ONTARIO’S SUBSIDIES TO ALL-ELECTRIC CARS MAKE NO SENSE

Contributed by energy economist Robert Lyman @June 2016

The Liberal government led by Kathleen Wynne in Ontario recently announced a major new subsidy program to reduce greenhouse gas emissions from transportation in the province. The stated goal of this taxpayer and consumer-funded program is to increase the number of electric vehicles (EVs) purchased in the province to one in twenty new car sales by 2020. In 2015, according to DesRosiers Automotive Consultants, car dealers sold 760,511  passenger vehicles in Ontario, so the goal is sales of about 38,000 EVs by 2020.

Today, there are 5935 EVs in Ontario out of a total of 18,451 EVs in Canada. Total new EV sales in Canada in 2015 were 6,933, out of total new car sales of 1,898.000. EV’s now represent 0.36 % of new car sales (roughly one in every 300 cars sold).

First, consider the costs and benefits from the consumer’s perspective.

The Nissan Leaf was the first “battery electric vehicle”. It uses state-of-the-art lithium batteries. In the U.S. the Leaf costs more than twice as much ($35,430 vs. $17,250) as a comparable Nissan Versa. At current electricity rates and gasoline prices, a consumer would have to drive the Leaf at least 164,000 miles to recover its initial purchase costs. Driving the Leaf 60 miles a day, it would take the consumer more than nine years to attain payback (including interest).

Apart from the upfront capital cost, there are three major problems with the Leaf compared to the Versa – range, refueling time and performance in cold weather. Nissan claims that the Leaf has a range of about 100 miles. However, in a three-month road test, Car and Driver magazine obtained an average range from a full charge of 58 miles. It takes perhaps five minutes at a gas station to refuel a conventional car that will achieve 300 to 400 miles of range. In contrast, it takes 20 hours to completely recharge a Nissan Leaf from 110V house current. (A 240V charger would shorten this time to eight hours; purchase plus installation will cost from $2000 to $2600 in Canada.)

Running out of gas can be an inconvenience, but running out of an electric charge would be a major headache. A dead EV would have to be loaded on a flatbed truck and taken somewhere for many hours of charging before it could be driven again. The risk might be low in sunny California, but what would happen in a major snowstorm and cold weather that snarled traffic in a city like Toronto for three hours? If there were a hundred thousand EVs on the road at the time, every one would have ended up on the side of the road, dead.

What about all those environmental benefits? Well, first, you have to believe in the theory that humans are causing catastrophic global warming, a theory being undermined every day by the failure of global temperatures and weather to behave in accordance with the models used by the Intergovernmental Panel on Climate Change. However, let’s set that aside for the moment because it is not necessary to disprove either the science or the modeling of alleged global warming to show how foolish EV subsidies are.

The greenhouse gas emissions associated with an EV can be calculated over its entire life cycle by including the emissions due to its manufacture. That produces 13.7 tonnes of GHGs, including 5.2 tonnes just for the battery, compared to 6.5 for a conventional car.

The benefits of lower emissions during operation of EVs depend on what value one places on the emissions avoided, compared of course to the costs of avoiding them.  The Montreal Economic Institute performed an analysis of the emissions that would be avoided by replacing conventional vehicles by EVs. It assumed that each new EV would replace an average gasoline-powered car that travels 15,581 km per year (quite high given their limited range) and consumes 8.2 litres per 100 km. In this case, the use of an EV would lead to an annual reduction of 2.6 tonnes of GHG emissions. Under the Quebec program that offers $4,000 in subsidy per vehicle, the cost of the subsidy would be $1,560 per tonne avoided. Taking into account the extra tonnes of emissions related to the manufacture of an EV, the cost per tonne of the subsidy rises to $1,912. The Ontario subsidy program for EVs has been up to $8500 per vehicle; effective February 16 of this year it was raised to a ceiling of $14,000 per vehicle. That means that the cost per tonne could be up to $6,692.

How large of a subsidy would be justified, assuming again that one accepted the need for any at all? One way to determine this is to compare the value of the subsidy to the market price of carbon credits traded on international markets or within cap and trade systems. The price of a tonne of GHG emissions on the Western Climate Initiative carbon market to which Ontario belongs was U.S. $12.73 per tonne for the most recent auction. On June 10, 2016 the price per tonne on international carbon markets was U.S. $5.96.

Another way of calculating the maximum value of a subsidy would be to use the controversial concept of the “social cost of carbon”. This is a cost calculated as the present value of avoiding future global warming effects 100 years hence; it depends upon many assumptions, perhaps the most important of which are the discount rate (i.e. the time value of money) and the sensitivity of the climate to increased carbon dioxide concentrations. The current range of estimates of the social cost of carbon used by international institutions and governments is from $10 to $100 per tonne today, rising to $50 – $800 per tonne by 2050, depending on the discount rate used.

A paper recently published by Ross McKitrick, Kevin Dayaratna and David Kreutzer of the Heritage Foundation, using empirical (as contrasted with model-simulated) estimates of equilibrium climate sensitivity to rising carbon dioxide levels, produced a much lower estimate of the social cost of carbon. Their estimate was in a range of $3.33 to $19.52 per tonne in 2020, depending on the parameters used.

No estimate of the value of carbon as determined by actual market trading or academic estimates of the present value of future climate effects comes remotely close to justifying a subsidy for EVs as large as the one Ontario has introduced. In other words, the social costs far exceed the benefits by any reasonable standard.

If one used the former Ontario subsidy of $8,500 per EV as indicative of the average subsidy under the new program, attaining the target of 38,000 EV sales in 2020 would cost $323 million. That would reduce Ontario’s annual emissions by 98,000 tonnes, compared to Canada’s annual emissions of 732 million tonnes. This is simply expensive symbolism.

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