Climate change plan another blow to Ontario’s competitiveness and consumers

Over the past decade, Ontario’s economy has underperformed compared to the rest of Canada. Misguided policy choices, including tax increases and significant debt growth due to unsustainable spending increases, have contributed significantly to the province’s underperformance.

The latest policy blow to Ontario’s economy comes from its recently-released Climate Change Action Plan, which contains almost 80 distinct proposals, command-and-control regulations, and subsidies—all in the name of fighting climate change.

Of course, reducing greenhouse gas (GHG) emissions is a reasonable policy objective. However, that doesn’t mean every policy designed to achieve this objective is smart. Any new initiative should undergo a cost-benefit analysis, and the government should always seek to achieve emissions reductions at the lowest possible per-tonne cost.

The new Action Plan largely fails this test in a number of areas. Specifically, the plan’s wide array of regulations and subsidies target particular industries and technologies; a strategy economists almost universally agree is not the cheapest way to achieve emissions reductions.

The government’s push for electric cars is an example of a policy that reduces emissions only minimally and at an unnecessarily high cost. According to the Action Plan, the province will provide subsidies for electric vehicles as well as charging stations, eliminate the HST on zero-emission vehicles, and provide free overnight electric vehicle charging.

The government costs the first two subsidies out at $140 to $160 million, they don’t provide estimates on the lost revenue (i.e. cost) from the HST elimination, and they estimate that the free overnight electricity for charging will be $15 million. If you include the cost of other measures the government intends to use to increase electric vehicle purchases then the estimated cost of just totals between $247 and $277 million over the next five years.

The costs of these subsidies and free electricity will have to be borne by someone. Namely Ontarians who don’t buy electric cars.

And what will Ontarians receive in terms of GHG reductions for the money used to prop up electric cars? The reduction will amount to 50,000 tonnes or 0.05 megatonnes by 2020 according to the government’s own estimates. To put this into perspective, Environment Canada reports that GHG emissions in Ontario in 2014 totalled 170 megatonnes. That means that on the low end, Ontario will pay $247 million for a 0.0003 per cent reduction from their 2014 emissions level.

To be sure this is not the only item in the plan where costs seem to be much greater than the benefits. The government also plans to spend between $150 and $225 million to support cycling and walking, which will lead to emission reductions that will cost $500/tonne. They also plan to spend upwards of $900 million on improving energy efficiency in multi-tenant residential buildings to reduce 0.1 megatonnes of emissions and upwards of $824 million on helping homeowners reduce their carbon footprints—for a reduction of just 0.18 megatonnes of GHG by 2020.
 
In short, the government’s Action Plan includes extraordinarily inefficient and expensive strategies to try to reduce emissions.

Over the past decade, Ontario has become less economically competitive due to misguided public policies The government’s Climate Change Action Plan represents a misguided approach to environmental policy, and yet another blow to Ontarians and the province’s economic competitiveness.