This blog describes why Canada’s tailpipe emission standards are a critical part of the new federal auto strategy, outlines how these standards work, and provides recommendations for how to design the next phase of these regulations most effectively.
In the new auto strategy released in February, Prime Minister Mark Carney announced the federal government would be replacing the EV Availability Standard with tailpipe emission standards that will deliver on Canada’s new EV sales targets of 75% by 2035 and 90% by 2040. These standards work by requiring carmakers to sell cleaner and more fuel efficient vehicles year after year. In the near-term, this approach offers more flexibility because carmakers can meet standards by improving the fuel efficiency of gas cars or focusing more on hybrids, in addition to electrification. But as the policy ramps up, carmakers will have to offer more EVs in the Canadian market to meet the standard.
Tailpipe emission standards have the potential to drive a shift to EVs—but only if we get the details right. For instance, both the EU and the U.S. have relied on tailpipe emission standards as the main regulatory lever to clean up their passenger vehicle fleets. In the EU, EV sales reached nearly 30% in 2025, up from 3% in 2019. The EU now has a broad selection of EVs on the market, including more EV models at better price points than Canada, and is the fastest growing major EV market in the world as we kick off 2026. The U.S., in contrast, has relatively low EV uptake (7.8% in 2025, when nearly 40 countries globally have already surpassed 10% EV sales) and a dearth of affordable EV models.
While Canada’s more EV-supportive policy landscape has helped us outcompete the U.S. on EV uptake and model availability to date (for instance, there are multiple instances where carmakers are offering certain EV models in the Canadian market but not the U.S. as a result of our diverging policy landscapes, seen here, here and here), we risk falling further and further behind much of the world, including our major non-U.S. trade partners, if we replace the EV Availability Standard with tailpipe emission standards that are too weak.
Canada will also fail to make a dent in its passenger vehicle emissions with standards that are too weak, as we’ve seen in the past. Indeed, despite having a version of this policy in place since 2011, our car emissions have dropped a mere 1% in nearly 15 years. In fact, Canada’s on-road fleet emits more today than it did in the 1990s (see figure below).
Source: Government of Canada 2026
In sum, this policy has the potential to deliver key benefits to Canadians and act as a sufficient substitute for the now-repealed EV Availability Standard—if designed right. Specifically, it would:
- Ensure the Canadian market is prioritized when carmakers are deciding where to send EV inventory
- Help secure more affordable EV models in the Canadian market
- Improve the fuel efficiency of gas cars to help Canadians save money at the pump
- Drive down emissions in Canada’s second highest polluting sector
- Offer the market certainty needed to support and de-risk investments in Canada’s EV supply chain, including in our charging network
Here are the five key design features that must shape the next version of Canada’s tailpipe emission standards to get us on track for 75% EV sales by 2035, make a meaningful dent in our passenger vehicle emissions and secure the other key consumer and industry benefits this policy has the potential to deliver:
- Implement by 2027 and until 2035. Canada’s existing tailpipe emission standards (formerly called the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations) apply to vehicles of model year 2017 to 2025. With the Electric Vehicle Availability Standard (EVAS) now repealed, Canada has no policy on the books regulating the emissions from (or improving the fuel efficiency of) the cars and trucks Canadians drive after 2026. This needs to be addressed quickly by implementing the next version of these standards in 2027 at the latest. The next version should also cover up to model year 2035—a similar eight-year timeline like the last phase—to offer industry the longer-term certainty needed for planning and investment and to align with the first auto strategy EV sales target: 75% by 2035.
- Set a standard sufficiently stringent to deliver 75% EV sales by 2035. The new standards will also need to be sufficiently stringent to secure EV supply, meet Canada’s new target of 75% EV sales by 2035 and make up for the emission reductions EVAS would have achieved. While early signals suggest federal officials may be considering a standard of about 74 grams of carbon per mile by 2035, new modelling by the Pembina Institute indicates this will not be stringent enough to deliver 75% EV sales. Instead, Canada would need to pursue a standard of 40 g/mile by 2035 to achieve that level of EV sales and preserve a meaningful portion of the GHG emission reductions the EVAS would have achieved (see figure below). (For comparison, the EU’s existing policy requires that all new cars sold by 2035 achieve a 0 grams/mile standard. The European Commission recently proposed to weaken that to an ~18 g/mile standard by 2035. Even if that less stringent standard is adopted, Canada’s proposal is four times weaker than that.) Moreover, as we work to land on the right Canada-specific standards to achieve our goals, it would be prudent to use a “grams per kilometre” metric to align with our vehicle fleet and measurement system.
Source: Pembina 2026
Source: Pembina 2026
- Ensure a reasonable ramp up pre-2035, including a level of stringency that would deliver a 2030 EV sales target of 40%. Canada will also need sufficiently stringent annual standards in interim years leading up to 2035. Backloading policy ambition until, for instance, post-2030 will significantly slow EV uptake, missing out on near- and medium-term emission reductions and limiting EV affordability benefits for Canadians. Strong interim requirements ensure carmakers continue moving forward with electrification year after year. In this case, Europe’s tailpipe emission standards offer an example of what not to do. The EU uses a step-wise standard that sets increasing requirements only every five years. EV uptake surged in 2020-2021 after the region’s strict 2021 requirements kicked in. But then Europe’s EV market share started to flatline and even decline as carmakers faced no regulatory pressure to keep moving. It was only in 2025, when the next step of the tailpipe emission standards came into effect, that Europe’s EV market share rose again, with a 6.2 percentage point jump between 2024 and 2025. China, in contrast, saw its EV market share grow continuously year after year due to strong annual requirements (see figure below). Strong interim requirements also provide the market certainty key players like charging station providers, electric utilities, raw material suppliers and battery recyclers need to continue investing in Canada’s EV supply chain.
Source: ICCT 2026
- Apply one standard across vehicles of different sizes. There has been a significant shift towards larger, more polluting vehicles like pickup trucks and SUVs over the last 20 years. In 2000, SUVs and pickups accounted for roughly half of all new passenger vehicles sold. Now they account for nearly 90% (see figure below). So while vehicles within their respective categories have become more efficient, automakers—especially U.S. automakers—have pushed more consumers toward larger, more profitable vehicles. The net effect has been that this shift in vehicle type popularity has virtually canceled out emission reductions achieved through growing EV adoption in Canada. The current design of Canada’s tailpipe emission standards has inadvertently contributed to this trend by applying two different standards—one for cars and a separate, more lenient standard for “light trucks” (i.e. pickup trucks and SUVs). The next version of Canada’s tailpipe emission standard should apply a single standard across all vehicle sizes, which recent research from SFU shows would deliver more emissions reductions than separate standards for cars and light-duty trucks, while slowing the shift toward larger, heavier vehicles.
Source: Clean Energy Canada 2020
- Limit compliance flexibilities. One of the selling features of the tailpipe emission standards is the flexibility of their design. Already, the policy allows carmakers to meet their requirements in many different ways, whether by improving the fuel efficiency of their gas cars, selling more conventional hybrids, selling more EVs, trading credits, or banking credits for up to five years. As a result, all car companies in Canada have remained in compliance with the regulations to date, and there is an excess of over 27 million credits for future use, according to the most recent compliance report (see table below, taken from the report).
But too many flexibilities can start to undermine policy goals and the integrity of the credit market. For instance, recent analysis by T&E of EU standards found that implementing all of the proposed flexibilities in the EU’s new proposed tailpipe emission regulations would result in an additional 720 million tons of CO2 (MtCO₂e) between 2025 and 2050 (see figure below). As Canada considers design features such as the ability to “bank” credits for future use, EV “supercredits” (i.e. double or sometimes even triple counting EV sales under the standard) and the carry over of early action credits earned under the EV Availability Standard (a policy that is now repealed), it must balance flexibility for industry with policy integrity. Putting reasonable limits on compliance flexibilities will help Canada avoid a similar outcome and ensure the policy delivers the fuel efficiency gains, EV sales and emission reductions it’s meant to deliver.
Source: T&E 2026
Canada must follow through on its commitment to put strong tailpipe emission regulations in place, and fast. Done right, this policy can drive down carbon pollution in one of Canada’s highest-emitting sectors and provide regulatory certainty needed to support private sector investment in Canada’s EV supply chain—all while ensuring Canadians from coast to coast are able to buy the clean cars they want.
