The federal government is continuing its efforts to aid and encourage more Canadians to switch over to electric vehicles by topping up, once again, the Incentive for Zero-Emission Vehicles (iZEV) rebate program.
The announcement was made this week as part of the government’s Economic and Fiscal update 2021 report, which reads that $73 million will be added to the program, to “allow Transport Canada to continue offering purchase incentives for zero-emission vehicles until the end of March 2022.”
Originally launched in 2019, the government’s initial investment of $300 million was used up in 20 months. Last year, another $287 million was budgeted into the program, but by the end of October 2021, only around $48 million was left.
The investment of an additional $73 million is now taking the total funding of the iZEV program to almost $660 million since 2019.
President Joe Biden says his Build Back Better plan aims to confront the “existential threat of climate change.” So it’s unfortunate that in privileging union jobs over just about any other goal, a crucial element of the legislation would do just the opposite.
Included in Section 136401 of the House version of the BBB proposal is what looks like a harmless effort to promote electric vehicles. The bill offers a $7,500 refundable tax credit for most EVs. Consumers can then claim additional credits of up to $5,000 — but there’s a catch. To qualify for the full write-off, an EV must be manufactured by union workers, assembled in the U.S. and made with American batteries. Even the base credit phases out for all but American-made cars in five years.
Where to start with this misguided idea?
From Wednesday, drivers in Britain can expect grants of as much as 1,500 pounds ($1,987) on cars that cost less than 32,000 pounds, the Department for Transport said, with about 20 models continuing to receive subsidies. The change means the incentive has now been halved in the space of less than a year.
The decision will make funding to go further and allow more people to make the switch to EVs after sticker prices have come down, the government said. The Society of Motor Manufacturers and Traders said lowering the cap is a setback to the country’s plans to phase out internal combustion powered cars by 2030.
Canadian Prime Minister Justin Trudeau said Monday he has proposed harmonizing rebates with the United States for electric vehicles to avoid a trade conflict over Washington’s go-it-alone plan that risks gutting Canada’s auto sector.
His remarks followed threatened retaliatory tariffs on American goods and Ottawa’s suspension of parts of the landmark North American free trade agreement if Washington went ahead with electric vehicle tax credits for EVs made in US union shops.
“Canada and the United States have been making cars together for over 50 years now. Our supply chains are deeply integrated,” Trudeau told a news conference.
“That is why we are working very hard with the United States on getting them to understand that this proposed EV rebate for American-built cars only is not good obviously for Canada, but also not good for the United States,” he said.
Congress is getting an earful these days from America’s trade partners about the tax credits it is proposing on electric vehicles (EVs).
The complaint is that these tax credits, as written, are biased against imports, and run afoul of global trade rules. Canada and Mexico, for example, are talking about challenging the tax credits at the U.S.-Mexico-Canada Agreement (USMCA). Others, including Korea and Japan, say they might file disputes at the World Trade Organization (WTO). Last week, the European Union (EU) wrote to Senate leadership that, unless rewritten, the EV tax credits “will result in unjustified discrimination” against European cars and car parts. This letter is a game-changer, because the EU is credibly poised to retaliate.
First things first. As I’ve recently written, the tax credits come in at $12,500 per vehicle, but with protectionist fine print. The House’s Build Back Better proposes that $4,500 of this be contingent on the car being made by unionized labor, and that another $500 go to EVs with at least 50 percent U.S. content by value and have a U.S. battery. The full $12,500 tax credit would require both by 2027. The Senate’s version ties $2,500 to final assembly being done by unionized labor, and another $2,500 if the manufacturing facility is located in the US. By 2026, however, the full tax credit would require that both boxes be checked.
“The market economy works best when you have clear and [the] same rules for all market participants, a level playing field,” Ola Kallenius, chief executive of Daimler, told the Financial Times.
German electric-vehicle subsidies are available to all buyers regardless of where the cars are made. Kallenius urged the US to follow suit and “let the market decide”.
The German car lobby, the VDA, has also criticised the plans.
“Unilaterally designed funding criteria contradict transatlantic co-operation, which we would do better to intensify rather than slow down,” said VDA president Hildegard Müller. “We now need joint co-ordinated efforts to achieve climate goals. New trade conflicts must be avoided.”
German manufacturers produced more than 742,000 cars in the US last year, according to the VDA, and employed more than 60,000 people. Volkswagen’s Audi and VW brands are among the top sellers of plug-in hybrid and pure electric cars in the country, as is BMW.
However, Audi does not have a US plant, while neither VW and BMW’s factories nor Daimler’s Mercedes-Benz plants are unionised.
At issue is a provision in the US Build Back Better Act that offers an additional US$4,500 in tax credits to buyers of electric vehicles made by unionized U.S. workers on top of other incentives.
A bilateral spat over President Joe Biden’s proposed EV tax credit escalated Friday with Canada formally threatening retaliatory tariffs targeting the auto sector “and several other sectors of the U.S. economy” if the controversial provision remains intact.
Deputy Prime Minister Chrystia Freeland and International Trade Minister Mary Ng sent a letter to eight Senate leaders outlining Canada’s concerns. It warns of the actions the government is ready to take if the current “discriminatory” tax credit in the Build Back Better legislation is passed.
“If there is no satisfactory resolution to this matter, Canada will defend its national interests, as we did when we were faced with unjustified tariffs on Canadian steel and aluminum,” read the letter, referencing a 2018 trade dispute that Freeland was on the frontlines of at the time.
“Canada will have no choice but to forcefully respond by launching a dispute settlement process under the USMCA and applying tariffs on American exports in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy,” the letter read.
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