Québec becomes first Canadian jurisdiction to impose zero-emission vehicle targets on manufacturers

In late 2016, Québec became the first province in Canada to introduce a zero-emission vehicle ("ZEV") mandate through legislation. While BC and Ontario have introduced incentives for sales of zero-emission vehicles, Québec's new law is more imposing. It places the onus directly on manufacturers to meet minimum ZEV sales targets.

Though the legislation has already been passed, key regulations have yet to be approved. On August 19, 2017, the public consultation period for those regulations will end, closing the window for industry to weigh in.

The legislation is expected to become operational in 2018.

Québec's new zero-emission vehicle law

On Oct 26 2016, Québec's Bill 104, An Act to increase the number of zero-emission motor vehicles in Québec in order to reduce greenhouse gas emissions and other pollutants (the "ZEV Act") received Royal Assent. The ZEV Act compels vehicle manufacturers to increase their ZEV sales and leases in Québec. The Act establishes a cap-and-trade system, where minimum sales of applicable vehicles are imposed on the industry and manufacturers earn tradeable "credits" which can be traded with other manufacturers.

Modelled after a successful California policy, ZEV laws have been adopted in 10 US states including New York, Massachusetts, Ohio and Vermont. The ZEV Act is similar to these US laws and is expected to spur ZEV circulation in Québec from an estimated 25,000 in 2018,
up to 130,000 by 2022 and 320,000 by 2026.[1]

Who is affected?

The ZEV Act applies to any car manufacturer who has sold or leased at least 4,500 new vehicles in Québec, on average, in each of the last three model years. The ZEV Act applies to 99% of auto sales in Québec, but small manufacturers in the remaining 1% can opt in voluntarily.

The ZEV Act is limited to manufacturers; it imposes no obligations on automobile dealers and other intermediaries between manufacturer and consumer. Motorcycles, mopeds and non-road-eligible vehicles are also not affected by the new ZEV Act.

How it works: cap-and-trade for cars

The ZEV Act is essentially a cap-and-trade system, but instead of capping carbon emissions, it puts an annual minimum percentage on the number of ZEVs sold or leased in the Province. Each year, the minimum rises by a prescribed amount. For example, in 2018, the legislative target is set at 3.5%. By 2025, the target is projected to increase to 22%.[2]

In order to meet the Provincial minimum, the Ministry of Sustainable Development, Environment and the Fight against Climate Change ("MSDEFCC") will assign each manufacturer a target number of "credits" to obtain each year. Credits are earned based on the number of applicable vehicles sold and how effectively each vehicle's technology curbs emissions. For example, selling a battery-powered vehicle that can travel 300 km without a charge will earn more credits than one that can only travel 150 km without a charge. Similarly, selling full-electric vehicles (such as hydrogen-fuel-cell cars) will earn more credits than selling hybrid vehicles.

Credits can be sold and traded between manufacturers, as long as trades are reported to the MSDEFCC. Manufacturers who exceed their credit target in a given period can carry those credits forward to trade in future periods. Manufacturers who may not otherwise hit their targets can purchase credits to achieve compliance.

Consequences for non-compliance

Manufacturers must report to the MSDEFCC annually by June 1 of the following year, detailing sales and leases of eligible vehicles and any other prescribed information.

Every three years, the Provincial Government will assess whether manufacturers have met their credit targets for each year of that period. Non-compliant manufacturers will be charged in proportion to how far they fell short.

The first assessment will begin on June 1, 2019, the due date for 2018 reporting. Because of the 3-year assessment period, manufacturers will be able to retroactively claim credits earned in 2016 or 2017, though compliance will only be required for 2018.

Next steps for manufacturers

Québec's ZEV Act is one of the most ambitious in North America. While many have lauded Québec for taking bold action to curb greenhouse gas emissions, some industry representatives have criticized the ZEV Act for not mandating Government investment in ZEV infrastructure, such as ZEV charging and refueling stations. Whether manufacturers like it or not, the ZEV Act puts the onus on them to ensure that sales of ZEVs rise, which may call for creative measures in advertising, research and development and/or incentives to retailers and consumers.

This article was prepared with the assistance of Chris Hummel, a summer law student in Gowling WLG's Toronto office.