Electric vehicles are guzzling cash instead of fuel

B.C., like Ontario and Quebec, has programs to encourage drivers to go electric. The measures in place are certainly interesting for buyers of electric vehicles. The problem is that they’re insignificant from an environmental point of view. Insignificant, but not inexpensive. Electric-vehicle purchase subsidies total up to $8,600 in Quebec, up to $14,750 in Ontario and up to $12,000 in B.C., including the SCRAP-IT program.

It’s true that each time an electric vehicle replaces a gasoline-powered one, greenhouse gas emissions are avoided. Over the course of the useful life of a vehicle, around 10 years, this represents close to 30 tonnes of GHGs in places like Quebec, Ontario and B.C. where electricity is produced mostly from clean-energy sources.

In our recent publication, we estimated the cost of each tonne of GHGs not emitted thanks to the Ontario and Quebec programs by dividing the cost of the subsidy by the quantity of emissions avoided. We thus arrive at a total of $523 per tonne in Ontario and $288 per tonne in Quebec. The cost in B.C. would be somewhere in between, maybe $400 per tonne. Yet the real cost is likely much higher. The main reason is that a certain number of buyers of electric vehicles would have made their purchases even in the absence of subsidies. One study estimates that this is the case for half of buyers in Quebec. This means that half of these subsidies, which will total hundreds of millions of dollars in a few years, are a pure loss.

Twenty-nine times the carbon market price

But let’s put on our green-tinted glasses and assume that each subsidy is well-targeted and helps replace a gasoline-powered vehicle with an electric one. The price paid is nonetheless very high compared with the result obtained, and compared with other existing solutions for reducing GHG emissions.

In the North American carbon market, which groups together California, Quebec, and soon Ontario, the price per tonne of GHGs, and thus the marginal cost for a company to eliminate this tonne, was $18.51 in the most recent auction. The federal government, for its part, will tax carbon at $10 per tonne in 2018, climbing to $50 in 2022.

By subsidizing the purchase of electric cars, the Ontario government is paying 29 times more than the carbon-market price and 52 times more than the future federal tax when it comes into effect next year. For Quebec, the corresponding figures are 16 and 29 times more. Even if we take the maximum amount of the carbon tax, namely $50 in 2022, electric vehicle subsidies remain the most expensive option by far.

What about impact?

Another way of illustrating the inefficiency of these programs is to evaluate the portion of current GHG emissions that would be eliminated thanks to the replacement of gasoline-powered vehicles by electric vehicles. Even if the Quebec government achieved its goal of having a million electric vehicles on the road by 2030 (and assuming these were all fully electric), in the best-case scenario, only three million tonnes of GHGs would be avoided annually, or 3.6 per cent of current emissions, at a total cost of $4.6 billion to $8.6 billion. In comparison, the brand new Port Daniel, Que., cement plant (itself the beneficiary of substantial subsidies) will emit nearly 1.8 million tonnes of GHGs a year all on its own.

As for Ontario and B.C., they’ve set annual sales targets for electric vehicles of five per cent of total sales by 2020. This is less ambitious than the Quebec program, and so the GHGs avoided in these provinces will amount to mere drops in the bucket.

Insofar as the reduction of GHGs is becoming a priority, the innovation that emerges naturally from the market remains the preferable path. If our legislators think that additional incentives are required, pricing carbon through a tax or a carbon market creates less distortion in the market than subsidizing the purchase of electric vehicles, which is expensive and will have little effect.

Germain Belzile is a senior associate researcher at the Montreal Economic Institute. Mark Milke, formerly a senior fellow at the Fraser Institute, is a Calgary-based independent policy analyst.