As Canada moves to more diversified transportation energy sources, governments must be transparent about the true cost of GHG mitigation policies and the best possible pathways to lower GHG emissions significantly.

By Peter Boag

Canada’s First Ministers set the target in March 2016: a 30 percent reduction below 2005 levels of greenhouse gas (GHG) emissions by 2030. They gave the nod to carbon pricing as a policy approach to reduce GHG emissions. Two carbon pricing options have gained favour: a carbon tax levied on the volume of emissions (typically per tonne), and a cap-and-trade system that sets a limit on GHG emissions and requires emitters to buy allowances from a fixed supply. The federal government has proposed that the price per tonne should start at $10 in 2018 and rise to $50 per tonne by 2022.

So we have a target. We have the carbon pricing tools. We have the price. All of that is reasonably clear. What is not so clear is how the price will impact individuals and businesses across Canada. What will be the real cost of meeting our GHG reduction targets, especially in the context of the multiple ‘complementary’ policy initiatives being pursued by the federal and provincial governments?

 

In search of transparency

There is a yawning information gap between the abstract idea of a price per tonne of CO2e (carbon dioxide equivalent) and a dollar-figure impact on annual household and business bottom lines. Many economists estimate that the real cost of GHG abatement is a great deal higher than some governments would have us believe. Without question, calculating these costs is highly complex. But that should not be an obstacle to transparency.

Accurate figures are difficult to find from government sources. The Parliamentary Budget Office—an independent body—estimated in April 2016 that reaching the 30 percent reduction target would cost 1 percent to 3 percent of GDP, or between $600 and $1,900 in per capita income by 2030.1

The Conference Board of Canada estimates carbon pricing will increase household and industry product prices across the board, raise average consumer bills by $1,200 a family, and reduce GDP by 3 percent in 2020, and 2 percent in 20252.

Macleans magazine did the math in late 2016 and found that a $50 per tonne tax would cost the average Canadian household approximately $1,100 per year, with $600 of that being direct costs related, for example, to transportation fuels and home heating.3

It’s no surprise transportation costs factor significantly in GHG reduction equations. The sheer size of our country and our profound reliance on imports and exports mean that any carbon price will impact consumers and businesses with higher costs for fuel and freight—most notably food.

Figure1 - Cost of carbon abatement [range]

The IPIECA report combines the findings of three independent studies to compare the cost of GHG emission abatement for cars and light trucks, from various emission reduction pathways compared to a gasoline-powered internal combustion engine baseline. The results identify a range of abatement costs for each pathway, based on differing assumptions and country specific circumstances.

Gasoline ICEV
Gasoline Internal Combustion Engine Vehicle
Gasoline HEV
Gasoline Hybrid Electric Vehicle
FAME
Fatty Acid Methyl Esters
HVO BTL
Hydro treated Vegetable Oil Biomass to Liquid
CNG
Compressed Natural Gas
PHEV
Plug-in Hybrid Electric Vehicle
BEV
Battery Electric Vehicle
FCEV
Fuel Cell Electric Vehicle

Valuable policy guidance

IPIECA (the global oil and gas industry association for environmental and social issues), recently released a report4 that offers some vivid insight into the real costs of transportation GHG abatement. IPIECA has been championing best practices in environmental and social performance for more than 40 years. This new report compared three studies, all conducted within the last two years under the auspices of either government bodies or independent experts. All three studies aim to provide guidance to policy-makers on the best vehicle and fuel technology choices to reduce road transport GHG emissions at the lowest cost.

The advice is timely. Governments across Canada are considering complementary policies and regulations with embedded costs potentially far higher than those associated with carbon pricing. To date, governments have been stingy with details, and the lack of transparency could be most disturbing with regard to subsidies to buy electric vehicles. The Montreal Economic Institute calculated earlier this year that provincial electric vehicle subsidies in Qu├ębecof between $4,000 and $6,000, and in Ontario up to $14,000 ring up carbon costs of $288 and $523 per tonne respectively5.

The IPIECA report sheds further light. All three studies consider the cost of GHG abatement to be the highest among electric vehicles, including plug-ins and fuel cell models, with costs ranging between $300 and $2,200 per tonne over those for gasoline-powered internal combustion engine (ICE) vehicles (see Figure 1). Only one of the studies factored in GHG emissions related to vehicle production and end of life. In that case, battery and fuel-cell electric vehicles contributed emissions eight to nine gCO2e/km (grams of carbon dioxide equivalent per kilometre) higher than ICE vehicles.

Rather than encouraging Canadians to buy vehicles they clearly don’t want, it seems to make more sense to create incentives that promote upgrades of older vehicles to new, fuel efficient, lower emission ICE powered vehicles.

Setting the terms

The meaning of many climate change terms and expressions often remain imprecise as they seep into the language. For example, the literature is populated with various alternative and abbreviating terms for greenhouse gas emissions reductions. GHG avoidance and GHG mitigation are common replacements, as is GHG abatement (aka carbon abatement). Essentially, GHG abatement is shorthand for any intervention, whether by process or technology, that diminishes the amount or intensity of GHG emissions.

Readers will likely also have encountered CO2e, or carbon dioxide equivalent. This is a standard GHG emission measurement that enables an emissions footprint consisting of various greenhouse gases—including methane and nitrous oxide—to be expressed as a single number.

Misguided subsidies

The three studies in the IPIECA report reached two other remarkably similar conclusions. First, they found that improvements in ICE technologies will lead to significant future GHG reductions. Second, the studies agree that gasoline hybrid technology has the potential to reduce fuel consumption between 32 percent and 36 percent relative to gasoline ICE vehicles.

It is difficult to reconcile these independent findings with policies that list heavily toward—for example—costly subsidies for electric vehicles, or Zero Emission Vehicle (ZEV) quotas. ICE vehicle fuel efficiency has improved by more than 20 percent over the past ten years. Engineers estimate a further 65 percent improvement is possible by 2050. Rather than fixating on subsidies to encourage Canadians to buy vehicles they clearly don’t want, it seems to make more economic and environmental sense to create incentives that promote upgrades of older vehicles to new, fuel efficient, lower emission ICE powered vehicles.

As Canadians prepare to shoulder the cost of our GHG reduction targets, shouldn’t policy makers opt for the least expensive path—one that minimizes the burden on individuals and the economy?


  1. Bagnoli, P. Canada’s Greenhouse Gas Emissions: Developments, Prospects and Reductions. Office of the Parliamentary Budget Officer. Canada, April 2016.
  2. The Cost of a Cleaner Future: Examining the Economic Impacts of Reducing GHG Emissions, Conference Board of Canada, September 2017.
  3. http://www.macleans.ca/economy/economicanalysis/heres-how-much-carbon-pricing-will-likely-cost-households/
  4. IPIECA, GHG Emissions and Cost of Carbon Abatement for Light-duty Road Vehicles: A compare and contrast analysis of public studies. 2017.
  5. Belzile, Germain & Milke, Mark, Are Electric Vehicle Subsidies Efficient? Montreal Economic Institute, 2017