Canada: Canada Enacts Regulations On Sale Of Zero-Emission Light-Duty Vehicles
Automotive Bulletin

On December 20, 2023, the Government of Canada enacted Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (the "ZEV Regulations"). The ZEV Regulations affect companies that manufacture and import light-duty vehicles, and will further Canada's commitment to net-zero emissions by 2050.¹

The ZEV Regulations were announced in draft form in December 2022.² They apply to light-duty vehicles (passenger cars, SUVs, and light trucks), which account for about half of Canada's greenhouse gas emissions from the transportation sector.³ Under the ZEV Regulations, automobile manufacturers and importers must meet annual zero-emission vehicle regulated sales targets — these targets begin at 20% for model year 2026, and they increase yearly to 100% for model year 2035 and beyond.

Following the draft proposed ZEV Regulations in December 2022, there was a 75-day comment period, during which interested parties submitted written comments, as well as various group information sessions and individual meetings with regulated manufacturers and importers. The Government of Canada received 215 unique comments from stakeholders on the proposed ZEV Regulations, which are summarized in the Regulatory Impact Analysis Statement published in the Canada Gazette.

Among other things, the ZEV Regulations in their final form maintained the stringency of targets proposed in the draft form, despite comments from different stakeholders that the targets be more, or less, stringent. According to the Regulatory Impact Analysis Statement, the targets are said to strike the "appropriate balance of both challenging regulated entities to accelerate the transition to ZEVs", and "ensuring that the targets are achievable". The Government of Canada also received feedback challenging the definition of "zero-emission vehicle" under the proposed ZEV Regulations, but decided to maintain the proposed definition. Thus, "zero-emission vehicle" captures only electric vehicles, plug-in hybrid electric vehicles, or fuel cell vehicles — as these are the "only vehicles capable of operating with zero emissions at this time". According to the Regulatory Impact Analysis Statement, the introduction of new vehicle technologies capable of operating with zero emissions can be addressed when more is known about them.

The final form of the ZEV Regulations does differ in a few respects from the draft announced last December. The ZEV Regulations have always contained a "credit system", such that companies that exceed their ZEV sales targets can generate "credits" that can, in broad terms, be banked or traded. But in contrast to the draft, the final version of the ZEV Regulations contains a new set of provisions aimed at "early ZEV credits" for the sale of ZEVs in model years 2024 and 2025 within a specified threshold. Early ZEV credits cannot be traded and cannot be used after model year 2027. The purpose of the early ZEV credits is to incentivize the sale of ZEVs in the short term and create additional compliance options for companies.

The final ZEV Regulations also include a revised approach to credits for investments in charging infrastructure, with a focus on fast-charging infrastructure. Under these provisions, companies may generate credits for investments in fast-charging infrastructure projects that meet certain conditions. Finally, in response to feedback from stakeholders, the ZEV Regulations include certain technical modifications to the treatment of plug-in-hybrids under this regime.

Footnotes

1. Arising under the Canadian Net-Zero Emissions Accountability Act.

2. Click here to read Fasken's summary at that time.

3. Canada's Electric Vehicle Availability Standard (regulated targets for zero-emission vehicles) from Environment and Climate Change Canada.

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