For those dreaming of a future of electric vehicles, look to Norway: In 2021, two-thirds of cars sold in the country were zero emission.
The figure has climbed quickly higher in recent years; in March, 86 per cent of new cars sold in Norway were fully electric. The country is rapidly nearing its goal of EVs making up 100 per cent of new car sales by 2025.
Norway and Canada have a lot in common. Both countries have very clean electricity grids, with nearly all of Norway’s power coming from hydro. Yet, like Canada, Norway is a major producer of oil and gas, which are founts of the nation’s wealth – including decades of savings and gains in a $1.6-trillion sovereign wealth fund.
To lower emissions, Norway has pushed its citizens to buy electric cars by offering taxpayer subsidies – very large subsidies.
For example, an electric VW Golf in Norway costs about €33,300. A gasoline-powered Golf’s base price is €22,000, but after various charges and taxes, the price comes in at €34,100. To encourage EV purchases, EV buyers are exempt from those charges.
Like Canada, Norway is also encouraging people to switch to EVs by building up the country’s network of electric charging stations, and through a carbon tax on gasoline.
Norway’s carbon price is rising from about $85 a tonne last year to nearly $300 in 2030; Canada’s is at $50 a tonne, rising to $170 by 2030.
But it is tax breaks – the subsidy to car buyers in the above example of around €12,000, or more than $16,000 – that have pushed so many Norwegians get an EV.
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There are cautionary lessons for Canada here. In last week’s federal budget, Ottawa staked an additional $1.7-billion over three years on subsidies for EV buyers, plus $548-million to encourage businesses to switch to medium- and heavy-duty EVs.
The goal of any emissions-reduction plan is to get rid of the most pollution at the least cost. Why? Because taxpayer resources are finite. And in many if not most situations, putting a price on carbon is generally the most efficient – as in, cheapest – way to reduce emissions. It leaves it to consumers and businesses to figure out how they can best reduce their costs. There is also value in smart regulations, such as the rules that over the past couple of decades have made appliances use less electricity, and light bulbs around 90 per cent more efficient.
Subsidizing EVs, in contrast, carries a high price tag, with limited bang for all those bucks. A recent International Monetary Fund working paper found that Norway’s subsidies for electric cars are reducing emissions – but at a hefty cost of more than $700 a tonne.
What’s the cost in Canada? It appears to be high, and higher than the alternatives. A 2017 study from Ecofiscal pegged the cost on Quebec’s EV subsidies at $400 a tonne. A recent Macdonald-Laurier Institute review estimates the marginal cost of the Ottawa’s EV program at $355 a tonne. That is far, far more expensive than the federal carbon price.
And a subsidy to buy a car is regressive, since the money only goes to those wealthy enough to own a car, and is in part paid for by poorer taxpayers riding the bus. There’s also the problem of “free ridership” – that some people who got taxpayer cash for buying an EV were going to buy one anyhow. In such cases, the subsidy is expensive, regressive and not even buying any emission reductions.
Clean Energy Canada estimates about half of Canadians are inclined to consider buying an EV for their next car. Some will do so without a subsidy. As for the rest, a subsidy is a very expensive way for other taxpayers to buy lower pollution.
And the emission reduction of an electric vehicle depends on what’s generating its electric power. British Columbia, Quebec, Manitoba and Ontario have grids that are zero emission, or close, thanks to hydro in the first three and hydro plus nuclear in Ontario. But, according to one study, an EV in Saskatchewan and Nova Scotia, where the power is carbon fuelled, can actually generate slightly more emissions than a gas-electric hybrid
The goal of more drivers in electric vehicles is, all else equal, a good one. But getting there by offering big subsidies to a small number of new car purchasers is highly inefficient – ecologically, economically and fiscally. The cost is high. The environmental impact is middling.
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