Should Alberta Phase Out Gas Cars?

Dan Woynillowicz, the senior associate at Clean Energy Canada says yes.

The stories keep coming. Record sales of electric cars across Canada. A video of an electric Ford F-150 towing a freight train. A video of a Tesla CyberTruck defeating an F-150 in a tug-of-war. Electric vehicles are in the spotlight.

But despite the buzz, little more than 3,200 electric vehicles are registered in Alberta, compared to almost 31,000 in BC and 59,000 in Quebec. Why? Because BC and Quebec have policies that incentivize citizens to buy and drive electric cars, from rebates to new charging infrastructure to requirements that automakers sell more of the vehicles. In fact, after 2040, automakers will only be able to sell electric cars in BC.

Alberta would benefit from doing the same.

But why bother, you ask? If electric cars are as good as the headlines tell us, why ban gas cars? Why not just let Albertans decide whether and, if so, when they want to go electric?

Consider the incandescent light bulb. Canada phased these out starting in 2014 to cut energy waste and carbon pollution. Is your life any worse for it? Your energy bill is certainly lower. The old bulbs were inefficient. Similarly, gas cars waste four times more energy than electric cars do—only about 20 per cent of the energy created from burning fuel turns your wheels, compared to 80 per cent efficiency for electric vehicles.

As with light bulbs, gas cars are being replaced with more efficient versions. Indeed, electric cars already cut fuel costs by up to 80 per cent in Alberta (assuming an electricity cost of $0.08/kWh and a gas cost of $0.94/L). Many Albertans will recoup a higher upfront cost within the car’s lifetime. In Canada, vehicles are typically replaced about every six years.

Considering that BC’s ban doesn’t come into effect until 2040, and that electric cars are already near sticker-price parity, an eventual ban on sales of new gas cars will not be difficult for anyone. A phase-out by 2040 would simply prevent a few Albertans from making a decision that will not only cost them down the road (literally) but the rest of us too.

We’re facing a climate crisis. In 2019 Alberta experienced its worst wildfire season since 1981. Transportation is responsible for around 12 per cent of Alberta’s emissions. Electric cars can be a significant part of the solution.

It’s not as though Alberta would be the only major oil and gas producer to embrace electric cars. More than half the vehicles sold in Norway in the first six months of 2019 were electric. Texas, the biggest fossil fuel producer in the US, implemented an electric car rebate, doubling sales of the vehicles between 2017 and 2018.

The world has woken up to the benefits of going electric. As a Bloomberg New Energy Finance analyst recently put it, it’s likely “global sales of conventional passenger cars have already passed their peak.” Electric cars are here, delivering environmental and economic benefits alike. Putting the right policies in place in Alberta is a light bulb of an idea.

 

Oumar Dicko, the economist with the Canadian Automobile Dealers Association says no.

If I may go back to Adam Smith, the invisible hand is the notion that without external intervention, consumers and firms create an efficient allocation of resources in the market. The famous metaphor also suggests that government interference creates inefficiencies and results almost always in market failure. Even more problematic is when governments try to dictate consumer choice and preference.

New Zero Emission Vehicle (ZEV) mandates and targets in Quebec, BC and federally are glaring examples of well-intentioned environmental policies infringing on normal market mechanisms. Absent the power to directly tell consumers what vehicles they can buy—which quite rightly in a liberal democracy such as ours is a non-starter—governments are trying to achieve similar ends through the back door.

Over the past two decades the auto industry has drastically increased fuel economy and mitigated its environmental and carbon footprint. Hundreds of billions of dollars have been invested to this end. And it’s not just ZEVs that have improved; the eco-footprint of vehicles in all segments is smaller. Internal combustion engines (ICE) now use technology that makes them more fuel-efficient than ever. This trend has been driven by the market aligning with consumer demand.

Canadians’ demand for ZEVs is growing. However, phase-out targets such as BC’s (no new ICE cars can be sold in that province after 2040) are extremely ambitious and reflect neither the consumer rate of adoption for ZEVs nor the infrastructural capacity to handle such a fast transition. In 2018 nearly 45,000 plug-in EVs were sold in Canada, which comprised less than 2.5 per cent of all new vehicles sold. The federal government’s goal to increase consumer demand for ZEVs more than four-fold within the next five years is similarly unrealistic.

Some 97 per cent of our ZEV market is in Quebec, BC and Ontario—provinces with incentives to purchase these vehicles. As of late 2019, only 3,200 electric vehicles were on the road in Alberta. Since Ontario scrapped its rebates last fall, ZEV sales there declined by close to 15 per cent, indicating the strong correlation between incentives and the ZEV adoption rate.

Other impediments to consumer demand for ZEVs include higher upfront costs, lack of charging stations, range and technology uncertainty, a limited array of sizes and models, and lack of public awareness. While government targets are focused on increasing supply, it is as critical to overcome barriers on the demand side. Requiring that manufacturers and dealers sell a minimum number of EVs in a jurisdiction absent any evidence that such demand exists is not the way to do it.

Virtually every carmaker now offers a ZEV model. It is paramount for federal and provincial governments to work closely with industry to implement a realistic set of policies that support the growth of ZEVs in the market without limiting consumer choice and disrupting market trends.

 

Dan Woynillowicz responds to Oumar Dicko

Two words of a lie at the crux of a proposed gas car phase-out: climate change. Economists estimate the impact of climate change, if we do nothing, could be a long-term 20 per cent reduction in the world’s GDP. The recession in 2007 saw a decline of around 4 per cent for two years. Climate change is arguably the biggest market failure in history. By failing to price a negative externality—in this case carbon pollution—we enabled its overproduction. In effect, we put all of that pollution on a credit card for the next generation, with a particularly brutal interest rate.

In the event of a market failure of this size, government intervention is not only warranted but essential. Business as usual isn’t an option, because the most disruptive scenario of all is to do nothing. Electric cars are as central to addressing climate change as gas cars are to causing it. Legislating a 2040 phase-out of gas cars is a reasonable, achievable and wise intervention.

First and foremost, a phase-out gives automakers clarity and time—two things every industry wants from regulation. Twenty years is a long way off. Automakers have options. And they have a serious competitor in Tesla, now the biggest automaker in US history by market capitalization.

It’s also not the first time we’ve traded one type of transport for a better one. There were few gas pumps and paved roads when Henry Ford unveiled his car in 1910. Within 15 years, annual sales of his Model T hit almost two million. Modern consumers are less afraid to adopt technologies to change their lives for the better. Especially when the economics make sense.

Electric cars are fast becoming the norm. In the Netherlands, electric vehicle sales exploded in 2019, rising to 54 per cent of overall sales in December. In China, market share grew to 5 per cent last year, meaning 2.3 million electric vehicles are on China’s roads. More than half of Albertan respondents to a 2019 poll said they wanted electric vehicles to become the majority of consumer vehicles sold here.

Indeed, if there’s one thing that’s interfering with the electric vehicle market in Canada more than anything, it’s a lack of supply. In 2018 only 40 per cent of BC dealerships had an electric car available, with most saying customers would face wait times of 3–12 months. And so the province required automakers to sell more electric vehicles and keep up with demand.

It’s fair to ask whether this intervention is truly required, since automakers are investing hundreds of billions of dollars to shift production. But the speed at which automakers are evolving is too slow to keep pace with both consumer preference and the imperative to cut pollution. A study of ad spending by big carmakers in the US found 10 times more was spent on SUVs and trucks than electric vehicles. What’s optimal for their bottom line—selling SUVs remains markedly more profitable—can’t be allowed to serve as a brake on this transition.

If Alberta doesn’t put its hand up, Albertan consumers are going to be left at the bottom of an increasingly long waitlist for the latest electric vehicles.

The province will also find itself missing out on opportunities. Alberta had some 361 public charging stations in 2018. But add a phase-out to the mix, and building charging infrastructure is a significant business opportunity—BC has almost 2,000 such stations already. Factor in that most electric vehicle owners also want a charger installed where they live, and the opportunity for businesses and electricians that install and maintain this equipment is massive. A phase-out points to the destination and lets innovators take the wheel.

Consider the alternative: relying solely on increasing efficiency to reduce pollution. Despite improvements in technology, Canadians drive the least-efficient cars in the world, according to the International Energy Agency. In 2019, SUVs, vans and trucks made up 90 per cent of new vehicle sales in Alberta, up from 70 per cent a decade ago. What’s more, President Trump has plans to weaken North American emissions standards, itself an example of successful government intervention.

Even when charged on Alberta’s partially coal-powered grid, a Hyundai Kona EV will produce about one-third the pollution of a gas-powered Ford F-150, despite packing a lot more horsepower. Alberta is on track to halve coal powered-electricity in the next three years and fully phase it out by 2029, meaning your electric car will get cleaner the longer you drive it.

And, finally, don’t have it be said that electric cars aren’t very Albertan. Lithium, used in batteries, is a burgeoning industry in parts of this province. As for bitumen? It can serve as a source of carbon fibre, enabling remarkably strong but lighter vehicles.

But let’s come back to the bottom line: climate change. Global warming is already threatening us. It’s estimated that the Fort McMurray fire was 1.5 to six times more likely because of climate change. It’s time for Albertans to accelerate toward a safer future and a diversified economy—in an electric car. Or, sure, that electric F-150, if you really need the truck.

 

Oumar Dicko responds to Dan Woynillowicz

The automobile industry fully shares and values Canada’s commitment to reducing greenhouse gas emissions and tackling climate change. We understand the need to improve fuel efficiency and the environmental benefits of alternative fuel sources such as electricity and hydrogen. In fact, our industry has invested billions of dollars in greening vehicles and on improving fuel economy. Over the last decade, more innovation has taken place in the sector in terms of fuel efficiency than in the previous 90 years. Today’s new vehicles are far cleaner and more efficient than anything the industry has ever produced. This came as a result of ever-increasing consumer demand for greener vehicles and government climate regulation.

In addition, the industry is investing billions of dollars to make zero-emission vehicles more viable for the mass market and to increase the rate of consumer adoption. But current low gasoline prices, consumer preference for relatively larger automobiles such as sport-utility vehicles and crossovers, and a lack of electric vehicle infrastructure mean ZEVs still represent a small share of total vehicle sales, even in Quebec and BC, which have less than 10 per cent market penetration. In Alberta demand for ZEVs is less than 1 per cent of
the market.

This is not to say that demand isn’t increasing. It has increased significantly all over Canada, thanks to federal incentives. But it is still very much concentrated in provinces with local incentive programs.

The main technological impediments to ZEV adoption are also being addressed by the automobile industry. For example, “range anxiety”—the fear that a battery charge won’t be sufficient to get a driver where they need to be—is constantly diminishing, as today’s ZEV batteries are improving and battery charges on most new models are more than enough to cover the majority of daily trips by the average Canadian.

Costs are also coming down, though they’re not yet on par with traditional internal combustion vehicles, and consumer awareness is much greater. ZEV demand will likely continue to grow if governments and industry work collaboratively to address the fundamental challenges currently holding back the proliferation of ZEVs on our roads.

ZEV mandates such as BC’s, however, amount to effectively dictating what products manufacturers should bring to market and what vehicles the consumer should purchase. This kind of government interference in market dynamics without consideration for consumer preference and choice almost always leads to disappointing results at best and outright failure
at worst.

The reality is that consumer demand drives trends in the automotive market. The electric vehicle “boom” in Quebec and BC over the last couple of years is the result of consumer demand supported by the right set of government policies. The record sales numbers in these two provinces occurred before a ZEV mandate was in place. In Ontario ZEV demand tanked when the provincial government scrapped its incentive program, indicating that government policy should be focused on addressing demand-side barriers to adoption.

Phasing out gasoline vehicles and ordering manufacturers and dealers to sell a certain percentage of ZEVs in a jurisdiction absent any evidence that such demand exists is not sound policy. A ZEV mandate in Alberta will restrict families and businesses from purchasing the type of vehicles they need. Dealers, seeking to meet ZEV sales targets where no demand for such vehicles exists, will be coerced to sell fewer internal combustion vehicles, hurting their businesses and jobs, and generating fewer tax revenues for the provincial and federal governments.

Consumers, faced with this new reality, will move to purchase the vehicles they need in another jurisdiction or keep their older vehicles. The result will be a massive disruption to the market with no positive impact on the environment.

The automobile industry is committed to developing fuel-efficient, greener vehicles and has made impressive progress in improving internal combustion engines while also bringing ZEV technologies to market. Models and supply are increasing in every segment of the market and manufacturers are making the necessary adjustments to production patterns in order to meet increasing ZEV demand all across the globe. Governments should abandon the failed strategy of interfering in market dynamics, and instead keep working closely with the industry to promote consumer demand of ZEVs through incentive programs, investment in charging infrastructure and consumer awareness.

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