Harper government climate regulations to cost $11.2 billion, but offset by savings

OTTAWA – Tougher fuel economy standards on new cars proposed by Environment Canada could actually put more drivers on the road and cost Canadians consumers and the economy up to $11.2 billion between 2017 and 2025, says a new analysis posted online by the Harper government.

But in the analysis, the department estimates benefits of up to $41.9 billion from reduced refuelling time, additional driving and reductions in fuel consumption and pollution.

“The proposed regulations are anticipated to increase the cost of manufacturing passenger automobiles and light trucks and are expected to be passed on directly to consumers purchasing these vehicles,” said the analysis, published in the Dec. 8 edition of the Canada Gazette.

The analysis said that manufacturers could earn credits to meet the new standards by performing above the standards in any given year and that they could also use an existing market-based trading system, in place for fuel economy standards for current model years up to 2017, to buy credits from other companies to meet their targets.

Although their government adopted this formula, also known as a cap and trade regime, federal Conservatives have spent the past few months slamming the opposition New Democrats for proposing this type of system to make all large industrial facilities pay for heat-trapping pollution linked to global warming. The Tories have described it as a “job-killing carbon tax” on everything.

Environment Minister Peter Kent unveiled the government proposal to publish the new post-2017 standards in late November, catching up to the Obama administration’s decision to finalize its own fuel economy standards last August that require manufacturers to introduce new technologies in cars to reduce fuel consumption and emissions from new cars.

But at the time, Kent’s department did not disclose its economic analysis, and he referred questions about costs to the manufacturers, saying only that the benefits would outweigh the costs.

Pollution Probe’s Bob Oliver, an environmental advocate who attended the November announcement, also noted that manufacturers have previously issued dire warnings about rising costs due to new standards. But he suggested that costs have not risen as dramatically as predicted.

In its December analysis, Environment Canada estimated that consumers would pay about $195 million more for the cost of new vehicles in 2017, rising to an increase of $2.4 billion by 2025, as a result of the new standards.

On average, the department estimated these costs would increase the price of each car or light truck by $127 and $162 respectively in 2017, rising to an increase of $1,856 per car and $2,453 per light trucks in 2025.

The analysis also confirmed rising costs predicted by the U.S. Environmental Protection Agency, due to increased accidents, congestion and noise from having more cars on the roads.

“Since additional kilometers travelled will become cheaper, Canadians will drive more,” said the Environment Canada analysis, referring to a phenomenon commonly known as the “rebound effect.”

While the department said consumers would save money since the standards would reduce fuel consumption by an estimated 66 billion litres from 2017 to 2025 model year cars, the department predicted it would take two to five years for these savings to cancel out the increased purchase price of the new vehicles.

The analysis also estimated about $9 million in administrative costs to the government for enforcement, starting at $1.6 million in 2017, dropping to $800,000 by 2025.