$52.5 Billion: Understanding Canada’s Wasteful Electric Vehicle Subsidies

Ottawa is committed to achieving 100% zero-emission vehicle (ZEV) sales by 2035 for all new light duty vehicles. A closer look at the timeline the Trudeau government envisions reveals how ambitious this plan really is: 

By 2026: 20% new passenger vehicle sales will be ZEVs.

By 2030: 60% new passenger vehicle sales will be ZEVs.

By 2035: 100% new passenger vehicle sales will be ZEVs.

Electric vehicles are predicted to remain a relatively small share of the vehicle market, growing from less than 1% of sales in 2017 to 9.1% in Q4 2022. Those 40% increments in five year periods are inconsistent with actual Canadian demand for electric vehicles.

The governments of Canada, Ontario, and Quebec have announced a combined $37.7 Billion subsidy to support EV battery manufacturing by Northvolt, Volkswagen and Stellantis through 2032-33. It could take 20 years for Canada and these provinces to break even on this investment.

According to the Parliamentary Budget Officer (PBO), up to $52.5 Billion in government support has been earmarked for EV investment. The PBO estimates federal support to be up to $31.4 Billion, and provincial support to be up to $21.1 Billion. The federal government also offers point-of-sale incentives of $2,500 to $5,000 for consumers who buy or lease an EV.

These subsidies are not worth the price tag. Despite all of this government intervention, EVs made up only 3% of light-duty vehicle registrations in 2022, up from 2.3% in 2021. Canadian demand for electric vehicles is actually dropping at a staggering rate. A recent national survey by AutoTrader found that EV interest among car buyers has declined for two consecutive years: “So far in 2024, 46% of respondents who don’t own an EV said they would buy one. That number is down from 56% interested in 2023, and 68% in 2022.”

Furthermore, a large increase in EVs could place a considerable strain on the electrical grid. The Fraser Institute predicts annual EV electricity demand will increase between 46.8 terawatt hours (7.5% of total generation) to 95.1 terawatt hours (15.3%) by 2035.

The federal government’s push towards EVs is impractical and out of touch with the financial realities faced by most Canadians.

Demand For EVs: Rural-Urban, Left-Right, East-West Divides

In a Globe and Mail op-ed, Scott Stirrett described Canada’s urban-rural divide in dramatic terms: “In Suzanne Collins’s The Hunger Games, a stark division exists between the Capitol’s opulence and the struggling districts, vividly portraying a world rife with both economic and political disparities, a scene that is nearly identical in Canada, where a growing economic divide between urban and rural areas precipitates deep rifts.”

Canada’s largest metropolitan areas – Montreal, Toronto, Vancouver, Ottawa-Gatineau, Calgary, and Edmonton – have become increasingly prosperous. While these regions are home to 47% of Canada’s population, they created approximately three quarters of all new jobs between 2016 and 2020. 

Canada’s current political divides are largely based on the rural-urban split. In the 2019 Canadian federal election, the median population density for the 157 Liberal ridings was more than 38 times higher than that of the 121 Conservative ridings. Research by professors at the University of Calgary and Western University found that there is “clear evidence that Canadians are currently experiencing the most profound urban-rural divide in support for the major political parties in the country’s history.”

The ideological divide is also apparent on the EV issue. Ontario Premier Doug Ford has faced criticism for weakening EV sales in Ontario. This is unjust, considering that Ontarians simply want gas powered cars more than they want electric vehicles, while ideologically left-leaning provinces like Quebec and British Columbia have significantly higher rates of EV purchases.

The cultural appetite for electric vehicles varies significantly between east, west, and central provinces. The highest percentage of EVs was registered in B.C. (23.2%), followed by Quebec (20.2%), and Ontario (8.2%).

The widening rural-urban divide in Canada shows that the Liberal government is out of touch with everyday Canadians, especially in terms of their appetite for electric vehicles.

Bastiat: Electric Vehicles And Broken Windows

Frédéric Bastiat described what he called the Broken Window Fallacy in his 1850 essay That Which Is Seen, And That Which Is Not Seen. The fallacy argues against the mistaken belief that destruction and the subsequent spending to recover from it are beneficial to the economy.

Bastiat presents a simple story: a shopkeeper’s window is broken by a careless child. The immediate, visible consequence is that the shopkeeper must pay a glazier to repair the window. This spending might seem beneficial because it provides work for the glazier, who in turn might spend the money on other goods, thus stimulating the economy. This line of thinking suggests that the broken window creates economic activity and is therefore good for society.

Bastiat asks us to consider that which we do not see – the unseen consequences. If the window had not been broken, the shopkeeper would have been able to use that money to purchase something else, like a new pair of shoes or an investment in his business. This spending would have created economic activity in a different sector, leading to new goods or services being produced. The money spent on repairing the window does not create new wealth but merely replaces what was lost.

Bastiat argues that focusing only on the visible effects, the glazier’s gain, ignores the opportunity cost – the value of what the shopkeeper could have done with the money if the window had not been broken. The community is not better off because it now has a new window instead of a broken one. The economy is worse off because no new wealth was created, only restored. The idea that money spent on recovery from destruction boosts the economy overlooks the lost opportunities for growth and innovation that would have occurred if the destruction had never happened.

This principle can be seen in the federal government’s enormous EV subsidies. Expending $52.5 Billion on an unaffordable product which is attracting declining interest from consumers is fundamentally a giant lost opportunity.

Poilievre’s Stance

Many in the mainstream media criticize the Conservatives for an alleged lack of attention to environmental policy, with headlines like “Pierre Poilievre’s Conservatives still don’t have a viable climate plan”, “Pierre Poilievre’s plan for tackling climate change remains hazy”, and “The next election will be a climate change election.”

Pierre Poilievre has, however, taken a bold protectionist stance on Chinese produced EVs, while the Liberals are dragging their heels. Confident stances like this are the key to victory – Conservatives can’t win the next election or produce helpful policy on the environment while remaining in a defensive position. Instead, they should go on offense and make the case that big government policy has failed to produce effective results for the Canadian environment.

Let’s compare the Liberal policy on EVs to that of Pierre Poilievre. The Conservative Leader has announced a plan to bring home Canadian jobs by matching American tariffs on Chinese produced EVs and EV components. The plan has four points:

• Introduce a 100% tariff on made-in-China EVs entering Canada.  
• Introduce a 50% tariff on semiconductors and solar cells.
• Introduce a 25% tariff on steel and aluminum products, graphite, other critical minerals, EV batteries, battery parts, permanent magnets and ship-to-shore cranes. 
• Ensure there are no more rebates for made-in-China EVs. 

This move comes following concern that Chinese companies may be trying to set up or exploit facilities in neighbouring countries to avoid tariffs. Liberal Minister of Export Promotion, International Trade and Economic Development Mary Ng declined to comment on the EV consultation, but said: “What we’ve been very clear about with the United States is that Canada will not be a back door for trans-shipments that don’t meet rules.” 

Andrew Evans reported that Beijing has heavily subsidized the Chinese EV sector to undercut global competitors through forced technology transfers, limits on foreign competition, and the dumping of public funds into the industry.

Tariffs can help protect Canadian industry, domestic manufacturers and middle class Canadians from being undercut by cheaper Chinese imports. By making Chinese EVs more expensive, tariffs give local companies a better chance to compete, grow, and innovate, helping to secure jobs and promote industrial development in the domestic Canadian market. 

Chinese manufacturing practices have been criticized for lower environmental and labour standards; by imposing tariffs on Chinese-made EVs, Canada can reduce our support for these practices. Additionally, applying tariffs on electric vehicles from China may help address some national security concerns and improve Canada’s international reputation with our allies like the United States.

Pro-Canadian Tariffs Over Wasteful Subsidies

Fiscally conservative philosophy suggests that governments should only spend taxes on the most necessary items. Excessive government spending can lead to inefficiency, wastefulness, and increased burdens on taxpayers. Boosting the Canadian economy by placing tariffs on Chinese-produced EVs is a far superior plan than pouring taxpayer money into the EV sector. Poilievre’s plan to place protectionist tariffs on Chinese EVs is a pro-Canada policy that protects the Canadian economy and Canadian jobs.