According to the MEI, subsidizing electric cars would be 137 times too expensive
Montreal, November 27, 2014 – The rapid increase in the number of electric cars around the world is in large part due to generous government subsidies, the aim of which is to reduce greenhouse gas emissions. The government of Quebec has also adopted an ambitious action plan that initially aimed to increase the number of electric cars on its roads to 300,000 by 2020, and the Ontario government has similar incentives in place.
Do the environmental benefits of such programs justify the costs? In an Economic Note published today, the MEI analyzes the efficiency of the programs put in place in Quebec, and also in Norway, which is considered to be the global leader in the electrification of transportation.
The Norwegian government has expended considerable efforts to encourage the population to embrace electric vehicles. The results are disappointing, since it turns out that it costs them $6,925 per tonne of GHGs avoided, whereas the price in Europe for emission quotas is around $7.84 per tonne. “By subsidizing electric cars, the cost of avoiding the production of a tonne of GHGs is therefore 883 times higher than the observed price per tonne on the carbon market,” explains Youri Chassin, author of the publication.
By adopting the same strategy in Quebec, according to the author’s calculations, this cost would be lower than in Norway, but still be very high at $1,560 per tonne of GHG emissions avoided. In comparison, the price of emission quotas on the Western Climate Initiative carbon market to which Quebec belongs is $11.39 per tonne. Instead of spending $12.1 billion on this strategy, the Quebec government could therefore achieve the same environmental result by buying emission quotas for around $88 million, or 1/137 of the cost.
“Relatively modest environmental benefits, corresponding to around 1% of Quebec’s GHG emissions, do not justify such a program. As the Robillard committee proposes revisions to numerous inefficient programs, it would be appropriate to question the relevance of pursuing this one,” concludes Youri Chassin.
The Economic Note entitled “Do We Need to Subsidize the Purchase of Electric Cars?” was prepared by Youri Chassin in collaboration with Guillaume Tremblay, respectively Economist and Research Director and Associate Researcher with the Montreal Economic Institute. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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