The implementation of the Carbon tax throughout Canada has the Canucks paying more attention to CO2 emissions by turning to a cleaner way of life – using alternative sources of energy, cleaner fuels, tech that uses less energy or simply biking to work instead of driving (as if Canadians weren’t physical enough). So, by all accounts, it’s having a beneficial effect on people, but does that also go for the automotive industry? Is Carbon tax having a negative impact on the Canadian auto-production? Let’s examine.
According to some industry officials, the federal government’s Carbon tax, which went into effect in 4 provinces on April 1, could cost automakers millions of dollars and erode the competitiveness of auto manufacturing in Canada.
“We are in a high-cost jurisdiction, there’s no doubt about that, because of the many [regulatory] policies,” stated Mark Nantais, president of the Canadian Vehicle Manufacturers Association. “The cost of electricity is 2-3 times higher than our competing plants in the United States. All these costs add up and put us at a competitive disadvantage relative to our competing plants in the US. For manufacturing, that is the issue.”
Just a reminder, Ottawa enacted the carbon tax in Ontario, Saskatchewan, Manitoba and New Brunswick, the provinces that refused federal instructions to put in place their own provincial plans to reduce greenhouse gas emissions. In Ontario, the duty replaces the cap-and-trade system which allowed the market to put a price on GHG emissions, with each industry having a top-limit on how much GHG it can emit to be in compliance with the law. Moreover, the companies emitting less than their annual allowance could sell their unused allowances to those that were over their limit. Market dynamics of supply and demand were the ones determining the price of allowances.
For example, if a company had a cap of 90 tonnes but emitted 100 tonnes, it had one of 3 options:
- Purchase 10 emission allowances in the market,
- Take action to reduce its emissions,
- Purchase carbon offsets (emission reduction projects such as renewable energy).
Under Ottawa’s plan, heavy industries are assigned emission limits that would invoke penalties if exceeded. This would increase costs, which could run into the millions. And while manufacturing is exempt from tax on emissions up to 80% of the industry average, that formula does not work for the auto-production.
“It’s emissions by number of units produced, so it does fluctuate based on the emissions versus units produced. If your production goes up or down given the market and the response to the market, then you could conceivably pay more one year and less the next year if you exceed the 80%”, says Nantais.
Ontario’s government is legally challenging the Carbon tax, which also raised prices at the gasoline pump by about 4.4 cents a liter.
“You could be for manufacturing jobs or you could be for the carbon tax, but you can’t be for both,” Premier Doug Ford told reporters back in November.
Nantais, whose association represents the Detroit Three automakers, said his members support the need to reduce climate change and greenhouse-gas emissions, but stressed revenue generated by the tax should be used by companies to reinvest into newer energy efficiency programs at their plants.
“The auto-manufacturing industry in Canada is the highest trade exposed of any other sector and we are very low energy intensive,” Nantais said. “We’re trying to have discussions with [the government] about trade exposure, the 80%, and recycling of revenues. Whatever you pay out under revenue should be returned to use that money to invest in energy-efficiency projects that make you more competitive. So, you’re not just purely taxed, a tax that your competitors don’t have.”
David Adams, president of the Global Automakers of Canada, said the tax could inflate vehicle prices.
“The challenge is always to the extent of these taxes increasing the price of a vehicle and that potentially limits vehicle turnover. …You try to make things cleaner and greener with new technologies but that adds a price to it and, in turn, inhibits the turnover of the vehicles because people can’t afford new technologies.”
According to Dennis DesRosiers, president of DesRosiers Automotive Consultants, the tax likely won’t have a measurable impact on new vehicle sales.
“I don’t sense this is the straw that breaks the camel’s back. Gas prices are an indirect issue. It increases operating costs, but relative to others it’s small. It’s more likely to cause a small shift in segmentation. The average vehicle this past decade has increased its fuel efficiency by 25%, some even in the 35-40% range,” he said. “This is therefore much more of a tax grab than anything that can cause a change in market dynamics. The auto sector has been a target for taxes under the guise of climate change across the country.”
The Carbon tax, he added, is unlikely to dramatically alter the shift in the consumer buying trend from passenger cars to light-truck sales.
“The vehicle market has very much moved to a need basis and less reaction to a cost-of-ownership basis because the cost of ownership has come down so much.”
Nantais, however, said increasing fuel costs will likely move consumers toward more fuel-efficient vehicles.
In this sense, the vehicle manufacturers have responded with a wide range of engineering advancements that reduce emissions while saving you money on fuel, such as:
- Modern diesel vehicles
- Vehicle weight
- Direct fuel injection
- Cylinder deactivation systems
- Variable valve timing
- Idle start-stop technology.
So, don’t give up on the Canadian auto-production products. We aren’t out of the game just yet! Come to CRS Automotive and let us take care of you. We are expecting you in Hamiton!