Passenger vehicle emissions intensities have been declining due to electric vehicles and better fuel efficiency standards, but EV adoption must accelerate to meet federal goals.
Summary
- The newly introduced federal automotive strategy has shifted the focus of Canada’s transportation decarbonization progress from electric vehicle (EV) sales to new fleet emissions intensity.
- Recent trends indicate that fleet intensities move with EV adoption. When EV sales were at their peak in 2024, fleet intensities improved the most.
- While fleet emissions intensity reductions over the past year were close to the pace required by the regulations, with 2026 Q1 EV sales shares sitting at just 10.8 per cent, a steep road lies ahead to meet the new EV adoption goal of 75 per cent by 2035.
- While carmakers are on pace to hit the fleet emissions intensity standard this year, the EV sales goal will require the federal government to push for more stringent standards in future years than what has currently been introduced.
What’s new?
Earlier this year, the federal government announced that its policy to decarbonize personal vehicles would shift from a national EV sales mandate to performance-based emissions standards. This approach replaces the previous 100 per cent EV sales target by 2035 with a goal of 75 per cent EV sales by 2035 and 90 per cent EV sales by 2040 to be delivered through updated light-duty vehicle (LDV) emissions regulations.
Amidst rising gas prices at the pump, in his latest Forward Guidance: Canada’s Energy Future address, Prime Minister Mark Carney emphasized that the path to energy affordability for Canadians is electrification. This is true, which is why examining Canada’s EV adoption uptake is as important as ever.
This week’s Insight examines LDV emissions intensity, an important indicator for tracking Canada’s progress towards the federal EV goal, the updated LDV emissions regulations, and progress towards transportation decarbonization more generally.
Tailpipe emissions standards offer some flexibility to automakers
The tailpipe emissions standard sets annual requirements for automakers based on the average grams of carbon dioxide equivalent emitted per mile driven (gCO2e/mi), weighted across new vehicle sales. Each automaker must meet the tailpipe standard individually (manufacturer-level data is reported by Environment and Climate Change Canada).
The regulations give automakers some flexibility in how they meet the requirement. With the regulation based on average fleet emissions intensity, manufacturers can choose the mix of vehicle technologies and emissions intensities that best meets their compliance obligations. For example, automakers can comply by improving the efficiency of internal combustion engine vehicles or increasing their sales of hybrid vehicles, as well as by deploying more EVs.
The regulation also includes credit banking provisions, which allows manufacturers that exceed compliance requirements in one period to carry credits forward against future obligations.
The latest compliance report of 2024 model year data released March 2026 shows that manufacturers have not needed to fully use their banked credits, indicating the regulation is not fully binding. Of the roughly 125 million credits generated since 2011, 32 million remain active with 40 per cent expired or unused, and the rest drawn down primarily to cover light truck deficits. The recent rate of bank use implies a draw down of 6 to 9 years, taking some pressure off companies to make changes to their fleets in the near term, including manufacturing more EVs.
Canada’s fleet intensity reductions are strongly linked to EV sales
Using sales data from Statistics Canada, as well as Natural Resources Canada’s fuel ratings database, we track the quarterly change in weighted average emissions intensity for LDV sales, as well as the quarterly share of EV sales in Figure 1.
In recent years, fleet emissions intensity improvements have been increasingly correlated with EV sales. When the share of quarterly EV sales grew by 50 per cent in 2024, fleet emissions intensity correspondingly fell by eight percentage points.
By contrast, 2025 began with the withdrawal of federal and some provincial subsidies, which significantly slowed down EV sales. EV sales fell by 35 per cent in 2025, and as a result, fleet emissions intensities only decreased by two percentage points.
The good news is that early signals are showing that EV adoption momentum is increasing again. Sales have been rising since the federal government re-introduced consumer rebates, with over 32,000 rebates issued since April. Adding to the momentum, Canada has also agreed to a quota of 49,000 Chinese EVs under standard tariff rates. And lastly, charging infrastructure has been growing fast, while the new automotive strategy is also aiming to develop a national charging infrastructure strategy.
In fact, latest data shows that rebates are currently being issued out faster than anticipated. In roughly three months, the Electric Vehicle Affordability Program issued $195 million of their total $2.275 billion, or 8.5 per cent of the total budget allocated for five years. Rebate uptake doesn’t seem to be slowing down either; the issue rate in May was $1.39 million per day and latest data from June puts the issue rate now at $1.44 million per day.
The federal government put an end point on these consumer subsidies after 2030 and will draw down the level of subsidies on offer over time. However, at the current rate of uptake the funds will be used well before that date.
Figure 1
On its current trajectory, Canada won’t achieve the goal of 75 per cent EV sales by 2035
In order to fall from the first quarter 2026 fleet average of 131.6 g CO2e/mi to the proposed standard of 74 g CO2e/mi by 2035, fleet emissions intensity would need to decline by roughly 5.9 g CO2e/mi each year. Over the past year, fleet emissions intensity declined by 5.6 g CO2e/mi, suggesting manufacturers are currently close to the pace needed to meet the standard.
That may indicate that the government’s current intensity standard is within reach with little additional effort from automakers. As the stringency of the standards increase however, LDV fleet intensities and EV sales will be increasingly linked. Early compliance has been achieved predominantly through efficient gasoline vehicles, conventional hybrids, and other flexibility mechanisms including credit banking. As the standards tighten, those options become not sufficient on their own because meeting steeper emissions intensity reductions with more efficient fossil fuel-based technology improvements can be cost-prohibitive, making greater sales of EVs increasingly necessary to achieve compliance.
But based on data to date, Canada will not achieve its goal of 75 per cent EV sales by 2035. That’s largely due to lagging EV sales. In the latest quarter, EVs accounted for just 10.8 per cent of new vehicle sales.
Analysis from other organizations suggest that the government’s intensity standard may not be enough to reach the EV adoption goal. The Pembina Institute has estimated that achieving 75 per cent EV sales would require fleet emissions intensities to fall to 40 gCO2e/mi by 2035, requiring nearly twice the reduction proposed under the updated emissions standard. Clean Energy Canada outlined additional recommendations to help ensure the new regulation meets the intended outcome.
Canada’s shift to fleet emissions intensity is a positive step. But achieving the proposed EV adoption goals will likely require more stringent fleet emissions intensity standards. The federal government should tighten the 2035 standard from 74 g CO2e/mi toward the level needed to deliver its 75 per cent by 2035 and 90 per cent by 2040 EV sales goal, and establish interim standards that keep manufacturers on track.
Stay tuned as we report on fleet emissions intensity and EV adoption trends as we roll out more climate progress indicators.
Arthur Zhang is a Senior Research Associate at the Canadian Climate Institute. Dave Sawyer is Principal Economist and Head of 440 Megatonnes at the Canadian Climate Institute.