Government policy the key factor in electric vehicle uptake, finds EY

Government policy on oil sector subsidies, carbon tax, and electric vehicle (EV) incentives will drastically influence how many drivers convert to EVs over the next decade, according to a recent report from consulting firm EY Canada. The report, “Canadian electric vehicle transition – the difference between evolution and revolution,” examines three possible adoption scenarios (rapid, moderate, and slow) based largely around policy choices, and their unavoidable impacts on the oil & gas and power & utilities sectors.

There are currently 90,100 EVs on Canadian roads, accounting for a 2.3% share of vehicles in the country. Approximately half of these are battery electric vehicles (BEVs) which run 100% on electric power, while the other half are plug-in hybrid electric vehicles (PHEVs) which have both an internal combustion engine (ICE) and an electric battery with a range of about 20-80 km.

Globally, there are now 5.1 million EVs on the road, with the International Energy Agency expecting EV sales to reach 23 million by 2030, with a global stock in excess of 130 million.

Canada is the 10th fastest adopter of EVs in the world, with sales growing 165% year-over-year in 2018. The small, oil-rich country of Norway has the highest EV adoption in the world, at 37%, driven by effective and aggressive policies promoting EVs. The Nordic country is projected to have 1.9 million EVs by 2040.

EY plotted three different growth scenarios for EV adoption in Canada by 2030. The outcomes are driven largely by policy decisions, including the price of greenhouse gas emissions and financial incentives. The ripple effects of these principle factors, or signposts, in turn affect other influencing factors for adoption, such as R&D investment by manufacturers, changes to ICE efficiency, and battery performance of EVs, grid capacity, and charging infrastructure.

In a rapid adoption scenario, several population-dense provinces institute progressive policies such as procurement programs, fuel economy standards, and zero-carbon EV (ZEV) mandates. Federal and provincial governments also increase the price on GHG emissions with carbon taxes and cap-and-trade programs, while eliminating subsidies for fossil fuels. The net effect of these policies (which would probably cause Alberta to secede from the country) would result in early cost parity for driving an EV by making it much more expensive to drive a traditional ICE vehicle.

The changes would also incentivize OEMs to invest in EVs, expanding model variety and performance, while charging infrastructure would become faster and more visible.

The rapid adoption scenario would make 30% of cars (13.2 million) on Canadian roads EVs. The resulting 13% reduction in oil consumption and elimination of fossil fuel subsidies would force oil & gas (O&G) companies to diversify their portfolios into clean energy, while looking for new markets for their products. It would also force O&G firms to further converge with power & utilities (P&U) firms.

With electricity demand increasing by approximately 11%, Canadian P&U companies would retain energy previously sold to the US, while increasing prices to maintain margins. They would also upgrade facilities, add additional capacity, and upgrade distribution networks. The P&U market would also see an increase in market players, while companies would continue to create join ventures with hotels, restaurants, and retail stores for charging infrastructure.

“Diversifying portfolios will be crucial for oil and gas companies in a rapid-adoption future. To stay relevant and ensure profitable revenue streams, they’ll need to invest more in clean energy, petrochemical products, and access to tidewater to enter new markets," said Lance Mortlock, EY Canada oil & gas leader.

In a moderate growth scenario, federal and provincial governments make little or no changes to policy, which is currently considered to be progressive. OEMs would continue to develop new EV models and improve battery technology, with consumers responding well to better battery performance and range.

Fifteen percent of cars would be EVs in the moderate scenario, displacing an additional 6.5 million ICE vehicles, and oil consumption would decrease by 6.5% on 2030 demand forecasts. Major O&G players would continue to diversify their energy mix, increasing energy output to electricity. The O&G and P&U companies would also continue to converge.

The 5.5% increase in electricity demand would cause P&U companies to invest in aging grids to respond to changing load profiles. Vehicle-to-grid systems would also likely be implemented, and electricity costs would likely rise.

In a slow adoption scenario, federal incentives and prices on GHG emissions would be repealed, while federal fuel subsidies would be increased to prop up the country’s O&G sector. Gasoline prices would drop, making driving conventional vehicles more affordable. OEMs would slow the expansion of EV fleets sold in Canada due to low demand, instead concentrating on more efficient ICE models.

In the slow scenario, the EV market share would increase to just 3%, or 1.3 million vehicles. Oil consumption would decline 1.2% on 2030 forecasts, meaning O&G companies would have little pressure to transition to an electric future, and would need to make few changes to current operations.

The P&U sector would likewise change very little due to a miniscule 1% increase in electricity demand. There would be less incentive to revamp operations, and less new entrants into the market.