Quebec's subsidy for consumer purchases of electric vehicles is an extremely expensive way of reducing greenhouse gas emissions, with the cost calculated at $395 per tonne of carbon dioxide eliminated, Ecofiscal Commission says in a report to be released on Thursday.
In the study, Ecofiscal – a group of prominent private-sector and university economists – urged Ottawa and the provinces to ensure that their climate-change policies yield low-cost emission reductions while minimizing government's role in picking technology winners.
It comes as governments at all levels pursue a host of measures – from building codes to low-carbon fuel standards to the phaseout of coal-fired power – to complement the carbon levies or cap-and-trade programs that have been adopted by Ottawa and most provinces.
The federal government recently established an advisory group that will recommend how it should encourage more sales of zero-emission vehicles, including the possible use of subsidies.
Prime Minister Justin Trudeau plans to impose a federal carbon price – starting at $10 a tonne next year and rising to $50 by 2022 – on provinces that refuse to adopt their own or don't meet Ottawa's minimum standard. However, like the provinces, it is counting on other regulations and incentives to limit the increase in carbon taxes that Canada would require to meet its commitment under the Paris accord to reduce greenhouse gas emissions by 30 per cent from 2005 levels by 2030.
In its report, Ecofiscal argues a rising carbon price should do the "heavy lifting" and "offers the most cost-effective way to reduce GHG emissions." However, experts such as Simon Fraser University's Mark Jaccard argue it would not be politically feasible to increase it to $200 a tonne by 2030, as would be needed to meet the Paris target through carbon pricing alone.
Still, Ecofiscal chairman Chris Ragan – an economist at McGill University – said future governments should raise the levy significantly after 2022, and could offset the impact of a higher carbon levy by lowering other taxes. "It would be a very bad outcome if the price peaked out at $50 in 2022 and everything else is done by complementary policies," he said in an interview.
The Ecofiscal report acknowledges that there are cases in which regulations and incentives are needed to overcome market barriers or deliver important benefits in addition to greenhouse gas emission reductions, or can achieve reductions more cheaply than an explicit carbon price.
It looks at three examples: Quebec's $8,000 electric-vehicle subsidy, a federal regulation to force the oil and gas industry to cut its methane emissions, and Alberta's plan to phase out coal-fired power by 2030.
Mr. Ragan said it is likely that any direct subsidy for electric-vehicle purchases would be an expensive way to reduce greenhouse gas emissions, although the report looked specifically at the Quebec program.
The province also has a carbon price through its cap-and-trade system, as well as regulations that require the auto industry to sell a certain number of zero-emission cars a year starting in 2018. Ecofiscal said it is not clear how much additional benefit is gleaned from the car buyers' subsidy, which it criticizes as high cost and lacking in fairness, since lower-income Quebeckers cannot afford the electric vehicles now on the market. "If you follow our framework, the onus is on [the government] to convince your voters and convince your taxpayers that the benefits are there and they're big," Mr. Ragan said. "Maybe they are, but in our analysis, they're not."
In contrast, the proposed federal regulation on methane emissions in the oil industry targets sources that are not covered by carbon pricing, and the Ecofiscal report calculates its cost at $13 a tonne.