This post was originally published in Policy Options/ Options Politiques, on December 3rd, 2018.
There are many questions coming out of this unfortunate event. But a couple of the important ones are, Where does this leave Canada in terms of its preparedness to participate in the 21st century automobile sector, which is largely centred on electric and autonomous vehicles? And, what role (if any) should governments, at all levels, play to improve Canada’s industrial positioning in that sector?
Canada has committed to reducing its greenhouse gas emissions by 30 percent below 2005 levels by 2030, and the international community has committed to keeping the world to 1.5°C of warming from preindustrial levels. The transport sector is responsible for a considerable part of both domestic emissions (about 28 percent of the total and growing) and global emissions (about 14 percent of the total), so the transition to a zero-emissions vehicle fleet could be a significant part of the broader climate change mitigation efforts.
There are a few considerations to keep in mind, as Canada navigates through this multifaceted transition. First, there is an important distinction between policies oriented toward shifting production and those focused on consumption. Governments have a role to play in both, but they would require very different types of actions.
On the consumption side, there are the incentives and regulations shaping consumer behaviour. The “carrots” include policies like the handsome rebates offered by some provincial governments toward the purchase of electric vehicles; the “sticks” include putting a price on carbon (making fuel-powered cars more expensive vis-à-vis electric alternatives), and jurisdictional “bans” on internal combustion engines, as we’ve seen in Paris, Madrid and Mexico City. Of course, these bans are rather intangible in terms of actual changes to law or policy, but they are nevertheless important in that they signal to consumers, commercial enterprises and vehicle manufacturers that this change is coming down the pipe, so they should start preparing for it now.
On the production side, we have to keep in mind that the 20th-century auto-sector model (in which a handful of global automakers commanded the market and much of the supply chain associated with it) is pretty much dead now. The new landscape includes a range of new players, with Tesla, BYD, Wheego, Coda, Bison, and even Apple, Google, Uber, Lyft and Zipcar vying for various aspects of the market. These companies are tackling specific challenges like automation sensors, artificial intelligence, larger batteries, onboard telecommunications, GPS, and cybersecurity integration, in the inclusion of automobiles within the sharing economy. A recent analysis by Frost and Sullivan found 1,700 start-ups around the world vying for various shares of these new auto market subsectors.
The GM closure is a wake-up call that the old model of relying on a few large players to benevolently pursue corporate social responsibility goals and drive consumer demand for more efficient vehicles is unlikely to work.
This in itself is an indication that the 21st-century auto sector is much more complex – we’re not just talking about competition between different brands of the same product (variations on the internal combustion engine). We are now talking about competition between different visions of human transportation: ride sharing vs. car-sharing vs. personal car ownership vs. new modes of public transit vs. telecommuting vs. human-driven vehicles vs. autonomous vehicles vs. plug-in hybrid vehicles vs. fully electric vehicles, and so on. The point is, policies centred on propping up the 20th-century model (such as the 2009 auto bailout) are bound to fail in this brave new world.
The good news is that if we think about the new automobile sector as one piece in a much broader multidimensional shift to a clean energy economy, things start to look a little more promising for Canada.
This clean energy shift includes the expansion and greening of the electricity sector; the development of smart grids and third-generation charging infrastructure; major improvements in autonomous vehicle technology; and the rolling out of new emissions-free equipment in the manufacturing and extractives sectors, among other changes. This is where Canada holds promise and opportunity. Whether it’s the mining of copper (electric vehicles use about four times as much copper as internal combustion engine vehicles) and other metals and minerals required for renewable energy and lithium batteries as well as for other hi-tech products, or research and innovation in new efficient or smart technologies, there are numerous opportunities for Canadian firms to participate in various aspects of the clean energy economy.
Governments at all levels do therefore have a role to play, which is to foster the clean energy transition that the players in this new auto sector will depend on to succeed. In this regard, the federal government and some provincial governments deserve at least some credit for large-scale investments they have made in programs like the Autonomous Vehicle Innovation Network, the Pan-Canadian Framework on Clean Growth and Climate Change (which included the development of a Zero-Emissions Vehicles Strategy), the tax incentives for firms using clean energy and manufacturing equipment, and other measures. Many of the incentives in the Pan-Canadian Framework support the demand side of the equation, with heaps of funding for green infrastructure (including public transport projects across the country).
If Canada is going to decarbonize its economy at some point this century, then it will need to achieve a zero-emissions vehicle fleet at some point this century as well. The GM closure is a long overdue wake-up call that the old model of relying on a few large corporate players to benevolently pursue their corporate social responsibility goals and drive consumer demand for more efficient vehicles is unlikely to work, as either an economic or an environmental strategy. Governments at all levels have an important role to play in signalling future objectives for our society, incentivizing positive action on behalf of consumers and producers, and fostering an environment conducive to high-calibre research and world-class innovation; investing in green infrastructures that support the transition; adequately and fairly pricing carbon; and regulating the “bad apples.” It is indeed a sad time for Oshawa, but hope is not entirely lost; policy-makers just need to think forward as they address this challenge, rather than replicating past mistakes.