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OWOE - Blog
Why the Canadian Government Fails in Energy Transition and Carbon Reduction
October 14, 2019

Guest Blog by S. A. Shelley: In the matter of the transition to renewable energy, there are some nations and governments which do it quite well, e.g., Denmark, some that don't appear to care, e.g. the US, and then there's Canada. Canada claims to be very concerned about the environment and about the need to dramatically cut carbon emissions and transition quickly to a fossil-fuel-free economy. However, it has failed on a number of fronts and will most likely continue to fail.

The Need to Understand Total Cost

Whatever purchase at the personnel, industry or government level that you have, it is very important to have a good understanding of the TOTAL COST in order to make effective and well-reasoned economic decisions. Most people have an inherent ability to assess TOTAL COST and industry has analysts to help determine TOTAL COST; however, governments rely too much upon ideologues to arrive too often at incorrect TOTAL COST.

Strictly speaking, TOTAL COST = the sum of all costs associated with a purchase (or a project). Typically, this is broken into two components: TOTAL COST = Total Capital Costs (CAPEX) + Total Operating Costs (OPEX) over the assumed life of the product.

Let’s consider an immediate example of a consumer buying a car:

CAPEX = purchase price + dealer prep fees + financing costs - salvage / resale value

OPEX = fuel costs + insurance and registration + maintenance and parts

Consumers often buy a personal vehicle (car or truck) based only on the sticker price and consequently vehicle manufacturers have tuned their sales pitches to this almost exclusively. But if one does a TOTAL COST analysis of a car, EVs are now tending to be the lowest TOTAL COST personal vehicle choice (Fig. 1).

Fig. 1 (Source: CleanTechnica)

Upfront CAPEX for an ICE is still much lower than for a similar sized EV, but when you add in the OPEX to arrive at TOTAL COST, EVs are starting to pull ahead. Therefore, at the personal level, EVs are quickly becoming the best economic choice for those that can overcome the initial high CAPEX, and at the societal level, EVs help reduce carbon emissions and are the right choice for that.

Is it a Good Idea for Governments to Subsidize EV Purchases?

That depends upon the objectives of the government and the consensus of the populace. If the aim is to wean a nation state off fossil fuel reliance, which history has shown can be an Achilles heel to national economies, then yes, do as Denmark and China are doing and ban ICEs while supporting EVs.

If the aim is to eliminate the carbon emissions in order to protect the environment, then do as Norway and ban new ICE sales by 2025.

But if your aim is to reward wealthy and upper middle class voters with subsidies for purchasing EVs, then do as the Canadian government is doing (see CBC news and Electrek). The Canadian Federal EV rebate will not help most Canadians because the average household income in Canada is about $64,000 (CDN) per Statistics Canada 2017 data, while the cheapest marginally useful EV starts at $32,000 (CDN) plus sales taxes. Even if average, working Canadians wanted to buy EVs, the initial purchase cost of EVs is still higher than most Canadians can afford.

Canadian consumers across a broad economic range have correctly calculated that less expensive ICEs, new or used, will be the best economic solution for them for some time. This phenomenon of the citizen consumer being economically smarter than big government is not unique to Canada.

What Must Governments Do to Get More EVs On the Roads?

  1. They must clearly prove the case for EVs: Is it to save the environment or to save the country from the evil oil empires?
  2. They must spend more on subsidies that will benefit more citizens across the whole economic spectrum.
  3. They must spend more on supporting all of the technology and infrastructure that will make EVs cheap, convenient and useful to everyone.

Simple, right?

"Canadian Vehicles Are Big, Heavy and Guzzle a Lot of Gasoline"

Canadians rank number one in the world for having the largest, heaviest, least fuel efficient and highest carbon emitting vehicles.

For the befuddled government in Canada, a better approach to reducing carbon emissions and fossil fuel consumption by personnel vehicles could be to make small nudges and then let market forces takeover. For example, it would be fine to allow ICEs to stay on the roads, as long as the net mileage of ICEs continued to improve each year.  Looking at Figure 2, between 2005 and 2010 average vehicle mileage increased by about 16%. This means that for the same driving habits, 16% less fuel was consumed and 16% less carbon was emitted, on average just five years down the road. 

Fig. 2 (Source: PewTrusts)

As late model used cars get removed from the car pool and are replaced with newer more efficient vehicles, then without changing tech or giving away EVs, it is likely that over time carbon emissions and fossil fuel consumption will decrease just by natural replacement of the personal fleet. Eventually, a new car that gets 30 mpg, will filter down to the used car market and replace an older generation model that only got 20 mpg. That’s an evolutionary way of cutting greenhouse gas emissions by 50% on a personnel vehicle. Instead of promising $2000 camping trips for poor families, it may be more helpful to provide rebates for poor families to replace very old low mileage vehicles with newer used ones that get higher mileage. Eventually such rebates could be expanded to cover PHEVs or BEVS as those filter down through the used car marketplace.

Or if the Canadian government really wants to help the environment by reducing greenhouse gas emissions, maybe it should focus first on those gases which trigger the most warming. "The majority of warming results from gases with a much lower media profile than the paparazzi-trailed starlet of global warming, CO2."

Support Transit Instead of EVs

To benefit more people quickly, Instead of spending $billions on EV subsidies that benefit the wealthiest citizens, those same monies may be more effectively spent on upgrading and improving transit systems that benefit a broader subset of citizens.

Canadian Federal Government Carbon Pricing is a Tax, Simple and Ugly

There are two general purposes for taxes. The first is to collect revenue for the government to provide critical services such as courts and defense. The second is to apply taxes to change consumption behavior, such as with sin taxes on alcohol and tobacco. However, with the Carbon pricing policies in Canada, there is no realistic way that Canadians can alter their energy consumption behavior in order to escape the carbon price: Thus it is a tax of the most egregious kind that siphons money from Canadians into government coffers with low to zero traceability. Natural gas is still the dominant energy source for heating homes and businesses, and there is nothing else available, now or in the short term, on a scale large enough for Canadians to use: It’s either heat the homes or freeze or migrate to Florida or Arizona for winter. Watch out America, you may need to build a wall on the northern border, too.

Furthermore, almost every incentive that the Federal Government has provided for green energy and reduction of carbon emission has been targeted at and benefited large businesses, not lower or middle class Canadians. While the PM uses his perk of zipping around frivolously on a private jet (see National Post and CTV News), it’s time for the Federal Government in Canada to honestly admit that the carbon price in Canada hits a captive market with no substantive, alternative choice available.

Carbon Emissions and Fossil Fuel Consumption Inelasticity in Canada

There is no reasonable and realistic way for the Federal Canadian government to achieve its much touted and promised carbon emission and fossil fuel consumption reduction targets. According to data from the World Bank since 1980 energy consumption in Canada has been very consistent at around 52 barrels of oil equivalent per year per Canadian. During the same period, the yearly carbon emissions per Canadian have slowly dropped from about 20 to 15 tonnes, which is still over twice the yearly per capita carbon emissions of a European at 6.8 tonnes. During this same period, the use of renewable energy in Canada has remained fairly flat so most of the gains in carbon reductions have come from elsewhere, either fuel efficiency improvements or the shuttering of coal power plants.

While the Federal government enacts legislation and policies to reduce Canada's carbon footprint and fossil fuel consumption, historical data suggests that such legislation will be ineffective (Fig. 3) and that it is extremely unlikely for the Federal Government in Canada to meet its international commitments to CO2 reduction. More needs to be done for Canada to succeed, but it is also extremely unlikely that the current administration has the technical, fiscal or social where-with-all to do what is necessary without resorting to brute force diktats.

Fig. 3

The problem is more difficult to resolve when one considers that current Federal objectives in some areas will nullify any possible gains in other areas. For example, without being able to reduce per capita energy consumption or carbon emissions, adding 350,000 immigrants each year to Canada will by default drive up the total energy consumption and carbon emissions volumes: That will mean an additional 2.6 million tonnes of oil equivalent energy consumed and 5.2 million additional tonnes of carbon emissions each year.  Energy will be needed to heat the residences of the newcomers and commute them to their jobs and there is nothing on the horizon to substitute for oil and gas in Canada. Therefore, unless the Federal Government in Canada gives each new immigrant an EV and a solar powered home, there is absolutely no way that the Federal Liberal government can achieve their vaunted carbon reduction targets and the shutdown of Canada’s oil industry.

In Canada, it takes over a decade for new energy projects, renewable or not, to come on stream. In that same decade, 3,500,000 new Canadians will need a lot of energy. Who in the Federal Government in Canada has a realistic plan for that? By realistic, I mean affordable, corruption free, workable and implementable without significant social or economic disruption.

It continues to get worse, because during this year’s Federal Election campaign, the Canadian Prime Minister has decided that he needs two jets while every other prior prime minister or party leader to date has made do with only one jet. To paraphrase Ms. Thunberg, “Shame on You Prime Minister Trudeau”.  For the Earth's sake, if the Federal Liberals are returned to a minority Government in Canada, I kindly ask the Green or NDP coalition partners to reign in the Prime Minister's privileged jet setting and plastic bottle consumption habits.

Canada Can Do Better

Canada has a lot of renewable energy potential and a lot of ability to reuse resources. But maybe the Federal Government in Canada needs to be the first thing recycled before anything real and sustainable can be achieved. I absolutely agree that Canada must change its energy habits, but it needs better moral and technical leadership and a unifying vision instead of a divisive and dismissive cadre of elitist and privileged politicians (see Pierre Poilievre and CBC News).

I’m not against EVs. I commute in Houston on a bicycle and EVs can’t touch me for energy efficiency (15 miles per gallon of beer vs. about 130 mpge for an EV) or lowest lifetime greenhouse gas emissions. In fact, I know that renewable technology has now achieved parity with or surpassed traditional fossil fuel technologies in a lot of areas: My next car will most likely be an EV and my next house will have integrated solar and battery energy. 

But I am very much in favor of evolutionary progress and of governments implementing environmental and energy policies based upon reason, science and economics instead of listening to biased and scandal plagued consultants from New York. In the long run, energy and financial independence requires astute and competent governments. Well done Norway, Denmark, Germany and China. Keep trying Canada.

Vive l’Alberta Libre!

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