Consumers will pay the price for electric vehicle quotas

The electric car sales quotas imposed on manufacturers by the Quebec government will eventually increase the marginal cost of conventional vehicles by $1,100, reveals a Viewpoint published today by the MEI. Consumers will end up paying this "tax" through higher car prices.

Starting with their 2018 models, carmakers will be faced with electric and hybrid vehicle sales quotas. Most car makers will have to accumulate a number of "credits" equal to 3.5% of their sales, increasing gradually to 22% in 2025. Carmakers that fall short will have to buy the credits they're missing, either from other carmakers that have accumulated surplus credits or directly from the government.

"It is likely that carmakers will fall short of these targets, especially since the quota of 3.5% for 2018 is above the present share of total motor vehicle sales that are electrics and hybrids, which stands at 1.08%," explains Germain Belzile, Senior Associate Researcher at the MEI and author of the publication.

These quotas will therefore increase the marginal cost of a conventional vehicle, and so the price that consumers must pay will also increase. At 3.5%, the increase in the marginal cost will be $175 in 2018, but as the quota increases to 22% by 2025, that extra cost will also increase, to $1,100 per vehicle.

"This extra cost will put upward pressure on car prices in Quebec and reduce car sales. This de facto tax is in fact a regressive one, since poorer households wanting to buy cheaper vehicles will face relatively steeper price increases than households with higher incomes acquiring more luxurious vehicles," adds Mr. Belzile.

The only real winners from this policy will be carmakers that produce exclusively electric and hybrid cars and those with total sales below 4,500 vehicles. These carmakers will obtain up to four credits per vehicle sold, most of which they would then be able to resell. This is the equivalent of a subsidy of $20,000 per vehicle for these manufacturers, on top of the existing purchase subsidies for consumers, which are an inefficient and very expensive way of reducing GHG emissions.

"Given these serious shortcomings, the government should think again and abandon its electric vehicle sales quota policy," concludes Germain Belzile.
The Viewpoint entitled "Electric Vehicle Sales Quotas: A Tax in Disguise" was prepared by Germain Belzile, Senior Associate Researcher at the MEI.