The effort by some Canadian economists to scupper government incentives for the purchase of electric vehicles (EVs) is off the mark.
The Montreal Economic Institute, which frequently advocates against government programs, argues that the cost per tonne for emission reductions achieved through EV subsidy programs in Ontario and Quebec is high and the programs should be abolished. Meanwhile, the Ecofiscal Commission, a group of economists urging the use of carbon pricing as the primary tool for reducing emissions of greenhouse gases, questions whether a slow uptake of electric vehicles justifies targeted consumer incentives. It too criticizes the cost of Quebec’s consumer incentives.
These conclusions have been echoed by some media outlets. Such views are misguided, for three interconnected reasons.
First, it takes years if not decades of action before new energy technologies become broadly used, and in the initial kick-starting phase, costs are higher than they will be in later stages. This pattern can be seen in the recent history of alternative energy production.
In the past few years, the cost of solar and wind technologies has fallen sufficiently to make them competitive with coal- and natural-gas-fired electricity. To some, the economic viability of solar and wind seems to have developed suddenly. In fact, it was the result of decades of government mandates and incentives. Germany started subsidizing rooftop solar over 25 years ago, in the early 1990s. The US established the wind energy production tax credit in 1992. The government of Canada brought in its first wind power incentives in 2000. Such efforts by governments around the world created the large volume of sales required for manufacturers to improve technologies, scale up production and bring costs down.
In the early years, some government incentives for wind and solar projects were expensive. But because of them, grid-scale solar and wind are now increasingly competitive with new coal and natural gas plants, even ignoring the benefits of reduced GHG emissions. Solar and wind are winning out over fossil fuels in competitive bids in the US, and India and China are cancelling proposed coal-fired plants in favour of solar and wind.
Not only did wind and solar technologies need to mature; the systems within which they operate also had to change. Corporations, governments and utilities are still working on electricity storage technologies as well as smarter grids and regulations to allow solar and wind to contribute a larger share of electricity production in the future.
We are now at the early stage of a similarly complex shift to EVs. Despite strong commitments by automakers to produce EVs, most recently by Volvo, a fast pace of consumer acceptance is not a given. But robust sales growth is required to solidify the commitment of automakers and justify the construction of the EV fuelling infrastructure.
No one wants to waste money, and the cost per tonne of avoided GHG emissions is a key metric for governments when selecting longer-term and larger-scale actions. But this should not be the metric at the beginning stages of a long transition to a clean technology. Governments can and should tailor the tools to the circumstances, with higher levels of assistance at the early stages of technology development and adoption, and lower levels of assistance, or ideally none at all, once technologies are well established.
A second reason why the economists’ analysis is wrong is that EVs are the only game in town for now. The technology cluster of electric vehicles, solar- and wind-generated electricity and improved batteries is the only option on hand to significantly reduce GHG emissions from the transportation sector. The availability of cropland limits the production of grain-based ethanol. The much-heralded potential for cellulosic ethanol, made from wood and agriculture wastes, has not come to fruition. The use of hydrogen-fuelled fuel cells to economically replace the internal combustion engine in passenger vehicles is not yet in sight.
Third, the need for rapid reductions in greenhouse gas emissions is clear. We are seeing unprecedented droughts and forest fires. Higher sea levels are contributing to frequent sunny-day floods along the US eastern seaboard. Heat waves are intensifying, causing difficult living conditions in already warm climates. Recently, flights from Phoenix were delayed because it was too hot for some planes to take off. Harm is being felt right now.
Time is of the essence. A financial think tank called Carbon Tracker, based in London, UK, calculates the volume of greenhouse gases that can be emitted before the total amount in the atmosphere makes it impossible to stay below a 2°C increase in global temperature. Its focus on cumulative emissions, rather than yearly emission rates, is sobering: the margin is getting smaller every year. We need to reduce emissions at a rapid rather than a leisurely pace.
So is the cost of consumer incentives justified? The combination of these three factors — being in the early stage of a major shift in technologies, the absence of other options to significantly reduce greenhouse gases from transportation and the urgent need for action — shows that the answer is clearly yes.
Canada is not alone in having this debate. In the US, state governments are being pressured by fossil fuel interests to drop incentives for EVs or even impose new fees on them. And some states are doing so, as reported by the New York Times in March. This is not a time for Canada to follow the US trend.
Governments with low-carbon electricity systems, including Ontario and Quebec, should use every means available to make the shift to EVs faster than the decades-long transition to grid-scale wind and solar. These tools include procuring EVs, subsidizing highway and in-home charging stations, and investing in the smart electricity grid infrastructure to support them.
If some higher-cost government actions such as consumer incentives are also required during the initial stages of the technology shift, so be it. There is no time to lose.
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