ZEVs Subsidies in Canada and Value of a Statistical Life (VSL)

ECONOMICS OF THE ENVIRONMENT
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Green Subsidies
The Incentives for Zero-Emission Vehicles (iZEV) Program, launched by the Canadian government in 2019, is designed to reduce greenhouse gas (GHG) emissions by subsidizing consumer purchases of zero-emission vehicles (ZEVs). This strategy still needs to address the roots of climate change instead simply diverting the cost of transition from vehicle manufacturers to the taxpayers (Belzile & Milke, 2017). As a result, the program could efficiently use public funds that may not guarantee environmental benefit. Canada’s decision to subsidize ZEVs is part of a broader shift towards green initiatives, and the motivation behind the policy is well-intentioned. However, iZEV overlooks this shift's economic and social implications, making it an inefficient use of taxpayer money. Besides, the program fails to address the root causes of climate change, making it difficult to guarantee an environmental benefit. This paper explores the ineffectiveness of Canada's consumer purchase subsidies for ZEVs. While they may reduce GHG emissions, it is an ineffective use of taxpayers’ money that does not guarantee an environmental benefit.
The Necessity of Revising Subsidies to Motivate Consumer Adoption
Although Canada's consumer purchase subsidies incentivize the purchase of ZEVs, the current offerings may need to be revised to encourage consumer adoption adequately. Clinton and Steinberg (2019) demonstrate that direct purchase rebates significantly affect battery electric vehicle (BEV) registrations, whereas tax credits are less impactful. Their analysis suggests a $1000 inducement increase would correspond to an 8% rise in BEV registrations. The total value of incentives could lead to an 11% increase in total BEV adoptions compared to the counterfactual scenario without state-level incentives. Although these incentives may encourage some consumers to make a purchase, the high price and limited selection of ZEVs may limit the efficacy of these subsidies and impede widespread consumer adoption. However, despite the financial support, the high price and limited selection of ZEVs may still restrict the efficacy of these subsidies and impede widespread consumer adoption (Belzile & Milke, 2017).
An analysis of ZEVs Subsidies in Canada
Government subsidies for electric vehicles have been seen as a potential way to reduce greenhouse gas emissions, and both Ontario and Quebec have implemented incentives to promote the uptake of zero-emission vehicles (ZEVs). In Ontario, subsidies for the purchase of new electric or rechargeable hybrid vehicles reach up to $14,000, as well as a 50% rebate on the purchase and installation of a charging station for the home. In Quebec, the subsidy for the purchase of a new electric or rechargeable hybrid vehicle is up to $8,000 and the rebate for the purchase and installation of a home charging station is up to $600 (Belzile & Milke, 2017). Despite the substantial incentives, some drawbacks limit their effectiveness. Firstly, the selection of electric vehicles available is limited, and they are generally more expensive than gasoline-powered vehicles. Furthermore, there is limited consumer awareness of the incentives available, reducing the impact of the subsidies. If Canada is to meet its emissions reduction targets, more effective grants and incentives must be considered to encourage the uptake of electric vehicles.
Recouping the Policy's Costs
Canada's policy of subsidizing zero-emission vehicles may need to be more effective in recouping the policy’s costs. Although the market for ZEVs is growing, it is still in its infancy and may need to develop more quickly to recompense the grants (Zhang et al., 2020). Consumers may also need to be made aware of the incentives or not be convinced of the value, leading them to opt for used cars over new ZEVs. This would diminish the policy's effectiveness, as the subsidies only work if new zero-emission vehicles are purchased instead of used cars. Furthermore, more than the current incentives may be required to induce consumers to buy electric vehicles, which would mean that the government's subsidy investment would be recovered. Policies such as fuel economy standards, inducements for zero- and low-emissions vehicles, and other economic tools to bridge the cost gap between electric and conventional cars have been instrumental in this shift. However, the returns on the government's investment in electric automobiles may need to be improved by consumers' preference for used cars over new electric vehicles due to a lack of awareness of the incentives available (Irvine, I., 2017). This could result in the market for ZEVs needing to grow more quickly to cover the costs.
Uncertainty in Cost Parity for Zero Electric Vehicles
The iZEV Program by Canada is a costly policy that seeks to address the urgent societal concerns of poor urban air quality, global climate change, and energy insecurity. Granting this policy is well-intentioned, it does not address the background of climate change, thus making it an inefficient use of taxpayer funds. Glaringly, the economic and social consequences of this move-in cost burden from car manufacturers to taxpayers must be considered. This could potentially lead to an inequitable distribution of resources. Similarly, Canada had earlier gone the home energy efficiency retrofit way to minimize GHGs and improve efficiency, yet the uptake was lower than expected (Rivers & Leslie, 2016). Even then, the modern ZEV is an invention gaining market momentum but not at the rate politicians desire to address these urgent societal concerns. This suggests that the corporations vending the more affordable ZEVs underestimated how difficult it would be to sell them. Still, the lithium-ion battery pack is the most significant contributor to the cost of a ZEV, and experts are uncertain how much and how fast battery-cell prices will decline over the next decade. This is a critical issue as ZEVs need to achieve cost parity with gasoline vehicles for mass commercialization. Furthermore, if ZEV owners use public charging extensively during peak times, peak loads on the grid will rise. More capacity may be required, creating a trade-off between convenience for ZEV owners and electricity providers.
Cost-effective solutions to reduce emissions
An alternative cost-effective way to plummet emissions than subsidies is investing money in other initiatives to achieve the same objectives more efficiently. For example, the incentives could be used to invest in green technology or to fund research and development (R&D) in the renewable sector. The subsidies could fund R&D on renewable energy sources and energy efficiency innovations and further invest in public transportation and cycling infrastructure. Regimes can also increase taxes on gasoline to reduce consumption and create carbon pricing schemes which would put a price on emissions and encourage dealers to shift to lower-carbon alternatives. By diverting subsidies to more cost-effective solutions, governments can more efficiently decrease emissions and progress toward meeting emissions targets (Li et al., 2017). Research into energy efficiency technologies can also cut emissions and save money on energy costs. Furthermore, public transportation and cycling infrastructure can decrease emissions by encouraging more people to leave their cars at home. Lastly, companies can be encouraged to develop and adopt low-emission technologies, such as electric cars or hydrogen fuel cells.
Conclusion
Canada's purchase subsidies for ZEVs are an ineffective use of taxpayers' money that fails to guarantee an environmental benefit. While the policy is well-intentioned, the current subsidies must be improved to incentivize consumer adoption due to limited selection, high prices, and limited awareness of the incentives. Besides, more than the existing incentives may be needed to recoup the costs of the policy, making it a costly and inefficient use of taxpayer funds. Cost-effective solutions such as increased taxes on gasoline and carbon pricing schemes should be considered to cut emissions. Investing in R&D into renewable energy sources, energy efficiency technologies, and public transportation and cycling infrastructure can further condense emissions without taxpayer subsidies requirement.
References
Belzile, G., &...