Stop mandating and let markets do their jobs
In 2026, Canada plans to require 20% of all cars sold in the country be electric vehicles. By 2035, the mandate will be 100% — essentially, gas-powered cars will be illegal to produce and sell north of the border.
That follows on a similar mandate pushed by California, and being considered by other states.
The secretary for Canada’s environment minister, Stephen Guilbeault, said the mandate was “about making sure that Canadians have access to the vehicles they want.”
There’s already a good way to make sure people have access to what they want — markets.
EV sales were 7.2% of new cars sold in Canada this year. In the United States, it’s 5.2%. If consumers really wanted electric vehicles, they’d be buying them in much larger numbers.
This isn’t about giving consumers the vehicles they want. It’s about giving them the vehicles government wants and removing the option for consumers to buy the vehicles they choose.
Outside of Vancouver and the Windsor-Quebec City corridor, Canada is a spread-out, sparsely-populated country. Much of the United States is also spread out and sparsely populated. There remain concerns about the range, charging time and impact on the power grid from EVs, but a big issue is price.
EV technology is evolving, but it’s still young. Battery ranges are still not great — the Nissan Leaf, which is the most affordable EV on the market, has about a 150-mile range — and those ranges tend to be worse in cold weather and deteriorate over time as the batteries get older. Materials are still in short supply. Supply chains need to be developed. The power grid is not ready to supply the additional voltage needed to power millions more EVs. As economies emerge from COVID, materials are in short supply, driving up prices. It certainly won’t be fixed by 2026, and none of us have enough of a crystal ball to know if it will be by 2035. With markets, they’ll develop on their own time.
The Nissan Leaf’s MSRP is more than $27,000. While that is comparable to similar gas-powered cars (a base Honda Civic’s MSRP is around $24,000), gas-powered cars have much greater longevity. That will affect the used car market. A 10-year-old gas-powered Honda Civic can be had for less than $10,000, with relatively low post-purchase maintenance costs. A 10-year-old EV will be in the range of needing a battery replacement, which will cost $5,000 or more and thus make an affordable entry-level option — used cars — unaffordable for many drivers.
The way to solve those issues is with markets. As consumers demand more EVs, plug-in hybrids and other zero-emission cars, it will become more profitable for automakers to produce them. They’ll compete with each other and research ways to produce better cars with longer ranges at lower prices to attract those consumers. They are already doing that right now. As consumer demand grows, they’ll compete with each other to push up the price for the scarce supply of such cars, signaling to producers to increase production.
Policymakers don’t like the decentralized decision-making of the market for multiple reasons. First of all, it’s because it’s decentralized. Consumers make decisions based on their own individual situations, preferences and needs, weighing the costs and benefits to them. Producers compete for those consumers by trying to gauge what they want, motivated by the profit motive.
Secondly, it’s because that decentralized decision-making often produces outcomes the policymakers don’t like. Some of those consumers might buy big pickups or SUVs or minivans or other gas-powered cars. Their reasons are varied — I drive an SUV for safety reasons, as sitting higher keeps oncoming headlights out of my eyes, allowing me to see better at night. But with a family of four, the extra cargo space comes in very handy when hauling my kids, their teammates and some of their gear to their sporting events, or when bringing Christmas gifts back from Grandma’s.
Others prefer the convenience of a quick fill-up and the almost-unlimited range of a gas-powered car. I know I can make a 600-mile drive and my two stops for gas will take five minutes each. With an EV, even with a 200-mile range, two stops to charge will take 30–45 minutes, significantly slowing down the trip and adding to the hassle.
For others, it’s variety and price. For example, I only buy used cars, with the idea that a Honda with 70,000 miles on it will likely have 2/3 of its life left, but I can buy it at 1/3 the original price. That has allowed me to stay out of debt and have reliable — albeit old — cars I know will last me well over a decade after I purchase them. Both cars in my garage are 18 years old. We plan to drive them for several more years.
Whatever the reasons, policymakers who issue such mandates have a paternalistic SimCity-like desire to direct how people live, by forcing and nudging them into making the “right” choices — ones that just happen to align with the bureaucrat’s worldview and personal preferences.
Not only do such mandates prevent the market from working, they patently misunderstand the supply side. Those writing such mandates believe if they snap their fingers, they can force suppliers to magically produce a sufficient number of goods at low prices, that the only thing holding them back is the lack of a proper nudge (and those pesky consumers who won’t act as they’re supposed to).
While these mandates only apply to new cars —used gas-powered cars will still be on the market —the mandate will create an artificial scarcity for the still-in-demand gas vehicles, driving up their price.
This is another policymaker’s blind spot. As Frederic Bastiat satirically stated in The Candle Makers’ Petition, they tend to only look at the needs of the producer and not the consumer, because they see an economy‘s main role as being one to produce jobs. When you only see the economy as a jobs machine, you don’t worry about prices, because your goal is to force people to pay high prices to benefit the producers and workers.
But for the budget-conscious — the middle-class and working-class consumer — they now have to spend a larger percentage of their incomes on cars, and ones that won’t be as reliable, convenient or affordable as the ones they were once able to buy. What that means is they’ll have to economize and less money to spend on other things, thus making their standard of living worse. So yes, the automakers do well, but everyone else is worse off, and the poor and middle class will be harmed the most.
Policymakers have options — credits and incentives, making it easier to build power plants to handle the electrical load, incentivizing the buildout of a charging network, for example. But mandates — especially mandates of nascent technologies that aren’t quite mature enough for prime time — never work.
Don’t tie up the invisible hand and replace it with a hammer. Let the invisible hand do its thing. Over time, the market will push consumers to the best, highest and most efficient end. Widespread EV adoption will happen, but it needs to happen on the market’s timeline, not one made up of bureaucrats’ wishful thinking.