Why does Peter Kent want you to pay more for a car?

by Aaron Wherry

As a result of the greenhouse gas emissions regulations announced yesterday, the purchase price of cars will increase.

Officials estimated the cost of an average car would climb by $700 in 2021 and by $1,800 by 2025 when the rules would be fully phased in, though some industry analysts say the price tag could be as much as $5,200 per vehicle depending on the technology needed to achieve the efficiency gains. But Canadian officials also say the motorists would save $900 annually in fuel costs at today’s gasoline prices…

The Center for Automotive Research , an auto industry think-tank based in Ann Arbor, Mich., estimates the cost of the average new vehicle will rise by $5,200 in 2012 dollars as auto makers add expensive new technologies to meet the higher miles per gallon standard. “The [auto makers’] research and development departments tell us the true cost is more like $10,000 per vehicle by 2025,” Sean McAlinden, CAR’s executive vice-president of research and chief economist said Tuesday.

The new regulations follow current regulations that will also increase the purchase price. The Canadian regulations are modelled on the American regulations, which Eduardo Porter questioned in September.

What the government didn’t mention is that these improvements come at a high cost for drivers, automakers and society in general. They could be achieved much more cheaply by raising taxes on gasoline to a level comparable to that of pretty much every other industrialized nation. The new mileage rules are so expensive, in fact, that even if one factors in all the expected gains from the policy — like less damage from climate change and fewer deaths from respiratory disease — many economists think that the costs actually outweigh the benefits.

The reason is fairly straightforward. Fuel-efficiency standards do not really change drivers’ behavior in a helpful way. Gas taxes do. Consider how a gas tax would work. Because it would make gas more expensive at the pump, we would drive less. When time came to replace the old family S.U.V., we would be more likely to consider a more fuel-efficient option. As more Americans sought gas-sipping hybrids, carmakers would develop more efficient vehicles.

Peter Kent’s speech yesterday announcing the changes is here.




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Why does Peter Kent want you to pay more for a car?

  1. Kent doesn’t have choice in the matter, not really. Canada vehicle market not big enough to be its own market, foreign carmakers are not going to make special cars for Canada. Kent is taking credit for Obama initiative that Canada has to follow or else vehicles prices will really escalate. I also think a different President will change Obama’s proposals if automakers are struggling to develop new fuel efficient technology.

  2. Harper’s approach on “climate change” has always basically been, that Canada is still and will remain mainly part of a North American market, and thus, Canada will take measures that will mesh with whatever the United States does, so as to not fundamentally undermine Canada’s economic position and competitiveness relative to the United States.

    This is also true on a carbon tax or the tradeable carbon tax (cap-n-trade).

    When the Americans get a carbon tax (which ain’t likely anytime soon), Canada will get one.

    • And I am glad for that. If we had a similar relationship with the EU, we’d be stuck with thier corrupt carbon trading system. What a mess.

  3. The new mileage rules are so expensive, in fact, that even if one factors in all the expected gains from the policy — like less damage from climate change and fewer deaths from respiratory disease — many economists think that the costs actually outweigh the benefits.

    Oh, then it must be wrong. At least that’s what last night’s twitter activity confirmed.

    1. Regulating fuel standards and imposing a carbon tax are not mutually exclusive.

    Any form of carbon tax can be imposed at any time by any successive gov’t. Btw economists, got a forecast for the price of gasoline in 2025 that would not in itself reduce consumption?

    2. This essentially is low hanging fruit. Would Canada NOT harmonize standards with the US on such an important sector as automobiles?

    Hey, use the existing Ambassador Bridge for US vehicle parts, and the new Windsor-Detroit bridge for Canadian parts.

    The critics will argue, of course, that by having more efficient vehicles, people will drive more and there will be no net gains. “Hey Doris, I forgot something at the office. I’ll be back in 2 1/2 hours after my hour commute, and run up to the office. This fuel efficient vehicle sure puts the fun back in not doing other things with my limited time.”

    3. I would just like to point out that, unlike say changing regulations requiring catalytic converters on vehicles to reduce CO (carbon monoxide) and NOx (brown haze from incomplete combustion) which is clearly a cost to the vehicle purchaser, fuel efficiency investments have a payback in reduced fuel costs, which may in fact be positive (a negative cost) , from the purchaser’s perspective (depending upon how many miles driven, vehicle, forecast cost of gas and vehicle improvements).

  4. In other words: no one is sure of the cost to be incurred for making these changes a reality.

    Of course, at the onset, auto manufacturers would estimate the cost to be high because they would most likely not like to make these changes.

    On the other hand, believing that an added tax cost to gasoline will lead to less driving, is a myth. Over time people will get used to a higher tax included gasoline price and will drive as usual. Gasoline cost has increased over time and most people still drive as if nothing has changed. Some driver may opt for a vehicle with better gas mileage. But driving less, for most people, is not the norm.

    • Riiight. Price has no effect on consumption, because people just get “used to it”. Apparently everyone has unlimited resources to ignore price increases. Either that or they make do with less elsewhere so that they can continue consuming the same amount of fuel, for reasons know only to Francien.
      I would have thought the wingnuts here would all be up in arms that Harper is adopting a socialist model dictating what everyone can drive, rather than simply internalizing costs and leaving everyone free to make their own choices.

      • Ah, you assume, as do so many others, that individual behaviour is a responsible behaviour at all time, or at least: most of the times. That’s an illusion my friend. And the smart thing to do would be to let the illusions be for what they are.

        • “Responsible behaviour” has nothing to do with anything I said. Try again.

          • It has nothing to do with anything you’ve said (in your referred to post) if you believe that GHG emissions have nothing to do with personal responsiblities.

          • Ah, no. Where does “personal responsibility” have any bearing on my specific comment.
            Please be specific.

      • ..”they make do with less elsewhere so that they can continue consuming the
        same amount of fuel, for reasons know only to Francien.”

        Yes, its called Jevons paradox. Wikipedia “the proposition that technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource.”

        So its not only known to Francien.

    • “On the other hand, believing that an added tax cost to gasoline will lead to less driving, is a myth.”
      Meh, maybe, maybe not. Depends on the extent of the tax. What it definitely influences is car-buying behaviour. Look at the summer of 2008. Oil prices spiking to $147/barrel showed there is a tipping point. SUV sales and prices plummeted that year (I remember a neaby used car lot in my area couldn’t give the things away that year), while small car/hybrid sales held strong.
      Higher gasoline prices can certainly influence this, and perhaps nudge Suburban-drivers to consider a mid-size SUV, mid-size SUV drivers to consider a small crossover, and small crossover drivers to consider a compact. To the extent that happens through the economy, over time, carbon emissions will fall.

  5. Hey…and note that Obama and the Democrats chose regulations for the auto industry and their union supporters, rather than a whopping carbon tax on gasoline, which arguably, according to Wherry, Gordon, Leslie, etc. would be a more efficient way of accomplishing the same thing.

    • I can see the argument for carbon tax vs regulation across a wide range of industries and companies. I just have real difficulty with this sector (transportation). You’d have to really crank the price of gas up to get significant movement in the market to creating more demand for more fuel efficient vehicles.

      If I’m not mistaken, car companies also support this type of regulation.

  6. It’s an interesting debate, but what I do find a bit troubling about Porter’s comments is that they seem to reflect a fundamental assumption that the primary goal of all environmental regulation should to “change people’s behaviour”. I don’t agree with that. I think the primary goal of all environmental regulation is to protect the environment. You don’t always have to change people’s behaviour in order to protect the environment. For example, smokestack scrubbers and catalytic converters have done a lot to protect the environment. I agree that sometimes you need to encourage behavioural change, but that shouldn’t be the overriding focus.

    • You’re right but that’s not what the greenies want. They want to control and change your behaviour, saving the planet is merely their excuse.

  7. Greenhouse gas emissions in Canada have declined by about 5% since 2005, from 740 Mtsyr to 692 Mtsyr in 2010.

    Here is the data: http://www.ec.gc.ca/indicateurs-indicators/default.asp?lang=en&n=FBF8455E-1

    It is confirmed by IPCC. What’s really impressive about this record is that Canada’s population is booming, growing an average of 1.2% a year, and GDP has grown at an even faster clip.

    The Harper government’s record on GHG emissions is so outstanding that I question why they are doing this.

    • How much of that was the closure of the massive Nanticoke coal plant, in Liberal Ontario, combined with the coming on line of the Bruce Nuclear refurbishments and a huge reduction in industrial demand from shuttered auto and steel plants? I’d reckon: a lot.

  8. Dear Opposition Parties,

    According to politics as defined by our governing party, this shall be described as a “Conservative $5200 Tax on Cars That Hurts Working Families.”

    Alternatively, “The Job-Killing $5200 Per Car Conservative Tax,” “The Economy-killing $5200 per Car Conservative Tax” or “The $5200 per Car Conservative Tax That Will Kill Canadian Manufacturing.”

    Please choose one, and insert into every sentence until further notice. To cope with the inevitable cognitive dissonance, meditate and slowly repeat the mantra “It doesn’t have to be true, it just has to be plausible.”

  9. Wow, with significantly better gas mileage we can kiss the electric car goodbye and extend our addiction to fossil fuels for centuries into the future. Thanks Peter!

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