The Hour is Blue

Why Consumers Reject Cheaper, Cleaner Cars — Dr. Werner Antweiler on the Economics of Electric-Vehicle Adoption

In this conversation, I speak with Dr. Werner Antweiler, an economist and Associate Professor at UBC’s Sauder School of Business, where he holds the Chair in International Trade Policy and chairs the Strategy and Business Economics Division.

CiTR 101.9 FM / The Blue Hour

Recorded live on August 4, 2026

You can listen to the episode on CiTR.

It is also available on Apple Podcasts, Spotify, and YouTube.

The Blue Hour, hosted by Farha Guerrero, airs live every Tuesday at 2 p.m. on CiTR 101.9 FM at the University of British Columbia in Vancouver, Canada and at citr.ca.

Werner Antweiler is an economist and Associate Professor at UBC’s Sauder School of Business, where he holds the Chair in International Trade Policy and chairs the Strategy and Business Economics Division. He is also an associate editor of the journal Resource and Energy Economics and a faculty member of UBC’s Clean Energy Research Centre.

Educated at the University of Cologne and the University of Toronto, his research spans international trade, environmental and energy economics, electricity markets and applied econometrics. His published work has examined the relationship between trade and the environment, renewable energy and electricity storage, international hydrogen trade, biofuels, vehicle emissions and transportation policy.

He is also the author of Elements of Environmental Management, an interdisciplinary book bringing together environmental economics, law, engineering and business strategy.

Our conversation centres on cars, carbon pricing and the complicated economics of the transition to electric vehicles.

Werner’s latest paper, Carbon Pricing, Capital Bias, and Electric Vehicle Adoption, is forthcoming in the Canadian Journal of Economics. It examines why consumers may reject a cleaner technology even when it would cost them less over its lifetime—and what that means for carbon pricing, electric-vehicle subsidies and the design of environmental policy.

Transcript

Transcript lightly edited for clarity while preserving the natural rhythm of the live conversation.

Farha: Werner, thank you for coming to The Blue Hour today.

Werner: Good afternoon, Farha, and thank you so much for having me on your program today.

Farha: You are no stranger to the media. I know this because I saw you recently on the CBC, and here you are on my show again, many years later, as both of our children have now grown into young men.

We are going to talk about your research, and there are some things you might have to explain in a little more detail and in ordinary language. I will jump right into something you call capital bias, which relates to the limits of carbon pricing. What is capital bias?

Werner: That is a consumer behaviour. When we go into a store and buy something, we are prone to look at the sticker price. We focus our attention on this one number more than on what we call the life-cycle ownership cost.

When we buy something and then use it, we incur costs. When you own a car, you pay for maintenance and fuel, and that is a lot of money. That is on top of the purchase price of the car.

The same is true for many other things we buy. Anything that is a long-lived capital good, such as a car, an appliance or a home, is something for which we may focus too much on the purchase price and not enough on the long-term cost. If you buy something that looks cheap today, you may be paying more tomorrow.

That is what we call capital bias. It is the bias we have towards focusing on the capital cost rather than the usage cost.

There is a more complex term for that. Economists like to call these internalities. That is essentially anything for which our focus is too much on the short-term cost and not enough on the long-term cost or benefit. Sometimes we also ignore long-term benefits, and that is equally important.

This is a psychological issue, and it is part of what makes economics different from the economics of previous generations. We now focus on consumer behaviour and psychology too. Behavioural economics is a newer branch of economics that has fundamentally changed how we think about behaviour and our shopping and buying experiences.

That is exactly where my paper lands. My research focuses on this crucial point. Why do people buy cars that are more expensive in the long term than the alternative? The answer is that they focus more on the sticker price.

Farha: You are looking at what is not necessarily a life decision, because it is an asset someone could potentially buy and sell, but the consumer is sitting at the dealership and has to make a decision. You are looking at what that decision really is, and it is the sticker price.

There may even be incentives or discounts when buying an electric vehicle, which I want to talk about, but in that moment the consumer may not be able to think about the long-term decision, over ten years, for example. Why do you think that is? Is it anxiety, uncertainty or a lack of knowledge? What is driving that decision?

Werner: It is a lot of different things coming together. Once you are in a car dealership and the dealer wants to sell you a car, they want you to walk out the door having made a purchase. They will not necessarily talk about long-term costs. They will try to make a deal and focus on how one car is cheaper than another.

They provide a lot of information about the here and now rather than the future. There is also a lot of uncertainty about what those future costs will be. Nobody knows what the oil price will be in a year or ten years from now. We have seen wild swings in oil prices this year and in previous years.

That makes future costs less predictable for consumers. This uncertainty is also a mental challenge, because nobody likes to think about an uncertain and unpleasant future. People often look at today’s prices as the best predictor of future prices.

When you buy stocks, bonds or exchange-traded funds, they always say that previous returns are not a good predictor of future returns. The same is true for prices in the economy. They can swing, especially commodity prices. Oil prices are among the most volatile.

Electricity is also priced quite differently in different places. Here in British Columbia, electricity is very cheap compared with most other jurisdictions, while gasoline is relatively expensive, especially in the Lower Mainland. We have fuel taxes, and refining and transportation in British Columbia are more expensive than in Alberta, for example.

We have some of the highest prices in Canada for gasoline and diesel fuel. If you look at the cost for every kilometre you drive, you pay about four times as much in a gasoline-powered car as you do in an electric car. Four times. That is a huge difference. You can save a lot of money when you drive electric. The more you drive, the more you save.

That means the people who drive the most would also save the most by adopting an electric vehicle.

That is one side of it. The other side is that the more you drive, the more range anxiety you may have. Another psychological factor comes into play, especially in places where driving involves a lot of long-distance trips.

If you live in a rural area of Canada, as many people do outside the Lower Mainland and in other parts of the country, you worry not only about the charging infrastructure, but also about whether your car will provide the range you need to get from point A to point B without running out of power.

You can refuel fairly quickly at a gas station. Charging an electric car takes longer.

There is a discrepancy that we see in our empirical research between urban and rural adoption of electric vehicles. It is a huge gap. Overcoming that gap in a place like North America will take much more effort than in places such as Europe, where distances are shorter.

The same is true in China. Most people in China do not drive long distances. They live in urban clusters and drive shorter distances.

We are seeing a dichotomy in EV adoption that is very much characterized by urban versus rural areas.

Farha: You mentioned that British Columbia has good access to hydroelectric power. This urban versus rural difference is very important. As you say, Canadians are notorious for driving long distances. It is normal to drive twelve hours to go fishing for the weekend and then twelve hours to return. That is certainly different from Europe and other places you mentioned.

Do you think range anxiety is part of the psychological reason people feel hesitant to buy an EV? Running out of gasoline when you are off the grid is one thing, but not having electric power available to go anywhere can be a challenge.

I know this may goes beyond your research, but do you know how the government is trying to address this conundrum?

Werner: There are two things that are important to understand. Consumer psychology is not driven only by looking at costs. There is also a lot of ideology involved.

A recent research paper from colleagues in the United States looked at EV adoption across counties that were either strongly Democratic or strongly Republican. Even after asssessing urban versus rural differences, income differences and several other factors, there was still a large perception gap.

That gap is driven by how EVs are characterized in different parts of the population. It is significant and is partly driven by myths perpetuated by people who do not like EVs.

There is an active group of people who badmouth EVs and claim things that are factually untrue. They even use environmental arguments, saying, “You are not really going to save CO2 emissions because so much more CO2 is emitted during the production of an electric car.”

It is true that more CO2 may be emitted during production, but that does not offset what you save during the car’s use. The net balance is still positive.

In some jurisdictions, such as China, electricity does not come primarily from clean sources. A large portion comes from coal (about 2/3rd). Even there, however, you get savings, especially in urban areas. You are not only reducing CO2 emissions, but also reducing nitrogen oxides and other pollutants that come out of a car’s tailpipe and contribute to urban pollution. In the end, there are many environmental benefits of owning an EV.

You also hear arguments that EVs do not work in cold climates because Canada is somehow a unique place in this regard. I would ask though if you drive a gasoline-powered car, whether you have ever used a block heater when your car is in extremely cold air.

The same is true for EV batteries. They do not perform quite as well in cold climates. Better insulation of the battery is required, and sometimes heating. There are EVs that can be adapted for northern climates where it gets extremely cold.

That is not quite as much of an issue in urban areas, where people often park in sheltered garages and parkades. It is a different experience here in British Columbia. You generally do not need it in the Lower Mainland, although it becomes relevant in parts of the province where it gets very cold.

We can also talk about performance degradation. When you drive an EV, you use the battery to heat the car. In a gasoline or diesel-powered vehicle, there is excess heat coming from the engine that can be recycled. Otherwise, it is simply vented into the air.

Overall, EVs are much more efficient because they operate at a higher efficiency and are not wasting all that heat.

There are many myths that are sometimes perpetuated by interested parties for ideological or political reasons. Some people do not like particular policies or the transition to EVs, which may be difficult for certain manufacturers here in Canada.

Many reasons come together, ranging from psychology and politics to economics. In the end, EV adoption in Canada is much lower than it is in parts of Europe.

The leading country is Norway, where approximately nine out of ten cars being sold now are electric or plug-in hybrid. In China, more than every second vehicle being sold is now electric. In China, electric vehicles are cheaper. That is not yet the case in Canada. People will buy what is cheaper and better, and in China that is an EV.

Farha: You raise something quite interesting. There are product differences that matter to the consumer but may not be visible to a researcher.

People may be drawn to the aesthetics of a car, the brand, the sound of the motor or its performance. Those things could influence whether they decide to go electric or not.

As you saw from the hat I was wearing when I came into the studio, even luxury car brands are now producing electric vehicles. I have even heard that manufacturers are even trying to mimic the sound of a motor in an electric vehicle. I do not know if they can reproduce the vibrations, but they want to cater to people who may be collectors or enthusiasts.

These are details that go beyond what you can sometimes extract from the data.

Werner: We do try to estimate some of this. Certain characteristics are observable, metrics, such as how big the car is, its weight and size, the engine displacement and sometimes the trim. There are many characteristics that can be observed from the product itself.

What we do not necessarily know is what appeals to the consumer. That is where my colleagues who study Marketing enter the discussion. They have wonderful and sophisticated psychological models of what consumers respond to.

As everyone who drives a car knows, it is not just about getting from point A to point B. It is often about showing wealth, status or youth. It can communicate all kinds of impressions about yourself through the colour and style of the car.

Why do we all drive different cars? We want to communicate something through our choice. Perhaps we want to show that we are sporty, or that we are older people like myself who want to drive safely. People who drive cars that are very loud may want to show something else altogether.

I am not religious about electric cars versus gasoline-powered cars. I love driving old-fashioned gasoline-powered cars, ideally with a manual transmission.

But I also love driving my electric vehicle, which is super quiet and has great torque and acceleration. It has many other features that I like.

I am completely open to driving what is better for us in the long term. Hopefully, we will recognize the environmental benefits of electric cars. We will also eventually recognize that they can be cheaper over their overall life cycle. That is already true for many buyers.

It is not necessarily reflected in the sticker price, and that is why we have these adoption problems. People do not realize the full benefit at the point of purchase.

Ultimately, people buy what is cheaper and better. That is what the market does. It will sort itself out eventually. In the long term, when something is both cheaper and better, that is what people will choose.

There will always be traditionalists who want to cling to the past. There will always be people who buy expensive internal-combustion-engine cars such as Ferraris.

Ferrari brought out an electric vehicle that did not resonate with some traditionalists. It was designed by someone who had worked for Apple, one of its chief engineers, but it did not resonate with Ferrari buyers. For them, it is simply not a Ferrari if it does not roar. There will always be a part of the market that remains that way.

Coming back to consumer characteristics in North America, people love to drive big cars. Outside the cities in particular, people love pickup trucks and sport utility vehicles. I was recently driving in Newfoundland, which is very rural in many places, and you see this clearly.

These are big cars with big engines, and that is where the money is being made today. Ford, GM and Stellantis do not make their money by producing sedans and compact cars. They make their money by selling SUVs and pickup trucks. The bestselling vehicle in Canada is the Ford F-150.

Ford tried an electric version, the F-150 Lightning. It sold to a particular clientele, but it could not grow beyond the early adopters who wanted an electric truck. That market has stagnated, partly for political reasons. It did not sell to the group of people who remain committed to gasoline-powered cars.

I hear that there is going to be a new version of the F-150. It has not been formally announced, but I think it is forthcoming. It would be an F-150 with an extended-range auxiliary power system.

It would run on electric power, but the battery would be continuously recharged by a small auxiliary power unit that could be more efficient than a conventional gasoline engine. You would receive some of the benefits of lower emissions without the range anxiety. You would also get the torque you need when accelerating or pulling something.

That is going to be the new F-150, from what I hear. Ford has not given up, but it is facing strong headwinds, especially because of the political climate in the United States. I do not have to get into the details. Everyone listening will know what I am talking about.

Those headwinds will not persist forever. Let me predict that.

Farha: I have a funny story about big cars. I live in the Sea to Sky region, and we see many of the vehicles you might have seen in Newfoundland, including big trucks and pickup trucks.

There are all kinds of reasons for this, but mostly it is about storing gear. It may be a snowmobile in the winter or mountain bikes on the back. Yesterday, I saw three pickup trucks in a row with bikes on the back. A lot of it is about utility.

I was in Italy last year and saw one of these large trucks from a distance. You never see trucks that big there. The first thing I said to my son and his friend was, “I think that is a Canadian.”

It was a joke, but as we got closer, we saw an Ontario licence plate. I was right. I did not expect to see that, especially in a very small Italian town, but there you go. We do drive big cars in Canada, and that is a challenge.

I want to talk about Chinese electric vehicles, because that is quite newsworthy right now. Before we get there, I would like to return to carbon pricing.

As Canadians, we hear a lot about this. We understand it to a certain point. We know we have taxes that we have to pay. Without capital bias, the conventional economic result is that the carbon price should equal the social cost of carbon.

How do you explain this in your model?

Werner: Let me summarize some of the key concepts.

One of the first things my students learn when I teach environmental economics is that when you have a negative externality, the way to address it is to put a price on it.

In the case of carbon emissions, that price is what we call the social cost of carbon. That is basically the present discounted value of all the future costs arising from those emissions. It includes the destruction of our environment, heat waves and the excess deaths caused by climate change.

It is a real cost, and it is growing. We typically put a number on it. The federal government of Canada puts it at approximately $250 per tonne. Some research papers put it even higher. It may rise as we learn more about the harmful effects of carbon emissions.

That is where the price should be. There is a catch, however. When we put a price on carbon, we should see the necessary changes towards cleaner technologies, but then consumer psychology enters the picture.

That is what gets in the way. When you put a price on carbon, people may not look at the future cost of the fuel they will pay for. They may look only at the sticker price and fail to internalize those future costs. Then we have a problem.

That is the problem we faced with carbon pricing on motor fuels. The government was putting a price of approximately $80 per tonne on it, with plans for that price to increase, but the policy did not work particularly well for two reasons.

One reason is the consumer-behaviour effect. The other is that demand for fuel is very price-inelastic. We still have to drive to work. We do not significantly change how much we drive.

We can change what car we drive, but that happens only once every so many years. The average car lasts for ten or twelve years, so turnover is very slow.

If you make the wrong decision when buying a new car by choosing one that uses too much fuel, when you could have saved money by buying an electric car, you are stuck with that decision. You are not going to change your driving behaviour because you still have to get to work every day.

Carbon pricing is not terribly effective when it comes to motor fuels for that reason. The variable that really moves the needle in terms of emissions is whether you buy an electric car or a plug-in hybrid.

That is what we need to work on. The intervention needs to put the whole carbon cost up front, not when you buy fuel, but when you buy the car.

That is what my paper essentially concludes. Putting a price on fuel is not really working. The government was right to cancel it, although it probably did so for the wrong reason. It did so because it was going into an election where the other party was running on the platform of “axe the tax,” and it wanted to forestall that.

The government probably cancelled carbon pricing for the wrong reason, but in the end I agreed with the measure because it was not particularly effective.

What we need to do is put the intervention up front at the point of purchase to make sure that people are buying, in quotation marks, the right car, meaning a more fuel-efficient vehicle, an electric vehicle or a plug-in hybrid.

We can do that through other instruments, namely purchase subsidies. We still have to pay for those subsidies somehow.

Carbon-pricing revenue was recycled by the government. The money coming from carbon pricing went back to consumers on a per-capita basis. It redistributed income towards lower-income households, so it was beneficial on a net basis for those households.

In that sense, it was a smart redistribution policy that I actually favour. It redistributed money from higher-income households, which tend to drive more and drive larger vehicles, towards those driving more fuel-efficient vehicles or using public transit for that matter.

When we look at reducing emissions, however, we need to intervene at the point of purchase. That means providing purchase incentives.

The government has a new program replacing the old one, the Electric Vehicle Affordability Program, or EVAP. It replaces an older vehicle subsidy, while provincial programs are also being phased out. Provinces such as Quebec and British Columbia had very generous provincial programs of their own.

There is also an important program focusing on electric vehicle charging infrastructure. That is the other major issue we have to address.

It is the classic chicken-and-egg problem. What needs to come first, EVs or the charging infrastructure? We need to work on both fronts at the same time.

I have other research that I have not yet published that looks at what I call the urban frontier of EV charging. Charging remains a significant challenge in urban areas.

Look at Vancouver. Many people live in rental homes, where the landlord decides what gets installed in the parkade. Many others live in strata buildings or condominiums.

A lot of people can park only on the street. Curb-side parking impedes charging because you do not have a reserved parking space. You are lucky if you can find a parking space in front of your home. It is the luck of the draw.

We need solutions that address this. I am also working on another paper with UBC Parking about workplace EV charging. We are trying to determine how to encourage people to charge in the other place where they leave their vehicles for a long time, during the eight hours they are at work.

At UBC, a hospital or another workplace, what can we do to make charging convenient?

It comes back to what I call the three Cs of EV adoption: cost, choice and convenience.

Cost means making the vehicles affordable. Choice means having enough options and addressing consumer preferences, including pickup trucks and other features. Let the cars roar if people want them to, or make them sound distinctive.

Then there is convenience. One thing I have learned about charging is that if you can charge a car at home, you can basically plug it in and forget about it. That is the holy grail of EV charging.

I come home with my plug-in hybrid, plug it in, and the next morning it is charged. I can forget about it. I rarely have to drive to a gas station, and I do not have to drive to a public charger. Charging at home is the gold standard for EV charging.

Farha: I want to return briefly to the first of those three Cs, cost.

The subsidies you mentioned could be structured in different ways. One idea that interested me, because I had never thought about it before, is a usage-based subsidy.

There could be a flat subsidy, where the consumer receives an immediate discount through a government incentive. That certainly has an appeal.

There is also the idea that as people drive their electric vehicles over time, they could receive a discount based on their mileage when they renew their licence or insurance. I do not know exactly what that would look like. Could you talk about it?

Werner: One of the questions is whether we can do better than the simple subsidies we have used in the past.

A simple subsidy is a flat subsidy where everyone who buys an EV receives the same amount. From the outside, that appears fair because there is no differentiation based on the type of consumer, where they live or other factors.

From an environmental point of view, however, we care about emissions savings. For every dollar spent on a subsidy, we want to obtain the greatest emission reduction possible.

We would ideally subsidize the people who drive the most, so that they switch to an EV, save the most fuel and therefore reduce the most emissions.

If we could perfectly observe in advance how much someone would drive before they bought a vehicle, we should differentiate the subsidy. We could give a higher subsidy to someone who drives more and a smaller subsidy to someone who drives less.

When you renew a vehicle in British Columbia, ICBC now has a usage-based element. You report your mileage when you renew. We have this information.

I have used some of ICBC’s data in my research, so I know the mileage distribution for vehicles in British Columbia. We could potentially use this information to refine the intervention.

If you could use that information perfectly, it would work. Unfortunately, there is another conundrum.

Consumers may be myopic because they face capital bias. We need to know how that myopia correlates with usage.

If the people who drive more are also more myopic, then the benefits of targeting them may wash out. Those consumers would be the hardest to convince to change. A usage-based incentive would become less effective if the most myopic people were also the people who drove the most.

That could be the case if it correlates with urban versus rural differences. We do not know, and that is one of those difficult research questions. If you do not know, you cannot target the policy as effectively as you would like.

There are arguments suggesting that it may actually be negatively correlated, meaning the people who drive more may be less myopic and less affected by capital bias.

That has something to do with where people live. In urban areas of British Columbia, especially in the Lower Mainland, many people commute long distances because they cannot afford to live in the downtown core.

In real-estate economics, we sometimes say that people “drive until they qualify” for a mortgage. They trade lower housing costs for longer commutes and therefore more driving.

The people who could benefit the most from affordable EVs may be those living in the suburbs and commuting to work. They drive distances that allow them to save substantially while still charging at home.

These consumers may also pay closer attention to overall life-cycle costs. There is some evidence pointing towards a negative correlation, but we do not have enough data to pin it down.

I estimate some of this in my research paper. I see the potential for policy to work if we have better information, but we will have to see.

At the very least, we need an incentive program focused on the point of purchase. A flat program is a good starting point.

I am currently doing more research on a policy the government has already implemented, which is capping incentives at a certain vehicle price.

One revealed fact about purchases is that different people buy luxury cars and smaller, more affordable cars. In Canada, the federal subsidy is capped at a particular price level. If you buy a car costing $80,000, for example, you do not receive a subsidy.

You receive a subsidy only if you buy a cheaper vehicle. That is often relevant to people who commute long distances. They may be financially constrained, live in the suburbs, drive longer distances to work and purchase more affordable cars.

The question becomes: what is the right cutoff for the program, and which vehicles should we subsidize?

Perhaps we should not subsidize Teslas and Polestars, but should subsidize Nissan Leafs, Kia EV4s and other more affordable EVs.

That is another area of my research. I am trying to determine a smart way to intervene in the market at the lowest cost to the taxpayer and with the least amount of funding required from other sources.

If you use subsidies, you have to find the money. It does not fall from the sky. You have to divert it from somewhere else or raise taxes.

Who is keen on raising taxes? The opposition in Parliament is not, and nobody else is either. If you ask anyone whether they want to pay more taxes, they will not volunteer.

We have other priorities, including healthcare, defence and building infrastructure. Where do we find the money for electric vehicles?

One possibility is to take it from other buyers of cars. You could put a small penalty on the purchase of a conventional gasoline-powered car and use the revenue to subsidize EVs.

There is a good case for that kind of redistribution. It is sometimes called a feebate, or a bonus-malus scheme in Europe.

At the moment, only approximately one out of every ten vehicles sold in Canada is an EV. We could put a very small penalty on gasoline-powered cars and redirect the money towards people who buy EVs, subsidizing emission reductions through that channel.

We can do this in smart ways to make it most effective. Those are the kinds of policy improvements I am investigating as part of my research.

Farha: There was also an interesting research angle here in British Columbia. Your data showed a striking difference in annual mileage, and it was quite positive for electric vehicles.

Werner: That is precisely what my theory tells me. EV adoption should be biased towards people who drive longer distances.

That is an interesting new research result. If you go back eight or nine years, studies from California showed the opposite. The typical EV was being driven much less than the conventional vehicle, and we were all scratching our heads.

Part of the explanation was range anxiety. Another explanation was that people in the United States often have more than one car. Households may have two cars and use the EV as a runabout for short distances, while using the other car for long-distance trips.

That is less often the case in Canada. Canadian households are less likely to have two cars than households in the United States. The EV is more likely to be the primary vehicle.

When the EV is your primary vehicle, adoption is biased towards people who drive longer distances because that is where the savings are greatest. That is precisely what the theory tells us, and we see it in the data.

It is a convincing argument that in Canada the world works the way economics tells us it should. We do not have the same unusual situation as the United States, where the EV was often a second vehicle during an earlier stage of adoption, when EVs also performed less well than they do today.

The EVs on the market today have ranges of 300, 400 or even more kilometres.

The average Canadian drives approximately 12,000 kilometres a year, which is around 35 or 36 kilometres a day. If you convert that into electricity, it is approximately eight or ten kilowatt-hours a day.

You can charge that quite easily at home. Even with a Level 1 charger, you can plug it into a household socket and charge your EV. You do not need a super-fast charger in most circumstances if you have reliable power at home.

If you have a regular Level 2 charger, there is no problem. Your car can be charged in two or three hours.

We are living in a different world from the one we lived in nine or ten years ago. Batteries are getting better and much cheaper.

Batteries are getting cheaper, full stop. That is what is changing the equation.

Farha: I would like to talk about Chinese-made electric vehicles, because this is fairly recent news.

Canada has lifted the former 100 per cent surtax within a new country-specific import quota. The tariff is not completely gone, but this raises the question of whether we will see an influx of Chinese vehicles and whether Canadians will be happy to have access to cheaper EVs.

It also raises questions about the effect on Canadian manufacturing, particularly given what we have heard in the last few years from people such as Doug Ford in Ontario. I do not usually talk politics on my radio show, but I just did.

This is very important because it is new. What do you think about the policy? What are the implications, and could it be a real game changer?

Werner: Let me first put on my hat as a trade economist.

I was pulling my hair out when Canada imposed a 100 per cent tariff on Chinese EVs. That is not what economics tells us what we should do.

There is a case that some parts of the EV industry in China are being subsidized unfairly, mostly through access to cheap money. China has a huge savings rate, which makes money and interest rates relatively cheap.

Everyone is investing in production capacity, and there is overcapacity in China. Everyone who looks at China knows that.

There are many EV manufacturers in China. Many of them will fail because everyone is trying to enter the market, and only a few will survive.

There are, however, several major companies, including BYD, whose slogan is “Build Your Dreams,” as well as Chery and Geely. There are many others.

Some are making significant inroads in markets outside North America. Look at Brazil and Mexico. Chinese manufacturers are making inroads because they are offering what people want and need.

Europe has opened the door more widely. It has used the appropriate trade instrument, which is a countervailing duty on what is considered an unfair subsidy.

The European approach examines individual manufacturers and estimates the degree to which each is unfairly subsidized. It then tries to create a level playing field.

Once you establish that level playing field, you do not need a 100 per cent tariff. The European tariffs are more in the range of six to twenty per cent, depending on the manufacturer. They do not shut Chinese vehicles entirely out of the market.

What we now have in Canada is a most-favoured-nation tariff of 6.1 per cent on vehicles coming from China, up to a tariff-rate quota currently set at 49,000 vehicles.

What does 49,000 mean? It is approximately one-fifth of the EV market we had before the 2025 change in subsidy policy. It is not nothing, but it is not the entire market. It is certainly not going to create a complete upheaval in our automobile market.

The people sounding the alarms are making a lot of noise, but they are off base. This is a relatively small number.

Before the 100 per cent tariff, many of the EVs manufactured in China and imported into Canada were at the luxury end of the market. They included Teslas, Polestars and some Volvos, including plug-in hybrids manufactured in China with Chinese batteries.

They were largely luxury vehicles rather than lower-priced vehicles.

The new policy will see the tariff-rate quota expand to 70,000 vehicles by 2030. By then, half of the quota will be reserved for vehicles priced below $35,000.

Look around at which vehicles in Canada are currently sold for less than $35,000. There are very, very few.

This is a particularly interesting segment of the market. The policy is trying to introduce vehicles that are affordable for people who need affordable transportation, including lower-income people who rely on commuting.

I am in favour of this policy. It is a smart policy for making automobiles more affordable because North American manufacturers have given up on that segment of the market.

They want to make their money from pickup trucks and luxury vehicles. They have largely given up on small sedans and compact cars.

The manufacturers still active in that space are foreign companies, including Kia, Hyundai, Toyota, Honda, Volkswagen, Fiat and other European manufacturers.

This market segment has been abandoned by North American manufacturers and claimed by manufacturers from elsewhere.

Chinese manufacturers originally produced terrible cars. Cars manufactured in China twenty years ago were not very good.

Then China allowed European and American manufacturers to enter through joint ventures. Chinese manufacturers learned how to build good cars. The vehicles coming out of China today are competitive.

They may not yet have reached the quality level of the very best European or North American manufacturers, but they are competitive, certainly in lower-priced segments. In some cases, they can also build luxury cars. Geely builds Polestars, and they are very good vehicles.

Chinese manufacturers are catching up quickly.

We should remember not only China, but also Korea and Japan. Japanese cars were laughed at when I was a child. The Nissans of that period were not considered particularly good.

Then the keiretsu system in Japan learned how to make good, reliable cars. Honda and Toyota brought vehicles such as the Honda Civic into the market. They succeeded because they delivered what consumers needed.

Then Korean manufacturers entered the market. When you look at the EVs coming to market today, Korea is dominating. Kia and Hyundai are the ones to beat because they have figured out what people want.

Go to the car shows and look at the cars in the EV space. You may or may not see Tesla there. Tesla does not attend many car shows anymore and may not want to be seen at them. You can figure out why.

Hyundai and Kia produce good, reliable cars. Talk to the people who drive them and they are generally happy. That is changing the market.

Now Chinese manufacturers are entering, including Geely, Chery, BYD, Leapmotor and XPeng. I have probably forgotten a few.

They make reasonable cars, and people will buy them when they arrive.

The problem Chinese manufacturers face in North America is that they do not yet have a manufacturing base here. Their vehicles have to be exported. They also do not have an established service and dealership network. That takes time to build.

It also took Honda and Toyota time. They did not begin with that infrastructure. They spent many years and decades building it.

I fully expect Chinese manufacturers to come slowly and steadily into the Canadian market and eventually into the United States.

People will say, “You buy so many things made in China. Why not cars?”

Look at everything you buy and see how much is made in China. Then ask yourself whether it is good-quality merchandise. A lot of it is.

You can buy poor-quality products made in China, but many products are high quality. Many of our high-end electronic items are manufactured or assembled in China.

There is a lot of political bias in some countries around whether something is manufactured here or manufactured somewhere else, but that is politics. The economics looks different.

In the end, the market will prevail. Politics will not, because people will buy what is better and cheaper.

Farha: This is so interesting, Werner. I like this discussion because it is very topical. These issues are in our minds all the time.

In Canada, we still do not have the transportation systems that exist in places such as Japan, Germany or even Italy, where there is extensive rail and more public transportation.

We are finally building a subway extension towards UBC, which is very important. That goes beyond our discussion, but it seems to me that Canada is trying to accomplish many things simultaneously.

It wants to make electric vehicles more affordable, reduce transportation emissions, protect Canadian automotive employment, attract battery and vehicle investment, use the critical minerals that we have in this country, improve consumer choice and diversify international trade.

These are significant objectives, and they are not easy to reconcile. As we discussed earlier, your research asks more questions than it provides answers.

Werner: I think that is the ultimate outcome of any good research. You always end up with more questions than you have answered, both for the particular research topic and for the wider question of where your research fits.

I have been talking a lot about EV adoption, but that is only one part of the puzzle. We are looking at transportation overall, and transportation emissions come from many sources.

It is about the vehicles we drive, but it is also about the vehicles that will continue to use fuel. How do we make those fuels cleaner?

Can we develop cleaner biofuels? The answer is yes. We have a lot of that potential here in Canada. The same is true for aviation fuel and marine fuel.

We also have to look at public transportation. I am a big fan of public transportation. Because I am from Europe. I grew up with public transportation everywhere.

I also grew up with bicycle lanes everywhere. It took a long time to get those here in Canada. Vancouver now has bicycle lanes that make cycling an attractive option for many people.

We need to develop that infrastructure. North America went through a transition in which we abandoned much of the infrastructure that previously existed.

The trams that we had at the beginning of the twentieth century are gone. Sometimes you still see tracks here and there. You may see a rail corridor that has been paved over or a median that used to be a tram corridor.

We lost the infrastructure, and it is now very difficult to rebuild. We are regaining it little by little, but we still do not have good options for long-distance commuting from suburban areas.

Extending SkyTrain to Langley will be a significant improvement, but it is still like a drop of water on a hot plate that evaporates very quickly. It is not enough.

We need that subway out to UBC! Please build it. Please find the money. If any politicians are listening, we want that subway tomorrow.

Farha: Tomorrow. I would like it too because I commute a long way to this studio, and it takes me a long time to get here from downtown Vancouver. I think that if I rented a bicycle, I might sometimes get here faster.

Finally, one very quick question. You mentioned Norway. Which countries or regions currently offer the best example for Canada as we enter this world of EV adoption, clean technologies and better public transportation?

Werner: It is not actually Norway.

Norway has raced ahead because, first, it had a lot of money to spend. It is a rich country. Second, it does not have an automobile industry.

Here in Canada, we are extremely concerned about our automobile industry in Ontario.

The United States is currently disrupting the integrated supply chain that provided the efficiencies that made the Canadian industry somewhat competitive. Those policies could kill the industry altogether.

If you destroy that integration, Canada loses. If investment is discouraged because of policies in the United States, and we also lose access to the innovation happening in China, then we are killing off the industry.

The country we should not look to is the United States.

Where should we look? We should look to Korea, Europe and Japan. Those countries and regions are dealing with similar issues.

Germany is a good example because it has a very strong automobile industry. It has Volkswagen, BMW and Mercedes. Germany worries about many of the same things we do in Canada and is at a similar stage. It faces many of the same issues.

I always like to compare Canada with Germany because it is a close comparison.

Farha: We could go on and on, but we have reached the end of our conversation. It has been such a pleasure. Thank you so much.

Werner: It has been a great pleasure talking to you about all these issues.

Farha: You have a blog too, I saw, which I will link to this transcript.

Werner: I do. I write about a lot of things.

Farha: I like that. Go bloggers, go. It seems archaic to say that, but I think blogging is coming back.

Further Reading