IDEAS home Printed from https://ideas.repec.org/p/gue/guelph/2023-01.html
   My bibliography  Save this paper

Economic Implications of a Phased-in EV Mandate in Canada

Author

Listed:
  • Ross Mckitrick

    (Department of Economics and Finance, University of Guelph, Guelph ON Canada)

Abstract

Like many jurisdictions, Canada has set a target of 2035 to eliminate sales of internal combustion engine vehicles (ICEVs) in favour of electric vehicles (EVs), for the purpose of reducing greenhouse gases. Past literature has focused on the engineering and economic aspects of integrating EVs into the passenger transportation system. Herein I examine the implications for the ICEV market of a phased-in EV mandate. I show using partial equilibrium analysis that, during the interval when both types of cars are available, auto companies will overproduce EVs and earn scarcity rents on ICEVs that partially offset the revenue loss from the mandate. I then present a numerical general equilibrium model of the Canadian economy to assess the macroeconomic consequences of banning ICEVs. The results depend critically on the pace at which EVs achieve cost parity with ICEVs on a quality-adjusted basis. An EV mandate will have temporary but manageable economic consequences if technology improves so rapidly that the mandate is effectively unnecessary. But if the mandate outpaces achievement of cost parity the economic consequences will be quite severe and make it unlikely the policy could be maintained. For example it would likely cause the auto manufacturing sector to shut down. The analysis also provides insight into why automakers have been so willing up to now to develop EV product lines even though they have long lost money on them and expect to continue doing so.

Suggested Citation

  • Ross Mckitrick, 2023. "Economic Implications of a Phased-in EV Mandate in Canada," Working Papers 2301, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2023-01
    as

    Download full text from publisher

    File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2023/2023-01.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    2. Matthieu Bussière & Guillaume Gaulier & Walter Steingress, 2020. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Open Economies Review, Springer, vol. 31(1), pages 25-78, February.
    3. Fiona Burlig & James Bushnell & David Rapson & Catherine Wolfram, 2021. "Low Energy: Estimating Electric Vehicle Electricity Use," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 430-435, May.
    4. Schwab, Julia & Sölch, Christian & Zöttl, Gregor, 2022. "Electric Vehicle Cost in 2035: The impact of market penetration and charging strategies," Energy Economics, Elsevier, vol. 114(C).
    5. Hsieh, I-Yun Lisa & Pan, Menghsuan Sam & Chiang, Yet-Ming & Green, William H., 2019. "Learning only buys you so much: Practical limits on battery price reduction," Applied Energy, Elsevier, vol. 239(C), pages 218-224.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ashley Nunes & Lucas Woodley & Philip Rossetti, 2022. "Re-thinking procurement incentives for electric vehicles to achieve net-zero emissions," Nature Sustainability, Nature, vol. 5(6), pages 527-532, June.
    2. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
    3. Mousavi, Navid & Kothapalli, Ganesh & Habibi, Daryoush & Das, Choton K. & Baniasadi, Ali, 2020. "A novel photovoltaic-pumped hydro storage microgrid applicable to rural areas," Applied Energy, Elsevier, vol. 262(C).
    4. Yun, Lingxiang & Xiao, Minkun & Li, Lin, 2022. "Vehicle-to-manufacturing (V2M) system: A novel approach to improve energy demand flexibility for demand response towards sustainable manufacturing," Applied Energy, Elsevier, vol. 323(C).
    5. Liu, Chang & Liu, Yuan & Zhang, Dayong & Xie, Chunping, 2022. "The capital market responses to new energy vehicle (NEV) subsidies: An event study on China," Energy Economics, Elsevier, vol. 105(C).
    6. Paul J. J. Welfens, 2019. "New Marshall-Lerner conditions for an economy with outward and two-way foreign direct investment," International Economics and Economic Policy, Springer, vol. 16(4), pages 593-617, October.
    7. Agnès Bénassy‐Quéré & Matthieu Bussière & Pauline Wibaux, 2021. "Trade and currency weapons," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 487-510, August.
    8. Hsieh, I-Yun Lisa & Pan, Menghsuan Sam & Green, William H., 2020. "Transition to electric vehicles in China: Implications for private motorization rate and battery market," Energy Policy, Elsevier, vol. 144(C).
    9. Mayer, Thierry & Steingress, Walter, 2020. "Estimating the effect of exchange rate changes on total exports," Journal of International Money and Finance, Elsevier, vol. 106(C).
    10. A. Berthou & E. Dhyne, 2018. "Exchange Rate Movements, Firm-Level Exports and Heterogeneity," Working papers 660, Banque de France.
    11. Rose Cunningham & Christian Friedrich & Kristina Hess & Min Jae Kim, 2017. "Understanding the Time Variation in Exchange Rate Pass-Through to Import Prices," Discussion Papers 17-12, Bank of Canada.
    12. Patrick Bigler & Doina Maria Radulescu, 2022. "Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles," CESifo Working Paper Series 9645, CESifo.
    13. Freitas Gomes, Icaro Silvestre & Perez, Yannick & Suomalainen, Emilia, 2020. "Coupling small batteries and PV generation: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 126(C).
    14. Rebecca Neumann & Saleh S. Tabrizy, 2021. "Exchange Rates and Trade Balances: Effects of Intra-Industry Trade and Vertical Specialization," Open Economies Review, Springer, vol. 32(3), pages 613-647, July.
    15. Asad Waqar Malik & Zahid Anwar, 2022. "Do Charging Stations Benefit from Cryptojacking? A Novel Framework for Its Financial Impact Analysis on Electric Vehicles," Energies, MDPI, vol. 15(16), pages 1-15, August.
    16. Mr. Plamen K Iossifov & Xuan Fei, 2019. "Real Effective Exchange Rate and Trade Balance Adjustment: The Case of Turkey," IMF Working Papers 2019/131, International Monetary Fund.
    17. Robert A. Blecker, 2022. "New advances and controversies in the framework of balance‐of‐payments‐constrained growth," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 429-467, April.
    18. Haihong Gao & Yingting Li, 2020. "The Renminbi as a Trading Currency: Evidence from Selected Countries Participating in the Belt and Road Initiative," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(5), pages 45-63, September.
    19. Bernabe Lopez‐Martin, 2022. "Firm Export Dynamics And The Exchange Rate: A Quantitative Exploration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1137-1163, August.
    20. Renaldi, Renaldi & Hall, Richard & Jamasb, Tooraj & Roskilly, Anthony P., 2021. "Experience rates of low-carbon domestic heating technologies in the United Kingdom," Energy Policy, Elsevier, vol. 156(C).

    More about this item

    Keywords

    Electric vehicles; climate policy; computable general equilibrium model.;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gue:guelph:2023-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/degueca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stephen Kosempel (email available below). General contact details of provider: https://edirc.repec.org/data/degueca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.