Regulations and carbon pricing can work together

by Aaron Wherry

On Friday, the Harper government’s new fuel efficiency regulations were published in the Canada Gazette, including the full cost-benefit analysis.

These costs are incremental to the baseline so, for example, technology costs add $195 million (present value) to the costs of the model year 2017 fleet, and add $2.4 billion (present value) to the costs of the model year 2025 fleet.

The incremental technology costs for model year 2017 are expected to be $127 for cars and $162 for light trucks, increasing to $1,856 for cars and $2,453 for light trucks in model year 2025 in order to meet the increasingly stringent standards of the proposed Regulations. In reality, relative changes in vehicle prices and performance may affect consumer choice; however, it is not within the capacity of the analysis to model consumer choice.

PJ Partington of the Pembina Institute defends the new standards and argues that a price on carbon would complement such regulations.

None of this is to say that carbon pricing doesn’t have an important role in tackling emissions from transportation. Carbon pricing would support these regulations by creating more demand for fuel-efficient vehicles and encouraging people to reduce their vehicle use. Carbon pricing would also provide revenues that governments could re-invest in clean transportation options like transit and electric vehicle infrastructure.

We don’t see it as a choice between carbon pricing and efficiency standards: they’re complementary, not alternatives. By ensuring that efficiency continues to improve across the board, standards like these help manage the impact of higher gas prices from carbon pricing, and ensures that they will have plenty of cleaner options to choose from. The Western Climate Initiative, which features a cap-and-trade system, also sees stringent vehicle standards as a key complementary policy to carbon pricing. An economic modeling assessment of climate policy options for Canada that we published in 2009 took the same approach. 




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Regulations and carbon pricing can work together

  1. Ha! This Partington feller must be some kind of coward, making these statements from behind the safe walls of a some lefty think tank. He needs to stand up and say these things in the HoC, where CPC sock puppets can yell, “carbon tax, carbon tax” at him repeatedly, for days on end, ad nauseum.

    Come to think of it, the CPC sock puppets may be instructed to accuse him of being a sneaky shill of the NDP and yell “carbon tax, carbon tax” at them instead.

  2. Jeezus Aaron, you are giving an incomplete story by focusing ONLY on costs. Then there are BENEFITS:

    Over the lifetime operation of all 2017 to 2025 model year vehicles, consumers can expect to receive $33.2 billion in pre-tax fuel savings.

    A model year 2017 vehicle subject to the proposed Regulations is expected to recoup the incremental fuel saving technology costs after just over two years of driving.

    A model year 2025 vehicle subject to the proposed Regulations is expected to recoup the incremental fuel saving technology costs after just over three years of driving.

    Total benefits to consumers, including pre-tax fuel savings, reduced refuelling time and additional driving resulting from increased fuel economy, are estimated to be $37.9 billion.

    • Those number show a pretty good ROI for the purchaser of the car, but how about CO2 reduction…some quick number crunching for the 2017 model year car:
      - $150 investment is recouped in 2 years, so $75 per year (fuel) savings
      - at (round numbers) $1 per litre, the fuel savings are 75 litres per year
      - which is roughly 50 kg of carbon per year
      - which is a bit over 100 kg (0.1 tonne) of CO2 per year
      - after 10 years, total CO2 reductions are about 1 tonne

      But would you say that the cost of that tonne was $150, or was it negative $600?

      • You have to look at it from the perspective of the person who is “paying”.

        Two examples:

        1) Say the gov’t decided to pick up the tab through a direct subsidy. The cost to the gov’t (and society) would be $150/tonne (using your numbers). The benefactor gets a $600 gift.

        2) The consumer picks up the cost in the price of the vehicle. He has a negative cost of $600 (again using your numbers). And a positive cost of $150 at day 0, so net he is $450 ahead (not allowing for discounting or inflation).

        • 1) should be: “The consumer gets a $750 gift”

          yikes.

        • Now for the tougher question…how do you suppose Mr Gordon would score this?

          • Based upon previous tweets and blogs? My guess is he wouldn’t.

      • Oops, I now see you already backed the cost out of the savings. ($75 x 10) -$150 = $600. So, part 2 I am double counting the $150. Should be $600 savings or negative $600 cost, not $450.

  3. Does Harper’s base know that he’s doing this? After all, climate change is just a leftist plot created by Noam Chompsky to make God dead and to annoy SUV owners. Or something.

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