The high price of low emissions – Part 1
The benefits and costs of reducing greenhous gas in the transportation sector
Troy Media – by Ross McKittrick
Policymakers often hear calls to reduce private vehicle use and increase the use of public transit and other types of mass transportation. But Canadians overwhelmingly depend on the convenience and savings associated with private automobiles.
Editor’s note: Canadians overwhelmingly depend on the convenience and savings of private automobiles. Despite this, policymakers are constantly solicited to use public policy to reduce private vehicle use and increase use of public transit as a means to reduce transportation-related greenhouse gas (GHG) emissions. Thus both the costs and benefits to Canadians of discouraging private vehicle use must be considered in arriving at sensible policy choices.
In a new study released recently by the Macdonald-Laurier Institute, The High Price of Low Emissions: Benefits and Costs of GHG Abatement in the Transportation Sector, Professor Ross McKitrick examines how much transportation contributes to total GHG emissions in Canada, how costly it would be to shift motorists to mass transit, and how raising the cost of gasoline (through a carbon tax) would affect GHG emissions. This is the first of a 6-part series.
This fact has important implications for understanding the limits to pursuing economically efficient vehicle-related greenhouse gas (GHG) emission reductions, and the potential social costs of trying to engineer a large change in Canadian transportation modes.
This backgrounder, which will end on Monday, provides answers to three key questions:
1. How much does transportation contribute to total GHG emissions in Canada?
2. How would shifting motorists to mass transit affect GHG emissions, and at what cost?
3. How would raising the cost of gasoline (through a carbon tax) affect GHG emissions, and what would the cost be of trying to achieve a large target like a 30 per cent reduction?
High cost for households
In 2009, Canada emitted 690 megatonnes CO2 equivalent (MtC) of greenhouse gases (GHGs), of which 190 MtC, or 27.5 per cent, were from transportation-related activities. If we define an efficient GHG reduction as one that has a marginal cost of under $25 per tonne of CO2, this would translate into an increase in the price of gasoline of about 5.9 cents per litre. In the short run, the resulting emissions reduction due to reduced gasoline consumption would be quite small, between 0.3 per cent and 1.0 per cent (0.3-1.3 MtC). In the long run, the reduction in emissions would be between 2.0 and 5.3 MtC. These are between 0.2 and 3.9 per cent of the emission reduction commitments made under the Kyoto Protocol.
It would be very costly to Canada to try and achieve a 30 per cent reduction in GHG emissions from motor vehicles. In the short run, it would likely require a carbon tax of about $975 per tonne, or a gasoline tax of about $2.30 per litre, and even if all the new tax revenue were returned to Canadians there would still be deadweight losses of about $9.6 billion (in other words, economic losses after accounting for the environmental benefits).
In the long run it would likely require a $195 carbon tax, or a gasoline tax of about 46 cents per litre, and would cause a deadweight losses of about $2.9 billion. If cap and trade or regulatory measures are used instead of a carbon tax, the cost to households in the long run would be about $1,600 per household, per year, over and above the environmental benefits.
Few drivers who choose to avoid transit report fare price as the main reason. The most common reason is simply the availability of a car. Improvements in transit service (such as introducing light rail within cities) might benefit existing transit users but would be unlikely to generate large switches away from private vehicle use.
Likewise, increasing the cost of parking and road usage might prompt greater interest in mass transit, but survey evidence indicates that such changes would still be relatively small. An increase in the cost of driving would have a proportionately stronger effect on car use than on transit use; for instance, drivers may make fewer car trips but not begin using transit or increase transit use.
There are two corridors in Canada within which the option of a high-speed rail system has been seriously considered: Windsor to Quebec City (WQ) and Calgary to Edmonton (CE). Current proposals to achieve GHG emission reductions by building high-speed rail lines require the government to pay all capital costs up front: an estimated $2.359 to 4.75 billion for the CE line and $20 billion for the WQ line.
If the trains are able to break even on their operating costs (which is unlikely due to the strong preference for cars), the proposals imply a marginal emission reduction cost of about $77 to 85 per tonne, well over the efficient marginal cost of $25 per tonne.
A bad policy is a bad policy
For the projects to be justified on GHG emission reduction grounds it would have to displace about 30 per cent of all transportation-related GHGs. Otherwise the GHG savings would not be enough to justify the project.
Since the use of cars does not significantly change in response to making cars more expensive to drive or to improvements to transit, policymakers must therefore be careful not to assume GHG abatement provides a rationale for transportation policy decisions that would otherwise fail an ordinary cost-benefit test. In other words, bad policy ideas do not become good policy ideas just because they slightly reduce GHG emissions.
Professor McKitrick holds a BA in economics from Queen’s University, and an MA and Ph.D. in economics from the University of British Columbia. He was appointed Assistant Professor in the Department of Economics at the University of Guelph in 1996, Associate Professor in 2001 and Full Professor in 2009. He is also a Senior Fellow of the Fraser Institute in Vancouver B.C., a member of the Academic Advisory Boards of the John Deutsch Institute in Kingston Ontario and the Global Warming Policy Foundation in London, UK.
Category: Energy
About the Author (Author Profile)
Markham began his journalism career writing columns in the mid-1980s for Western People Magazine, then reported for a small Saskatchewan daily. He has spent most of his career in media and communications, likes to dabble in politics, was actively involved in economic development for many years, thinks that what goes on in the community is just as important as what happens provincially and nationally, and has a soft spot for small business (big business, not so much). Markham is a bit of a contrarian and usually has a unique take on the events of the day.
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