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The hard road towards electrification

By : Pierre-Olivier Pineau

The hard road towards electrification

By Pierre-Olivier Pineau, Chair of Energy Sector Management at HEC Montréal

With the price of gas reaching unheard-of highs, you might think that switching to electric cars will be easy. After all, who would want to pay such high prices for gas?

At the start of March 2022, the average price for regular gas reached close to $2 per litre in some areas of Quebec. This is unprecedented! Since Quebecers use their vehicles to travel a distance of around 14,000 km per year, and the average consumption of the province’s cars is 9.3 litres per 100 km (according to Natural Resources Canada), we are about to very quickly exceed $2,600 a year for gas, or over $50 per week.

However, the government does not seem to believe that gas-powered vehicles will be abandoned on their own account. It has set a goal to have 1.5 million electric vehicles (called EVs, whether these are hybrid vehicles or completely electric) on the road by 2030 and will prohibit the sale of gas-powered cars in 2035. To help Quebec reach these goals, several measures have been put in place. They show that individual choices, without incentives or constraints, would definitely not enable the achievement of these targets.

The Government of Quebec’s three main measures

Higher prices at the pump for GHC emissions

First, there’s the carbon market, which prices greenhouse gas (GHG) emissions released from the tailpipes of gas-powered vehicles. Each litre consumed emits 2.3 kg of CO2 (the main GHG), which adds 8.5¢/litre, based on the price of $37/tonne of GHG that prevailed at the end of February. The price of gas as shown at the pump includes this cost for GHG emissions, which consumers have no choice but to pay. This is somewhat off-putting… yet still not enough to convince may people to change their transportation habits.

Subsidies for electric vehicles

The government’s second incentive is to reduce the cost of EVs by granting a subsidy of $8,000 towards their purchase. The federal government will also provide $5,000, for a total discount of $13,000. Between 2021 and 2026, Quebec thereby expects to distribute $1.1 billion to purchasers of EVs. But this amount will only allow the government to subsidize fewer than 140,000 EVs, when the objective is to have 1.5 million by 2030. If the cost of EVs goes down enough, purchase subsidies will no longer be necessary.

The zero-emission vehicle standard

Since the government does not have a lot of confidence in such a price reduction, it has imposed a third lever: a law aiming to increase the number of zero-emission cars, called the zero-emission car standard (or “VZE” in French, for “véhicules zéro émission”). This standard will be imposed on car manufacturers, who will be required to sell an ever-increasing number of EVs or otherwise face stiff financial penalties. The details involved in this standard are very complex, but it will progressively require car manufacturers to offer an increasing proportion of EVs. This should stimulate the sale of EVs, to the detriment of gas-powered vehicles.

Consumption trends that are detrimental to electrification

While these three measures are extensive in scope, it will be hard for them to offset an underlying trend seen on our streets: consumers’ desire to own more vehicles as well as larger vehicles. Between 2000 and 2020, while the population of Quebec increased by 21 percent, the total number of vehicles increased by 46%. The Société de l’assurance automobile du Québec (SAAQ) also reported that the average weight of vehicles has increased in the past 20 years, from less than 1,300 kg to over 1,500 kg (a 20 percent increase), mainly due to the fact that new vehicles are bigger. Obviously, a larger new model is more expensive and consumes more gas than a smaller new model. Yet up until now, consumers have been happy to open their wallets. This is a highly problematic trend when it comes to electrification, because big vehicles need more batteries to be electrified, and it’s the batteries that are one of the most expensive parts of an electric vehicle. The more that consumers opt for big cars, the more batteries will be needed and the more expensive those cars will be.

To sum up, even if the range of available EVs increases and the government establishes various measures to promote and impose a market in EVs, consumers will be reluctant to switch to electric because they really love more roomy vehicles that are more expensive. Plus, if interest rates increase, this will undercut the purchase of new vehicles by increasing the cost of financing, which means consumers will tend to want to keep their gas-powered vehicles longer… slowing down electrification.

For consumers interested in saving money, there are still the already-familiar measures available: energy-efficient driving (driving more slowly, at a constant speed, without dramatic accelerations), reducing your number of trips (through better planning), carpooling and, when possible, using public transit, a bike, or your own two feet!