked Parliamentary Budget Officer Yves Giroux to look into how much federal money the VW plant will receive, the potential impact on jobs in other sectors, and how long it will take taxpayers to recoup the investment through increased tax revenues.

But by then, Prime Minister Justin Trudeau had already singled out a member of Poilievre’s caucus, Conservative MP Karen Vecchio (CPC, Elgin-Middlesex-London), when she attended the media conference to announce the project.,

“Karen, I’m glad to see you here and it’s great today that you and I, at least, agree on how much it matters to invest in Canadian workers,” the PM said. But “I’ll be direct and honest: You have some work to do to convince your leader Pierre Poilievre, who thinks this investment is a waste of money.”

Trudeau continued his victory lap a week later, telling an audience at the Council on Foreign Relations in New York that a number of U.S. states offered “way, way more money than we put on the table” for VW to bring its plant to their jurisdictions.

“Canada’s clean energy supply, robust social services, environmental standards, and mineral riches ultimately helped to win the day,” CP wrote, citing the PM. “Trudeau said the economic and social benefits of the facility will vastly outweigh the cost because Volkswagen is committed to being a major employer in the hard-hit manufacturing community for decades.”

“Volkswagen said, ‘OK, we’re showing up with a plant that’s not going to be there for five years, or 10 years. It’s going to be there for 50 years, maybe even more,’” Trudeau declared. “‘We need to invest in a community that is going to be invested in itself and in that future.’”

The announcement suggested a continuing appetite for industrial policy in Canada, concluded CBC senior writer Aaron Wherry—and created a careful balancing act for Poilievre.

“The most interesting thing about question period is often what’s not said,” Wherry wrote. And through the last week of April, “the Official Opposition asked not a single question” about the VW deal.

“Poilievre’s relatively restrained response could be put down to simple politics. The Conservatives might be loath to condemn something that will provide employment to people in southwestern Ontario—in a riding held by a Conservative MP, no less. The enthusiastic involvement of Ontario’s Progressive Conservative government likely also makes it harder for Poilievre to criticize the deal.”

But “perhaps the relative lack of condemnation from the Conservative side reflects a new consensus on government support for industry—what might be broadly defined as ‘industrial policy’.”

Promote EVs, Then Use Them Less

But none of that is to say that a change in private vehicle technology will deliver the emission reductions or liveable cities that many communities are trying to achieve, all on its own. Concepts like 15-minute cities are tailor-made to promote transit, walking, and biking by placing basic amenities closer to where people live, work, learn, and play. Meanwhile, developers and planners are looking at a host of alternatives to car ownership, from the e-bikes and -scooters that captured the IEA’s attention, to electric car-shares and mini-cars, to “bike buses” that get students to school and back safely and bring “sheer joy” to their neighbourhoods.

The need to reduce transportation sector emissions “intensifies with every day of inaction,” wrote Thea Riofrancos, a member of the Climate and Community Project, in an opinion piece for The Hill. But EVs are too often “presented as a silver bullet solution—stymieing more creative frameworks for getting people where they need to go and protecting communities and ecosystems from potentially avoidable mining, all while rapidly achieving zero-emissions goals.”

The “insistence on embedding current levels of reliance on personal vehicles in our future transportation system has driven eye-raising projections for global lithium demand and a rush to permit, mine, and process as quickly as possible,” Riofrancos adds, citing the IEA’s recent estimate that lithium volumes could grow 40-fold by 2040. But “expanding mass transit, walking, and cycling in addition to electrifying a reduced, right-sized U.S. EV fleet can improve people’s health and mobility, avoid bottlenecks, and broaden political support for the global green transition.”

That balance came into focus for an EV enthusiast and self-described “battery nerd” who was surprised at the mix of modes he encountered on a visit to Norway, where EVs accounted for 80% of new car sales in 2022 and 90% in Oslo, the country’s capital and largest city.

“We often hear about how Norway is an electric car utopia, an example of a country that went all in on EVs and reaped the benefits,” Micha Toll wrote in January. But that shift is seen as a step toward a sustainable transportation system, not an end in itself.

Norway “has actually begun rolling back EV incentives in favour of reducing private vehicle ownership,” Toll explained. “Walking and cycling are being promoted in big cities like Oslo to help reduce the level of traffic and energy expenditure,” and the country “has also paired policies that promote cycling and walking with a robust public transportation system.”

The net result was a visit where everything was accessible by tram or bus, electric scooters and e-bikes were “plentiful thanks to several shared micromobility companies,” and electric taxis were “readily available” but utterly unnecessary.

So “despite coming to Norway to see an electric car utopia, we ended up discovering first-hand how much more there is to the country’s story of sustainability,” Toll concluded. “And all of this is happening in a country that is so cold that I was walking around with ice on my face without even noticing. If it can work there, it can work here. Wherever here is.”

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