Globe Editorial: Paying people to buy an electric car is a really expensive way to cut emissions

For those dreaming of a future for electric cars, look at Norway: In 2021, two-thirds of cars sold in the country were zero-emissions.

The number has risen at a higher speed in recent years; In March, 86 percent of new cars sold in Norway were all-electric. The country is fast approaching its goal that electric vehicles will make up 100 percent of new car sales by 2025.

Norway and Canada have a lot in common. Both countries have very clean electricity networks, with almost all of Norway’s energy coming from hydropower. However, like Canada, Norway is a major producer of oil and gas, which are both sources of the nation’s wealth – including decades of savings and gains in a $1.6 trillion sovereign wealth fund.

To cut emissions, Norway has pushed its citizens to buy electric cars by providing taxpayers with subsidies – very large subsidies.

For example, an electric Volkswagen Golf in Norway costs about 33,300 euros. The base price for a gasoline-powered Golf is 22,000 euros, but after various fees and taxes, it comes to 34,100 euros. To encourage the purchase of electric vehicles, buyers of electric vehicles are exempted from these fees.

Like Canada, Norway is also encouraging people to switch to electric vehicles by building a network of electric charging stations in the country, and through a carbon tax on gasoline.

The price of carbon in Norway has increased from about $85 per ton last year to nearly $300 in 2030; The Canadian price is $50 per ton, rising to $170 by 2030.

But it’s the tax breaks – the subsidy for car buyers in the example above is about 12,000 euros, or more than $16,000 – that drive many Norwegians to get an EV.

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There are cautionary lessons for Canada here. In last week’s federal budget, Ottawa set aside an additional $1.7 billion over three years to support electric vehicle buyers, as well as $548 million to encourage companies to switch to medium- and heavy-duty electric vehicles.

The goal of any emissions reduction plan is to get rid of the most pollution at the lowest cost. why? Because taxpayers’ resources are limited. And in many, if not most cases, setting a price for carbon is the most efficient — as well as the cheapest — way to reduce emissions. It leaves it up to consumers and businesses to figure out how best to reduce their costs. There is also value in smart regulations, such as rules that over the past two decades have made appliances use less electricity, and light bulbs 90 percent more efficient.

In contrast, subsidizing electric vehicles comes with a steep price tag, with limited fanfare for all those dollars. A recent International Monetary Fund working paper found that Norway’s subsidy of electric cars reduces emissions – but at a steep cost of more than $700 per ton.

What is the cost in Canada? It appears to be louder and higher than the alternatives. A 2017 study by Ecofiscal pegged the cost of subsidizing electric vehicles in Quebec at $400 per ton. A recent Macdonald-Laurier Institute review estimated the marginal cost of Ottawa’s electric vehicle program at $355 per ton. This is much more expensive than the federal carbon rate.

And subsidies for buying a car are regressive, as the money goes only to those rich enough to own a car, and is paid in part by poorer taxpayers who ride the bus. There’s also the “free ride” issue – that some of the people who got taxpayers’ money for an electric car would have bought one anyway. In such cases, subsidies are costly and regressive and do not even buy any emissions reductions.

Clean Energy Canada estimates that about half of Canadians tend to consider purchasing an EV for their next vehicle. Some will do so without subsidy. As for the rest, the subsidy is a very expensive way for other taxpayers to buy less pollution.

The reduction in electric vehicle emissions depends on what generates its electric power. British Columbia, Quebec, Manitoba, and Ontario have zero-emissions grids, or close to it, thanks to hydro power in the top three and hydro plus nuclear power in Ontario. But, according to one study, an electric vehicle in Saskatchewan and Nova Scotia, where the power is fueled by carbon, can generate slightly more emissions than a gas-electric hybrid.

The goal of increasing the number of drivers in electric cars is a good one, all else being equal. But getting there by offering big subsidies to a small number of new car buyers is very inefficient – environmentally, economically and financially. The cost is high. The environmental impact is average.

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