Final report from the Advisory Council on Climate Action: section 4

Transportation

Context

Sources of transportation emissions consist of passenger transportation, including cars, light trucks, and motorcycles; heavy-duty trucks; rail; aviation; and marine. In general, there are three main ways to reduce emissions from transportation: improve efficiency to use less fuel; switch to cleaner fuels, including electricity; or through shifts to lower-emissions forms of transport or avoiding unnecessary trips. The best strategy in any given transportation subsector depends on a number of factors, like technological development, cost-effectiveness, convenience, and infrastructure availability. To date, regulations to improve fuel efficiency have been a primary tool to reduce emissions from passenger vehicles and freight. Complementary policies, like carbon pricing and the clean fuel standard, will provide additional impetus to reduce the emissions intensity of the transportation sector.

However, we see an opportunity to accelerate the adoption of Zero Emission VehiclesFootnote 4  (ZEV) in the near term. Many ZEV technologies, particularly battery-electric and plug-in hybrid vehicles, are already widely commercially available and a viable option for many Canadians. Recent polling by Abacus Data and Clean Energy Canada indicates Canadians are interested in electric vehicles; most respondents (64%) said that if it were up to them, electric cars would become the majority of vehicles that consumers drive at some point in the future. When asked what the ideal timing for this shift would be, 79% hoped it would happen in 10 years or less, including about half (49%) who would like to see it within 5 years.

Some of the key barriers to ZEV adoption include higher up-front costs, concerns about refueling infrastructure availability and vehicle range, lack of supply at dealerships, and low consumer awareness.

In a letter to the Minister of Finance and the Minister of Environment and Climate Change in March 2019, we made some initial recommendations to address these barriers. These included:

  • A federal purchase incentive of up to $5,000 to help Canadians purchase zero emissions vehicles or plug-in hybrids for a period of at least two years
  • Encouraging manufacturers to set voluntary supply targets for zero emission and hybrid vehicles
  • Scaled up investment in enabling measures, including charging infrastructure, research and development efforts, and consumer awareness programs

Budget 2019 proposed funding for a purchase incentive of up to $5,000 for fully electric vehicles, as well as tax incentives to encourage businesses to invest in ZEVs. The federal ZEV incentive program was launched following the Budget and has been in place since May 1st, 2019. The Budget also proposed additional funds for investment in charging infrastructure, and to support efforts to establish voluntary supply targets with manufacturers.

While these measures send positive signals and will increase uptake of ZEVs, we do not believe they will be sufficient to meet the targets set by the Government of Canada to increase ZEV sales to 10% of new vehicle sales by 2025, 30% in 2030, and 100% by 2040. As noted in our interim recommendations, currently only about 2% of new vehicles sold in Canada are ZEVs.

In our view, there is a need to send a clear, regulatory signal to manufacturers to increase the supply of ZEVs. By providing purchase incentives, investing in infrastructure, and establishing voluntary agreements now, there will be sufficient time to allow Canada’s ZEV market to mature and for vehicle manufacturers to plan for this transition.

There are emerging opportunities for electrification in other transportation subsectors that may also require government policy support to realize over the medium term. A smooth transition to a low-carbon transportation system will need to be guided by a comprehensive approach that leverages strategies to reduce emissions across all subsectors and takes into account opportunities to better integrate different modes of transportation.

Zero Emission Vehicle mandate

In our interim recommendations, we suggested ZEV supply agreements with vehicle manufacturers could initially be voluntary targets, but that the federal government should be prepared to implement mandatory sales targets if voluntary measures do not sufficiently address supply issues.

Regulations requiring manufacturers to ensure a certain percentage of their fleets are ZEVs, a policy also know an as a ZEV mandate, are already in place in a number of jurisdictions. In Canada, a ZEV mandate is in place in Quebec and under development in British Columbia.

As other jurisdictions have shown, ZEV mandates can complement other policies, including Light Duty Vehicle (LDV) fuel efficiency regulations. While Canada’s current LDV regulations incorporate some provisions that encourage manufacturers to produce ZEVs, this is not the primary intent of the regulations. A stronger, targeted policy would send a more effective signal to manufacturers.

Near-term voluntary targets would help manufacturers prepare for a phase-in of regulatory requirements. Many experts now project that electric vehicles will reach price parity with internal combustion vehicles as early as 2022-23. Given that regulatory processes typically require years for consultation, policy design and legislative drafting, the Government of Canada should begin efforts in the near term to introduce a ZEV mandate. This regulatory requirement would build on voluntary sales targets, and provide long-term certainty with sufficient lead-time to ensure that manufacturers are well-positioned to comply at a reasonable economic cost. A ZEV mandate should be ready for implementation by 2022-23, to coincide with projected price parity of electric vehicles and to support the achievement of the current target that 10% of new vehicle sales in Canada will be ZEVs by 2025.

Case study: ZEV mandates in other Jurisdictions

California first introduced a Zero Emission Vehicle requirement in 1990, which has evolved over the past 30 years. Manufacturers are required to produce ZEVs and plug-in hybrids in sufficient numbers to meet credit requirements, which rise over time. ZEVs are awarded credits based on factors like vehicle range. Current projections indicate that the regulation will require about 8% of sales to be ZEVs by 2025. California’s ZEV policies have contributed to technological innovation and development. Several U.S. states – including Connecticut, Maine, Maryland, Massachusetts, New York, New Jersey, Oregon, Rhode Island, Vermont, and most recently, Colorado, have adopted California’s policy. Recent data shows that ZEV registrations in states with mandates are about 4.5 times higher than in other states, including those with targets or other policies.

In January 2018 a ZEV regulation very similar to that of California entered into force in Quebec. Quebec’s policy uses the same credit system as California, but requirements are phased in slightly more gradually over the first two years of the policy. British Columbia is also in the process of designing and implementing a similar policy in order to meet its targets that 10% of new vehicle sales will be ZEVs in 2025, rising to 30% in 2030, and 100% by 2040.

China’s New Energy Vehicle (NEV) mandate policy entered into force in April 2018, and uses the same general premise of awarding credits based on vehicle characteristics and requiring manufacturers to meet certain minimum thresholds. The NEV mandate is linked to China’s fuel efficiency regulation; manufacturers can use surplus NEV credits to offset corporate average fuel consumption credits, which creates additional flexibility for compliance with the existing fuel efficiency regulations.Analysis from the International Council on Clean Transportation (ICCT) estimates that China’s NEV share of new passenger vehicle sales will go from roughly 2% in 2017 to about 3% in 2019 and 4% in 2020. Combined with NEVs in the commercial sector, the Chinese government would achieve its cumulative target of 5 million NEV sales in 2020.

Designing a ZEV mandate in consultation with stakeholders will also provide an opportunity to examine how Canada is positioned to capitalize on shifting and emerging trends in global auto manufacturing. Major vehicle manufacturers have announced significant investments in ZEVs, largely in response to growing momentum around the world to accelerate the shift to low-carbon vehicles. If Canada does not act decisively, there is a risk of losing out on both adequate supply of ZEVs to meet consumer demand and on manufacturing and component exports, from batteries to rare and other minerals.

Recommendation:

  • The Government of Canada should begin a regulatory process to implement a Zero Emission Vehicle mandate by 2022-23 that will position Canada to ensure that ZEVs represent at least 10% of new vehicle sales in 2025, 30% in 2030 and 100% in 2040.

Building a low-carbon transportation system

While emissions from ground freight, off-road and other vehicles are currently projected to grow, there are a number of emerging opportunities to reverse this trend. A comprehensive approach will require increased efforts to scale up electrification and switching to other clean fuels, as well as shifts from higher- to lower- emitting modes of transportation.

The rapid technological improvement that has resulted in more compact, powerful, and affordable batteries for electric passenger vehicles also opens significant opportunity for expanded electrification of other modes of transit. There are growing numbers of examples of new technologies, prototypes, and demonstration projects that point to a near-tipping point where widespread electrification of some types of aviation and marine vessels, ports, and other commercial and freight vehicles could become commercially viable. Expanding fleets of electric buses are already on the roads in several Canadian cities. Municipalities are exploring how to reduce both emissions and operating costs by electrifying vehicles that they use to provide services to citizens, from waste collection, to ice resurfacing, to maintaining parks and utility services. Companies are piloting the use of electric trucks, both in urban centers and over longer distances. Bloomberg New Energy Finance’s (BNEF) 2019 Electric Vehicle Outlook included detailed projections on the commercial vehicle market for the first time, and forecasts that by 2040, 56% of light commercial vehicle sales in Europe, the U.S. and China will be electric models, as well as 31% of medium commercial vehicle sales and 19% of heavy trucks. BNEF also projects that 81% of municipal bus sales will be electric by 2040. Increased use of clean electricity for various modes of transport would significantly decrease emissions and improve air quality.

Emerging opportunities to electrify transportation by air, land, and sea

Ferries: In Norway, an electric ferry using battery technology from Canadian company Covrus Energy Storage System has been operating since 2015. Based on the success of this ferry – which reduced operating costs by 80% and carbon dioxide emissions by 95% – Norway is continuing to rapidly expand its fleet of electric ferries. In 2018, Washington State announced plans to convert its three largest ferries to hybrid-electric engines, and install onshore charging stations to maximize the use of clean electricity. British Columbia has announced plans to add hybrid-electric ferries to four of its routes over the coming years.

Airplanes: Short-range flights may be the next mode of transportation to benefit from electrification. British Columbia-based Harbour Air recently announced a partnership with magniX, a company that offers electric propulsion systems for aircraft, to build the world’s first all-electric airline. Harbour Air operates commercial service to 12 destinations with a fleet of 40 plans, which it eventually plans to convert into a fully electric fleet. The first aircraft is scheduled to begin test flights later in 2019.

Trucks: Quebec-based Lion Electric Company is expanding from its established offering of electrified school buses, and plans to deliver its first urban truck with a range of up to 400 km later in 2019.

Opportunities for scaled-up electrification go beyond on-road transportation. For example, the Port of Vancouver was one of the first in the world to install shore power, a technology that enables compatible ships to shut down their diesel engines and use land-based electricity. Since 2009, shore power installations at the Port of Vancouver cruise ship terminal have eliminated 582 tonnes of air pollutants and 20,757 tonnes of greenhouse gases. Shore power is now available at two container ship terminals as well. The Port of Vancouver encourages shipping lines to use shore power by offering discounted harbor dues for ships that are shore-power enabled.

Further action could be taken to enhance the use of electricity and other low-carbon fuels in ports across Canada. The Government of Canada should explore possible tools and approaches to incentivize the adoption of low-carbon technologies by federally regulated entities. For instance, there could be opportunities to improve the environmental performance of airports by electrifying ground support equipment.

Options for electrification in other types of off-road vehicles are also emerging, including in traditional resource sectors. For instance, Suncor recently announced that it would add 150 autonomous electric haul trucks to its oil sands mining operations over the next six years. Goldcorp is constructing its Borden project as all-electric mine, with anticipated savings of $9 million annually on diesel, propane and electricity. As resource extraction evolves with new technologies to reduce its environmental footprint and becomes increasingly data-driven and automated, shifts to the labour force and skills required will also need to be taken into consideration.

While electrification is one promising strategy to reduce emissions from the transportation sector, other approaches will also have important roles to play. Biofuels and other low-carbon fuels may be better suited to reduce emissions in some segments of the transportation sector. For instance, Gatineau, Quebec-based biofuel producer Agrisoma has developed a jet fuel alternative made out of Carinata, an oilseed crop. Agrisoma and refinery World Energy have partnered with Australia's Qantas Airway and United Airlines on two long-distance flights to date, most recently replacing 30% of the petroleum jet fuel on a commercial flight from San Francisco to Zurich. Carinata has additional benefits for soil health, complements existing crop production without replacing food crops, and yields a high-protein animal feed as a by-product of biofuel production.

A comprehensive approach to reducing transportation emissions will involve pursuing deep reductions within each mode of transportation – including trucks, ports, and planes – while simultaneously shifting from higher- to lower- emitting modes of transportation. A system with better linkages between modes and more coordination on improved logistics to consolidate transportation of goods would both improve efficiency and reduce emissions. This is a complex undertaking that would require targeted infrastructure investments and ensuring that the right incentives are in place. There are, for instance, near-term opportunities to reduce emissions by shifting the transportation of goods from trucks to rail. However, reliability for time-sensitive deliveries by rail is a key barrier that would require additional capital and infrastructure investment to overcome.

A strategic effort by the Government of Canada could help to accelerate the shift towards a more integrated, efficient, low-carbon transportation system. The Government of Canada could play a role in convening relevant stakeholders to develop a strategy and ensure that federal policies and investments are coherent with this direction, working with provinces and territories to target infrastructure investments as appropriate. The Canada Infrastructure Bank should be engaged in this process. The Government of Canada can also play a role in ensuring that federally regulated entities, such as ports and airports, contribute to the accelerated adoption of low-carbon technologies.

Recommendation:

  • The Government of Canada, working with partners and stakeholders, should develop an integrated strategy to reduce emissions across modes of transportation, including actions to support modal shifts. The strategy should identify opportunities to accelerate the adoption of low-carbon technologies by federally regulated entities and ensure that federal policies and investments in infrastructure are targeted and coherent.
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