Are electric vehicle subsidies the right approach?

MONTREAL, June 22, 2017  – While Quebec and Ontario are trying to stimulate the sale of electric vehicles, an Economic Note published by the MEI shows that subsidizing the purchase of such vehicles may be the least efficient and most expensive way of reducing greenhouse gas (GHG) emissions.

“It’s just a waste,” says Germain Belzile, Senior Associate Researcher at the MEI and co-author of the publication. “Not only do these programs cost taxpayers a fortune, but they also have little effect on GHG emissions.”

According to the Institute, even if the Quebec government were to achieve its very ambitious goal of having one million electric vehicles on the province’s roads by 2030 (there are currently fewer than 6,000 of them on the road), this would only avoid 3.6% of our current level of emissions.

The same situation prevails in Ontario where, if it aimed for proportionally the same target, the province would eliminate just 2.4% of its current emissions.

Quebec provides a subsidy of $8,000 for the purchase of a new electric or rechargeable hybrid vehicle, and Ontario for its part provides a subsidy of up to $14,000. These subsidies cost taxpayers $523 per tonne of GHGs not emitted in Ontario, and $288 per tonne in Quebec.

In comparison, the same goal of reducing GHGs costs around $18 through the existing carbon market, which groups together California, Quebec, and soon Ontario. And it will cost between $10 and $50 per tonne of GHGs avoided with the federal government’s impending carbon tax.

“Between the different incentive measures that produce the same results, the most expensive option should never be favoured,” emphasizes Germain Belzile. “Subsidizing the purchase of electric vehicles represents without a doubt the worst option among current solutions.”

In subsidizing the purchase of electric vehicles, the Ontario government ends up spending 29 times the carbon market price for each tonne of GHGs eliminated, and 52 times the rate of the upcoming federal tax when it comes into effect next year. For Quebec, the figures are 16 and 29 times.

“The real costs are probably even higher, since half of buyers of electric vehicles would make their purchases even without the subsidy,” explains Mark Milke, independent policy analyst and co-author of the publication.

“Those subsidies are therefore a pure loss, with no resulting reduction in GHGs.”

“The Quebec and Ontario governments have to face facts. Subsidies for the purchase of electric vehicles not only have little effect on GHG emissions, but they also cost taxpayers a lot of money.

Common sense, both economically and ecologically speaking, argues in favour of reducing these subsidies, and even eliminating them,” concludes Mark Milke.

The Economic Note entitled “Are Electric Vehicle Subsidies Efficient?” was prepared by Germain Belzile, Senior Associate Researcher at the MEI, and Mark Milke, independent policy analyst. This publication is available on this website.

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.