U.S. President Donald Trump’s plan to do away with Biden-era electric vehicle (EV) subsidies highlights the folly of countries competing over who can offer the most lucrative bribes to manufacturers, and companies making decisions based on the whims of political leaders rather than the demands of the market.
Two years ago, the Americans were looking to attract “green jobs” with the US$369-billion slush fund known as the Inflation Reduction Act (IRA), European legislators were frantically drafting their own bill to offer competing subsidies and the Trudeau Liberals were furiously inking multi-billion-dollar deals to entice EV battery manufacturers to this country.
At the time, I described it as a “race to the bottom of the pork barrel that Canada can’t hope to win.”
Now, two years later, the political winds have shifted. On his first day in office, Trump signed a series of executive orders that sent strong signals about the course his administration is charting.
He did away with former president Joe Biden’s (non-binding) order that called for 50 per cent of new vehicle sales to be electric by 2030. He told federal agencies to “pause the disbursement of funds” appropriated through the IRA.
He signalled his intent to prevent California and other states from imposing higher vehicle emissions standards than the federal government. And he is widely expected to petition Congress to remove the US$7,500 (C$11,000) subsidy for new EV purchases.
This could have a profound effect on the sale of EVs, which still can’t compete with gas-powered cars without government support. After Germany got rid of its EV subsidies at the end of 2023, electric vehicle sales dropped precipitously, falling 26 per cent through the first 11 months of 2024 compared to a year earlier.
In Canada, EVs represented nearly 12 per cent of the market in 2023, which is still a ways off from the Trudeau government’s mandate that EVs must make up 20 per cent of new vehicle sales by 2026. And it certainly won’t be helped by the fact that the federal government’s program offering rebates of up to $5,000 on new EV purchases was paused earlier this month after it ran out of money.
Canada’s policies surrounding EV sales and manufacturing seem to have been predicated on the idea that our government, and those of our trading partners, would be dominated by climate alarmists for decades to come. But with voters in many parts of the western world lashing out against left-wing economic and social policies, Canada risks being left holding a very expensive bag.
Unless a future government changes course, all new vehicles sold in this country will be required to be electric by 2035. And Ottawa has promised an estimated $52.5 billion in government supports for EV manufacturing, much of which is being “invested” in battery production.
At least some of those funds will only be released if the plants actually produce batteries; other supports are reportedly predicated on similar subsidies south of the border, so if the Inflation Reduction Act is repealed, Canada will have an easier time getting out of its existing commitments.
Either way, we run the risk of losing millions on “investments” in factories that never become operational, or becoming a “world leader” in producing something that few people actually want to buy.
Making matters worse is the fact that Canada is currently in a state of political limbo. Parliament has been prorogued. We have a lame duck prime minister. Many of the Liberal leadership candidates have turned their backs on various aspects of their own government’s policies.
And everyone expects the Conservatives to take power when the opportunity arises, though no one knows when that will be or how much of the Trudeau government’s agenda they will seek to repeal.
The auto industry — which has invested billions in EV manufacturing, largely on the advice of governments — now find itself in an impossible situation, forced to deal the Trump administration’s abrupt policy changes and uncertainty about the future in Ottawa.
But if global EV subsidies dry up and demand continues to fall short of expectations, automakers will have no one to blame but themselves. This, after all, is the risk they took when they started basing business decisions on the demands of the Davos elite, rather than their own customers.
There’s a lesson in here for governments, as well. While climate change presents a serious global challenge, it should be clear by now that we are not going to solve it by forcing people to drastically alter their lifestyles or by driving up the cost of living.
It wasn’t long ago when smog posed a major problem in our big cities. It was largely solved, not by forcing everyone to ride bikes, but through the invention of the catalytic converter, which removes 98 per cent of pollutants from exhaust fumes.
Similar, tech-based solutions need to be found for global warming, and while electric vehicles may end up being part of the answer, it’s foolish for governments to push them on the public before they’re able to compete with their gas-powered equivalents on both features and price.
It certainly doesn’t make sense to governments to force taxpayers to subsidize the whole endeavour — especially when all their plans can be disrupted based on the whims of whoever is sitting in the Oval Office.
National Post
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