Recent announcements from Ottawa and Québec mark a pivot in Canada’s electric vehicle (EV) policy. The federal government has paused the 2026 zero-emission vehicle (ZEV) sales requirement, originally intended to ensure 20% of new vehicles sold are electric, citing economic headwinds, U.S. tariffs, and slower-than-expected consumer uptake. Québec followed with its own recalibration, easing its 2035 gasoline vehicle ban to a 90% ZEV target from 100%, and broadening its definition to include plug-in hybrids.
Both announcements say the intent is not to abandon climate goals but to realign with market realities, which is a theme of this government’s approach to climate policy as indicated by the upcoming Climate Competitiveness Strategy. Analysts claim that Canada is already off track to meet its 2030 emissions targets, and Prime Minister Carney has yet to submit a new set of national goals. Transportation remains one of the largest sectors, responsible for roughly a quarter of national emissions. Delays in EV adoption, therefore, widen the gap between emissions reduction ambition and reality.
The federal government has launched a 60-day review of the regulation, signalling flexibility on annual targets. This review means automakers and market participants should anticipate possible revisions to annual targets, additional flexibilities, and potentially changed definitions (e.g., inclusion of Plug-In Hybrid vehicles as per Québec’s update).
Impact on Carbon Markets
The ZEV mandate sits at the intersection of climate policy, trade tensions, and industrial strategy. Automakers facing higher input costs and softening demand have pressed the government for flexibility. Federal EV rebates expired earlier this year, removing a key driver of consumer adoption, while ongoing U.S. tariffs threaten the competitiveness of Canada’s auto manufacturing base. The result is a policy caught between conflicting imperatives: protect domestic industry, maintain affordability, and still deliver on emissions reduction commitments. Ottawa’s pause reflects this tension, signalling that climate goals are increasingly being negotiated through an economic lens.
While ZEV mandates are also framed as consumer or affordability issues, they also impact carbon markets, given that transportation is a major source of emissions. If ZEV adoption slows, the sector’s emissions will remain higher for longer. That, in turn, may increase demand for compliance credits in regulated carbon markets.
A rollback of the ZEV mandate could similarly tighten compliance markets by making it harder to meet overall reduction goals. In short, dismantling ZEV policies doesn’t just affect consumers; it reshapes the supply-demand balance in carbon markets. ClearBlue will continue to follow these developments and provide updates. For more information about ClearBlue's advisory services or clean fuels market intelligence coverage, please contact us.