Next year’s introduction of a national floor price on carbon should lead to the end of government subsidies for specific low-carbon purchases like electric vehicles, Canada’s Ecofiscal Commission argues in a new report.
Noting that the Prime Minister and most provincial/territorial premiers agreed on the Pan-Canadian climate framework late last year to establish an escalating minimum carbon price, the commission provides a visual decision guide to identify other policies supportive of an economic transition away from fossil fuels that are “genuinely complementary” to a carbon price.
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Any policy option should be tested against a series of questions, the commission states: whether it will achieve a goal that a carbon price signal can’t, whether it’s certain not to counteract that signal in any way, and whether it’s well-designed. After that, the commission poses a fourth question: the cost per tonne of carbon emissions reduced or avoided.
Several provinces offer subsidies for electric vehicle purchases, the researchers observe. Quebec, for instance, gives drivers who buy or lease EVs up to $8,000 in rebates. But “after the commission crunched the numbers,” CBC News reports, “it found the program cost taxpayers $400 per tonne of reduced emissions—a price far higher than what could be achieved through carbon taxes.”
By contrast, federal regulations to control methane leakage from oil and gas infrastructure—recently delayed three years after pressure from industry—will reduce emissions for just $13 a tonne.
According to the commission, governments should re-evaluate subsidies for biofuels as well as those for electric vehicles after introducing a national carbon price. “They do reduce greenhouse gas emissions, but they do it at a very high cost,” said Commission Chair Chris Ragan. “If you’ve got a carbon price that’s reducing emissions at $20 or $30, why are you using policies that are really that expensive?”
One reason, argues Erin Flanagan, federal policy director at the Pembina Institute, is to “buy down risk” for developers and early adopters of new technologies, as Canadian governments have previously done—and still do—for the tar sands/oil sands, agriculture, and aerospace sectors, among others.
Another is that pricing carbon—unlike directly regulating emissions—does not guarantee a particular reduction in emissions. Actual reductions depend heavily on a price being high enough to create an incentive for change. While economists suggest the Canadian economy could handle a carbon tax as high as $100 per tonne, the floor currently anticipated by federal policy will reach only half of that level by 2022.
That may not achieve the outcomes the Ecofiscal economists expect. “Small increments in carbon taxes,” the Conference Board of Canada’s Daniel F. Muzyka wrote recently in North American Energy News, “have a limited impact on CO2 emissions.” The Conference Board’s analysis “shows that if the price of carbon is the only tool used, it would need to rise well above the levels of what governments are currently implementing to drive the economy to meet the objectives.”
The Conference Board calls for electrification of as much of the economy as possible—supported by an integrated east-west power distribution grid—to initiate “the evolution to a true low-carbon economy and society.”
What the Board calls “a 50- to 100-year transformation, not a 30-year transition,” will not come cheap. It pegs the price at $2 to $3 trillion between now 2050, implying the redirection of 30 to 50% of the “annual non-residential business capital investment in Canada” over that time, Muzyka calculates.
