You can’t count on what regulators will do. The ’feebate’ program for the auto industry in last year’s federal budget is a case in point. Not only was it a surprise to the industry, it also did nothing to curb greenhouse gas emissions.

If your business is in a sector that is, or may be, subject to federal environmental regulation, beware! No matter how well you may collectively communicate the realities of your industry’s needs and concerns, there is no guarantee they will be considered when the regulatory axe falls.

That was the lesson learned by the Canadian automotive industry last spring, when it was effectively blind-sided by the federal government’s imposition of a "feebate" - fee and rebate - program on the sale of new vehicles.

There are arguably few, if any, business sectors in Canada that are subject to more regulation than the auto industry, in all its complexity. Consequently, it is not surprising that the industry has developed strong lines of communication with multiple levels of government to ensure that its interests and challenges are well understood by policy makers.

It is what any business sector must do these days, and the auto industry has traditionally done it well, through its many industry associations. Illustrative of its success, the industry has co-operated with government for decades through voluntary agreements defining specific areas of vehicle performance that are tightly regulated in other jurisdictions, including one establishing a voluntary cap on cumulative carbon-dioxide emissions from new vehicles.

As environmental issues have become more entrenched in the public consciousness, the political need for government to appear to take action on the environment has also grown.

The concept of a feebate program has come up previously in government-industry consultations. The carrot-and-stick theory is that providing vehicle buyers with incentives (rebates) for purchasing fuel-efficient vehicles and taxing them (fees) for buying vehicles with poor fuel efficiency will shift buying patterns toward more energy-saving, and thus less CO2-emitting, vehicles.

The auto industry has been consistently and unanimously opposed to such a scheme, based not just on the philosophy that such programs interfere with the free market system, but on the reality that they don’t accomplish what they are intended to do. "There is no proven example in the market where (feebates) have actually been proven to work," commented Dennis Desrosiers, one of Canada’s most respected automotive industry analysts.

A 1995 report by the National Round Table on the Environment and the Economy, prepared for the federal Finance Department, specifically recommended against the imposition of a feebate program. Feebates could have exactly the opposite effect of what is intended, the report said, possibly increasing greenhouse gas emissions from vehicles. As Mark Nantais, president of the Canadian Vehicle Manufacturers Association explained, they can potentially encourage drivers to hang on to older, less efficient vehicles longer.

Those arguments have been amply communicated to government over the years, supported by facts, and the industry was reasonably confident feebates were off the table. Until March 19, 2006, that is. That was federal budget day, and the budget included a surprise provision for an "EcoAuto" initiative incorporating - you guessed it - a feebate program, effective immediately.

Financial incentives of $1,000 to $2,000 were offered for the purchase of cars arbitrarily defined as being fuel-efficient.

And "green levies" of $1,000 to $4,000 were applied to just-as arbitrarily defined "fuel-inefficient" vehicles, except pickup trucks. Further confounding the issue, the application of the fees and rebates was not linear, so some vehicles were effectively subjected to a $1,000 price penalty because they missed an arbitrary cut-off by just 0.10 liters per 100km.

"This budget is the single greatest market intervention ever," Nantais said at the time, "with a huge potential for market distortion. It creates many inequities between manufacturers, which will manifest on the showroom floor, and it will provide no real environmental benefit."

Both Nantais and DesRosiers have been proven right. Almost five months into the program, vehicle sales by segment have continued on, or very close to, their pre-budget trend lines. But sales of some individual models within segments have been significantly distorted. Being right is no solace to those negatively affected, however, and the pill is particularly hard to swallow given that no real environmental benefit has apparently resulted.

The message to others from this experience is clear. Effectively communicating your needs and challenges to the power-brokers, with facts to support your position, while necessary, is no guarantee that they will act favourably in that regard. It is best to have a plan B in place to deal with the consequences if they don’t.

Gerry Malloy is one of Canada’s leading automotive industry journalists, and the technical/automotive editor of Green Business. You can reach him at: gmalloy@clbmedia.ca.

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