Electric-car subsidy not great investment

Last week, the Quebec government announced an investment of $420 million to promote the acquisition of 100,000 electric cars by consumers.

It says these cars would save 150,000 tons of greenhouse gases each year. If we assume each car has a life expectancy of 10 years, this investment accounts for a reduction of 1.5 million tons of greenhouse gases. Each ton of greenhouse gas not emitted will cost $280. The price of one ton of greenhouse gases on the market for carbon lies between $15 and $20. Consequently, the government pays $280 for a ton of greenhouse gases that is sold for less than $20 on the market. The government is ignoring the virtues of the market that it has created with its cap-andtrade system for greenhousegas emissions allowances.

With the $420 million, the government could buy a reduction of 21 million tons of emissions. To put this figure in perspective, the reduction proposed for 2013-2020 aims to cut emissions by 8 million tons by 2020 (to 77 million tons from 85 million, according to the Bureau des changements climatiques du ministère du Développement durable, de l’Environnement et de la Lutte contre les changements climatiques (MDDELCC)). By investing in the carbon market rather than in electric cars, the government would easily exceed its target, to the benefit of taxpayers and the environment. Even if subsidies for electric cars are politically profitable, they are not economically.

The carbon market allows polluters to reduce emissions at the lowest cost. The market price represents the cost of reduction of one ton of greenhouse gases of the most effective “de-polluters.” It would be wise to use this market before investing in electric cars. Michel Poitevin, economics professor, Université de Montréal