We Still Need Electric Vehicle Incentives

In December 2016, Canadian governments announced the Pan-Canadian Framework on Clean Growth and Climate Change. Under the framework, Canada will have nationwide carbon pricing in 2018 – British Columbia, Alberta, Ontario and Quebec already have a carbon pricing policy in place. (By the way, I don’t like “carbon” pricing. We should have a more general “pollution” pricing but that is a topic best left for a future post).

In preparation for the roll-out of nationwide carbon pricing, Canada’s Ecofiscal Commission recently published a paper titled Supporting Carbon Pricing: How to identify policies that genuinely complement an economy-wide carbon price. In the paper, among other things, the commission recommends that “with the implementation of an economy-wide carbon price, governments should phase out and avoid redundant, high-cost, or ineffective policies” like electric vehicle incentives. I disagree.

To justify their recommendation, the commission carried out a case study on electric vehicle incentives in Quebec. Under Quebec’s Drive Electric program, drivers who purchase or lease fully electric, plug-in-hybrid or hybrid vehicles are eligible for up to $8000 in rebates from the government. The program began in 2012 and will run until 2020, or until the $93 million in total rebates are exhausted. Through the case study, the commission concluded that by 2030, Quebec’s Drive Electric program will by responsible for a reduction of 3 Mt CO2e at a cost of $395/tonne. These estimates were reached by comparing model scenarios between the years of 2017 and 2030 in which the subsidy exists within one but not within the other. The province’s carbon pricing policy was included in both scenarios.

Now, it’s possible that I could be misunderstanding the details of the commission’s calculations but I have two issues with their method as I understand it. First, assuming that the $93 million in funds was not exhausted in the model before 2020, the Drive Electric program would only be in effect for the first 3 years of the scenario. They did not run a scenario where the Drive Electric program was extended to the year 2030. This design decision seriously underestimates the emission reduction potential of the program. Second, I don’t believe that advancements in electric vehicle technology and their supporting infrastructure were factored in to the models. As technology and infrastructure improve, the percentage of fully electric vehicles purchased under the program will rise. Moreover, those vehicles will be able to drive further per unit of energy. Both of these facts would lead to a improvement in the cost effectiveness of the program below the estimated $395/tonne CO2e. Unless you believe that by 2020 electric vehicles, nudged along by carbon pricing, will reach critical mass in the market, it doesn’t make sense to exclude my two points from the simulation. Still, I will concede that even accounting for the two potential downfalls I pointed out, electric vehicle incentives are still much more expensive to the government than the universally agreed upon, though somewhat arbitrary, $20-$30/tonne CO2e cost of carbon pricing. However, just because electric vehicle incentives are more costly than carbon pricing doesn’t mean they aren’t worth continuing.

In addition to the high cost, the commission recommends that electric vehicle incentives be phased out because they reduce competition in the “alternative fuels” marketplace. Essentially, they argue that electric vehicles should not overtake the passenger vehicle market as a result of government policy but by natural costs and preferences. I agree with this thought in theory but not in this case, the risks of not acting quickly are too high to let the market run its course. We need to agree that electric vehicles are a far better solution to our transportation needs than what we have now and that they are a good enough solution to move forward with. I have many reasons to support those claims but here are three…

Below is the electricity generation capacity mix of each province and territory in Canada in 2014 and projected to 2040 from the National Energy Board. (I don’t really agree with the projections so try to pay more attention to the 2014 numbers).

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The only place it doesn’t make sense to drive an electric vehicle, from a purely environmental perspective, is Nunavut because they generate 100% of their electricity from oil anyways. Even in Alberta, with less than 20% of its electricity generation from renewable sources it still makes environmental sense to drive an electric vehicle. You can do the math for yourself using the carbon emissions numbers for coal, oil and natural gas from the U.S. Energy Information Administration if you don’t believe me.

Second, electricity prices will likely fall due to the proliferation of electric vehicles. More electric vehicles on the roads will put a higher demand on electricity. As a result, governments will be forced to increase generation capability. The cheapest way to due that right now is through renewable sources, typically solar and wind. Since the “fuel” for solar and wind is free, the operating costs of those generation sites are drastically reduced and those savings will be passed on the consumers.

Finally, you never know what we will discover by investing in electric vehicle technology and infrastructure. If you need proof, look no further than the breakthroughs we can thank the space race for. When we invest in electric vehicle incentives we aren’t just paying for carbon reductions. We’re paying for health benefits, cheaper electricity, technological advancements and things we probably can’t even imagine at this point in time. Let’s keep going.