Article Summary
Canada's zero emission vehicle mandate has structural flaws that will prevent the country from meeting its 2026 target of 20 percent electric vehicle sales, according to a C.D. Howe Institute report. The analysis shows manufacturers will likely sell only 270,000 electric vehicles instead of the required 380,000 units, as consumer demand remains heavily dependent on rebates and favors gasoline and diesel vehicles.
- Canada's 2026 ZEV mandate requires 20 percent of new vehicle sales to be electric, but manufacturers are projected to fall 110,000 units short of the 380,000-unit target.
- Electric vehicle sales depend heavily on government rebates—when federal and provincial incentives expired in 2025, EV sales dropped from 14.5 percent to 8 percent of the market.
- Consumer preference remains strong for gasoline and diesel vehicles, with over 85 percent of 2024 sales being SUVs, crossovers, or pickups.
- The report recommends aligning targets with actual consumer demand, allowing hybrid vehicles to count toward compliance, and suspending the mandate while trade and supply conditions are reviewed.
- Meeting the 2026 target would require manufacturers to restrict non-electric vehicle sales by over 400,000 units and invest more than 200 million dollars in charging infrastructure.
Toronto, Ontario — Structural flaws in Canada’s zero emission vehicle mandate will prevent the nation from achieving its adoption targets, a new report from the C.D. Howe Institute argues.
The mandate requires that 20 percent of all new light-vehicle sales in 2026 be zero emission vehicles, equal to about 380,000 units out of roughly 1.9 million expected sales. The C.D. Howe Institute report finds that manufacturers are likely to sell only about 270,000 electric vehicles that year, leaving a shortfall of roughly 110,000 units.
The analysis shows that electric vehicle sales in Canada depend heavily on rebates and decline when incentives are withdrawn. In 2024, zero emission vehicles represent 14.5 percent of approximately 1.85 million light-vehicle sales. After both federal and provincial incentives expire at the start of 2025, sales fall. In the first eight months of that year, electric vehicle sales total 108,000, equal to about eight percent of the market.
The report notes that consumer demand continues to favour gasoline and diesel models. More than 85 percent of the vehicles sold in 2024 are SUVs crossovers or pickups, and internal-combustion models remain 76 percent of total sales. Sales of conventional hybrids, which reduce fuel consumption but do not count toward compliance, reach 169,027 units in 2024 and rise to 119,637 in the first half of 2025, equal to 12.4 percent of the market.
Under the federal regulations brought in at the end of 2023, the required share of zero emission vehicles rises from 20 percent in 2026 to 60 percent in 2030 and 100 percent in 2035. Manufacturers that do not meet these thresholds must buy excess credits or create charging-fund credits by investing in charging infrastructure. Each charging-fund credit requires 20,000 dollars in approved spending and the rules allow charging-fund and early-action credits to satisfy only 10 percent of a firm’s annual target.
The modelling shows that these mechanisms are not enough to close the gap. The report estimates that more than 200 million dollars in charging-fund investments would be needed in 2026, with additional costs for excess credits. Even with those measures, many companies would fall short of the mandated levels.
The C.D. Howe analysis finds that compliance would require large reductions in gasoline and diesel supply. To meet the 2026 requirement, manufacturers may have had to restrict non-electric vehicle sales by more than 400,000 units. The report also notes that credit-market dynamics favour companies with extensive electric vehicle lineups, while automakers with Canadian production facilities and broader product mixes would face higher compliance costs.
According to Brian Livingston, a senior fellow at the C.D. Howe Institute and author of the report, says this problem won't be solved by simply reinstating the incentives. “Even if incentives return, the targets far exceed what consumers are willing or able to buy. Mandates alone won’t generate the demand or the vehicles needed to meet these goals.”
“The waiver of the 2026 target is only a first step. Unless the policy is recalibrated to reflect consumer demand and production capacity, Canada’s ZEV mandate risks driving up costs, shrinking supply and undermining competitiveness without delivering meaningful emissions reductions.”
The report recommends several changes, including aligning the mandate with observed consumer demand, allowing more hybrid models to qualify toward compliance, directing proceeds from excess-credit purchases to the federal government and suspending the mandate while trade and supply conditions are reviewed.
