Carbon tax more cost-effective than electric-car subsidies, report says
Federal and provincial governments should abandon some long-standing environmental policies, such as rebates for electric cars, as carbon pricing is put in place across the country starting next year, argues a new report from the Ecofiscal Commission.
The commission is made up of economists who evaluate governments’ environmental policies and is chaired by McGill University economist Chris Ragan.
The commission’s latest report, released today, urges the federal and provincial governments to take a look at all environmental policies to see how they will be affected by carbon pricing.
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The report concludes that the provinces and Ottawa should phase out or end a number of current programs.
For instance, the commission studied the subsidy the Quebec government offers to entice people to buy electric vehicles.
Under that provincial program, drivers who purchase or lease electric, plug-in hybrid or low-speed electric vehicles are eligible for rebates up to $8,000.
It’s part of the Quebec government’s target to have 10,000 plug-in vehicles on the road by 2020.
The hope is the program will cut three megatonnes of greenhouse gas emissions by 2030.
But Ragan said that after the commission crunched the numbers it found the program cost taxpayers $400 per tonne of reduced emissions — a price far higher than what could be achieved through carbon taxes, for example.
Ragan said even though the subsidy helps a new technology get to market, it’s still too high of a price.
“My sense is that it kind of fails that cost-benefit test. It’s just very expensive,” Ragan said. “I think there is a responsibility on the part of government to use taxpayers’ funds really sensibly and that means using low-cost and high-impact policies and not the opposite.”
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Erin Flanagan, the director of federal policy for the Pembina Institute, disagrees, saying the Canadian government has helped develop breakthrough technologies in the oilsands, agriculture and aerospace sectors for years and should continue to do so.
“Buying down risk to ensure their early and successful deployment is a strategic role for our governments, Flanagan said.
The commission also took a look at another provincial program: Alberta’s plan to phase out coal-fired power plants in conjunction with a provincial carbon tax that starts at $20 a tonne and increases over time.
Ragan said that review was mixed.
Because the carbon tax rises over time, Ragan said there would be a natural phase-out of coal anyway, raising the question of whether the complete phase-out of coal is worth it.
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“You’re not really getting that much mileage out of the phase-out policy. You’re really getting most of the mileage out of the carbon price,” Ragan said.
But because the cost of phasing out coal is estimated at between $40 and $100 a tonne of emissions, the commission gave this policy a yellow light rather than a green or red one.
Biofuel subsidies costly
Ragan also argued some federal government programs that have been on the books for years, such as biofuel subsidies, should be phased out before the national price on carbon comes into effect.
In a previous report, the commission analyzed biofuel subsidies and renewable fuel standards that were introduced federally and provincially more than a decade ago.
“They do reduce greenhouse gas emissions, but they do it at a very high cost, about $175 per tonne. Well, if you got a carbon price that’s reducing emissions at $20 or $30, then why are you using policies that are really that expensive,” Ragan said.
He added the federal government should also reconsider some of its own proposed policies now that the federal carbon tax is set to come into force next year, such as the proposed clean fuel standard “that will basically layer on top of every province’s carbon pricing policy,” Ragan said.
The commission did agree with the implementation of one federal policy: regulations to lower methane emissions in the oil and gas sector.
Ragan said the analysis suggests those regulations will cost about $13 a tonne, well below the carbon tax already in place in Alberta and B.C., and therefore get a green light for being cost-effective.
Ragan is also a member of the federal finance minister’s Advisory Council on Economic Growth, but he said a review of environmental policies has not come up in that forum.