The true carbon cost of vehicle life-time emissions - a discussion on Canadian policy.
Last year, I took a course on policy and carbon economics for my Master's degree (currently in the last term! So excited to share what I'm doing with you soon!), and one of the assignments was to craft a policy critique and recommendation paper. I chose to write about how Canada deals with carbon pricing of vehicles, a set of policies that focuses on provincial and federal carbon taxes levied at the pump. This assignment took me into a dive on Canadian carbon tax policy, including how this price-at-the-pump method is meant to affect consumer behaviour, when in fact it does very little to effectively change much. Not only do we need more stringent policies around holding car manufacturers and fossil-fuel companies accountable for their role in emissions (let's stop blaming consumers for industrial cycles we are trapped in shall we?) but we also need to provide a clearer price mechanism that can actually empower citizens to make real choices. So, here is my assignment - a discussion on implementing environmental handling fees at the point of sale on new cars - for you to peruse.
As always, I would love to hear your thoughts on this. Policy recommendations should not be held in a vaccuum, so I welcome your critiques and suggestions! Send me an email at maia@ecothinkproductions or DM me on Instagram or Twitter so we can discuss.
Canada’s Paris Agreement goal is to reduce overall greenhouse gas emissions to 30% below 2005 levels by 2030 (1). Now, the Pan-Canadian Framework for Clean Growth and Climate Change, focuses on implementing carbon taxes across all jurisdictions, including the transportation sector (2). GHGs from transportation globally has doubled since the 1970s, and 80% of this increase is due to road vehicles (3). In Canada, transportation accounted for 24% of all GHGs in 2017 and is the second largest source of GHGs in Canada (4). While the federal fuel charge is an excellent first step in addressing how to put a price on carbon in Canada, so far it applies to the end provider who shifts the extra cost onto consumers in the form of a fuel surcharge at the pump. Claims that this extra cost at the pump will change consumer behaviour by causing them to choose more fuel-efficient cars and driving less tend to assume a lot about Canadian consumer behaviour that does not account for local needs and concerns.
Even if taxing fuel at the pump does make significant changes to Canadian consumer behaviour, this form of carbon pricing is an incomplete picture of transportation sector emissions (5). ICEs (internal combustion engines) have a lifetime environmental impact, just like any other product. But it is not reflected in the price of the vehicle at the time of purchase, nor is it accounted for in the current carbon pricing scheme. In 2017, Canada’s cars manufacturers sold over two million new vehicles to consumers (6). Not only do each of those vehicles have a use stage that accounts for a large part of vehicle emissions, but also 40% of the carbon footprint of each car is tied up in manufacturing and maintenance, not to mention nearly all plastics and mixed materials used in the manufacturing of cars has a very low recycling rate (7). Unfortunately, Canada’s federal and provincial level carbon tax policies do not yet adequately encompass a carbon price that reflect the true cost of personal vehicle consumption. Furthermore, the current decision to return carbon tax revenues to individuals as a tax rebate undercuts investment in developing alternative transportation solutions.
We recommend implementing an environmental handling fee (EHF) at the point of purchase for all new vehicles, in addition to or instead of the current fuel charge. Implementing an environmental fee for vehicle purchases could effectively highlight the cost of the impact of a car over its lifespan, including life-time average emissions for the car and the impact of making new cars. Human behaviour may respond more strongly to such a strong price signal, and they may be more likely to choose to either extend the life of their current vehicle, or they may choose a vehicle with a lower impact and therefore lower environmental handling fee. What follows is an exploration of challenges and benefits to such a policy compared with the current policies in place.
The federal carbon tax was set as a baseline – all provinces and territories that have announced their own carbon tax or alternative carbon pricing scheme are exempt so long as it meets the criteria set by the federal government (2). For the purposes of this policy brief, we will discuss the effectiveness of the federal fuel charge, which Canadians pay at the pump in all jurisdictions where the federal fuel charge is in effect. Current federal and provincial policies emphasize the fuel charge as an effective method to change consumer behaviour to avoid more car trips or will even choose to purchase a more fuel-efficient vehicle, thus reducing GHG emissions in the transportation sector.
However, most Canadian cities and municipalities – not to mention the vast countryside – require a personal vehicle. Public transportation options – particularly outside of city centres – are not adequate to be deemed an equal alternative to driving due to insufficient service, long distances, and extreme winter weather. As such, daily driving is required with few opportunities to avoid car trips. Furthermore, large trucks and SUVs have consistently been the top selling class of car in Canada for several years, in part due to their ability to handle rough road conditions (6). Research on changing human behaviour in relation to climate change inducing behaviours is difficult for many reasons, a primary one being the force of habit (8). Because many Canadians are habituated to using personal vehicles for travel, and easy, cheap, and equal alternatives are rarely available, the carbon tax does not provide enough of an incentive when applied at the pump to effectively change consumer behaviour alone. Therefore, the carbon tax is a poorly timed and ill-executed price mechanism for changing consumer behaviour.
Continued reliance on fossil fuel powered vehicles throughout the country coupled with the strong dislike of carbon tax mechanisms in certain provinces resulted in the decision to return revenues to individuals within the jurisdiction they were collected in the form of a tax rebate (9). The theory behind this is individuals would offset the increased cost of fossil fuel and hopefully make the decision to use those funds for activities that would reduce their carbon footprint overall – for example buying a bike. However, this assumption again precludes the notion that many Canadians are reliant on personal vehicles due to weather and distance factors that cannot be so easily resolved. Furthermore, tax rebates do serve to make carbon tax initiative less unpopular – making it a far more politically feasible choice – while having the side-effect of reducing the overall investment power of the government to develop and invest in low-emission transportation solutions across the country. The Climate Action Map provided by the Government of Canada on their website highlights several promising transportation projects that would be more robust with the tax revenues collected from a federal carbon tax (10).
By implementing the federal carbon tax, the Canadian government was hoping to reduce Canada’s overall emissions to 30% below 2005 levels by 2030. While there are other parts of the environmental policy at play that could very well help to reach that goal, the fuel charge is effectively relying on individual (and company level) behaviour change to reduce vehicle emissions. However, by returning the tax to the individuals who are still forced to drive because the government investment in developing alternative transportation in inadequate, and by ignoring a large percentage of the cradle-to-grave emissions of producing and scrapping vehicles, the carbon fuel charge is an inefficient way of reaching Canada’s Paris Agreement emissions goals.
Critique of policy options
Incorporating an environmental handling fee (EHF) at the point of sale is not a new idea in Canada. Most jurisdictions already incorporate such a handling fee on packaging, paints and chemicals, and electronics (11). Research into the willingness to pay EHFs for these products reveals that when consumers view a product as detrimental to the environment, they are more likely to be willing to pay EHFs, as illustrated by the strong correlation found by Lakhan in his survey completed in Ontario, Canada, illustrated in Figure 1 and 2.
The mean score discovered during Lakhan's surveys of consumer's willingness to pay fees of different items with a currently enforced EHF. Note that in Figure 2 below the items with the highest willingness to pay are frequently also perceived as environmentally harmful.
The mean score for consumer perception of how harmful certain products are. There is a very high correlation between consumer perception of environmental harm and their willingness to pay EHF.
Willingness to pay is also increased when consumers are more educated on the purpose behind EHFs, and when they believe that the purpose matches their personal values (12). While determining the appropriate cost of an EHF may require a nation-wide survey, some simple calculation below gives a good starting point. Furthermore, survey results will likely return with a realistic reflection of Canadians’ willingness to pay to avoid the environmental damage caused by personal vehicles, as this measurement is considered a better assessment than the alternative ‘willingness to accept’ – in which Canadians would accept a payout from government to deal with environmental damages that were not avoided (13).
One might even draw a correlation between the tax rebates currently returned to citizens in the carbon fuel pricing program as such a payment. With proper educational programs to accompany such a policy, EHFs could be a successful alternative or even addition to the current carbon taxation.
Education on the impact of a vehicle purchase begins when the consumer makes the decision to buy a certain vehicle. Berners-Lee’s work: How Bad Are Bananas? The Carbon Footprint of Everything states that for every $1000 we spend on the car the carbon footprint increases by 480kg. The breakdown of this carbon footprint is illustrated in Berner-Lee’s illustration below in Figure 3 (7).
Each aspect of car manufacturing has a carbon cost. The cost of materials used in the car such as plastics, rubber products, iron and steel account for 11% alone. (7)
This means for smaller cars (of which the average purchase price is roughly $25,000 in Canada), the estimated carbon footprint of manufacturing would be 12 tonnes of carbon dioxide equivalent (CO2e). In addition, about 40% of carbon impact results from manufacturing and maintaining the car. He lists some telling figures: manufacturing a Smart Car, a Ford Taurus, and a Land Rover Discovery all account for 6, 17, and 35 tons of CO2e respectively (7). According to the United States Green Vehicle Guide, the average passenger vehicle emits about 404 grams of CO2 per mile. So, if the average vehicle lasts just 8 years and 150,000 miles (250,000 km), then it will emit up to 60,600 kg of CO2 in its lifetime (60.6 tonnes) (14). At the current price per tonne of CO2 listed in the Pan-Canadian Framework of $25, the government should charge an environmental fee of $1515 when the consumer buys the average car. With the addition of the manufacturing carbon cost, we arrive at an ideal EHF of $2,242 for a vehicle in the $25,000 price range.
This surcharge is a relatively small addition – just over 5% of the total cost. However, it is a more effective and meaningful price signal than the gas price increase at the pump. The EHF would be on a sliding scale, so that a car with a lower harmful impact would cost less than one with a large impact. Personal vehicles that do not emit over their lifetime but have a carbon cost associate with manufacturing and recycling would have a lower EHF associated with them. Government could then continue the current incentives to purchase an electric car to help further incentivize consumer choice.
By increasing the prices of vehicles at the point of sale, substitution for alternative transportation methods and technologies would be encouraged (15). Furthermore, this stronger price signal would increase the purchasing power individuals have to make change (12). More efficient cars and non-fossil fuel vehicles would become even more appealing, and as consumers purchase these over the traditional options, companies would shift their manufacturing processes more quickly. In addition, electric vehicle subsidies and rebates – several of which are already in place to help reduce the overall cost of still very expensive electric vehicles, would further help to incentivize the purchase of zero-emission vehicles.
Accounting for the end-of-life impact of vehicles is more difficult than the manufacturing and use stages, because recycling and scrapping practices for vehicles are not only varied, but data on such activities is also not readily available. However, manufacturing trends are going with more lightweight and composite materials like plastic in car manufacturing (16). While this has resulted in greater fuel efficiency, the increased needs for various adhesives and the degradable nature of plastics means more and more vehicle parts end up in landfill than are recycled. In 2008, automotive plastics accounted for 1.5 metric tonnes, or 5% of plastic waste in Europe (16). This is an issue of ‘problem shifting’, whereby the industry pays attention to the use-phase of cars because of strong regulations and positive marketing benefits but does not pay attention to the end-of-life phase of vehicles. By incorporating these issues in the EHF and allotting part of the revenues to the recycling sector, government reaps co-benefits of creating jobs, a more circular economy, and reduced need of virgin materials for manufacturing.
We must consider the risks to implementing such a stringent policy. While consumer behaviour under the new policy would likely result in car manufacturers and sellers responding by investing in building more zero-emission cars than gas-vehicles, what is the risk that car companies would instead choose to circumvent this policy by moving their facilities beyond our borders (carbon leakage)? As it is, most of the Canadian car manufacturing is centralized in Southern Ontario, with a great deal of cross-border collaboration with American car manufacturers (17). Carbon leakage of car manufacturing will likely not result due to EHFs, but rather other carbon pricing mechanisms that affect manufacturing plants more directly. In fact, EHFs are specifically placed at the point of sale, so it is more likely they will affect consumers than manufacturers or sellers. As such, the risk of manufacturers and sellers jumping ship to the United States is mitigated, and the issue that is more likely to come up is consumers crossing the border to purchase a vehicle in a jurisdiction that does not incorporate EHFs.
There are several methods we could mitigate consumers purchasing out of country vehicles with the intent of not paying EHFs. One method is to incorporate EHFs on import duties at the border based on the Canadian market value of the car. This would ensure some level of consistency regardless of where the car was purchased. Another issue that arises is what to do with used vehicles and whether an EHF should be implemented on their purchase. Considering the purpose behind an EHF policy is to account for the carbon cost of manufacturing and end of life processes, it is appropriate that EHFs are applied at the initial purchase of a new vehicle, and not retroactively applied to older vehicles already on the road.
Well-maintained older vehicles do provide a certain level of carbon savings by extended use in that the embodied carbon of a vehicle diminishes over time. Embodied emissions refer to the emissions caused by manufacturing, and these tend to rival exhaust pipe emissions throughout the life of the car (7). As such, so long as the car is reliable and is not an incredibly inefficient vehicle, it is more carbon efficient to keep the older vehicle than invest in a new vehicle with a whole new set of embodied emissions. By implementing EHFs on new vehicles, government will send a price signal to consumers that might otherwise seek a new car every 5-10 years that they should hold onto to their older model for a while longer, and then when the time finally does come to buying a new car, they would be further incentivized by present EHFs to purchase a vehicle with lower environmental impact.
The primary purpose of carbon pricing is the valuation of public goods such as clean air, biodiversity, and sustainability of resources for future generations. Because these goods do not have direct monetary value, markets fail to value them properly, and carbon pricing is an attempt to account for the damage use of carbon emitting activities have on those goods (13). The Pan-Canadian Framework and the embedded carbon pricing mechanisms within the policy are good first steps. It is the first country-wide policy framework implemented (2). However, it is not stringent enough to fully realize Canada’s emissions reduction goals. The framework will be scheduled for re-evaluation in 2022, during which time this policy brief highly recommends the Environmental and Climate Change committee of Canada begin the process of approving use of EHFs for new vehicle purchases.
Key components of this policy are the reinvestment of EHF revenues in recycling and research and development of zero-emission transportation specific to Canadians’ needs. It is not enough to simply incentivize reduced consumption and production of new cars; we must also invest in adaptation and carbon absorption technologies to reduce emissions level below a level the environment can safely absorb without adding to climate change (18). A large part of this initiative will be to educate the public on the need for EHFs, the reasoning behind their implementation, and the purpose of the revenues collected to ensure the public may make informed decisions about them in the future.
EHF policy should be adopted on the federal level in addition to – or perhaps in place of (depending on political feasibility) – the current carbon fuel charge. By implementing this policy across all jurisdictions, the possibility of carbon leakage across provincial borders is heavily lessened, and the current carbon pricing schemes in provinces who have their own (British Columbia, Quebec), would therefore more accurately reflect the carbon cost of the transportation sector. This policy would ensure the prices that affects consumers are placed with the intent of changing consumer behaviour, rather than collecting revenue from gas pumps only to return said revenue later in the year. In addition, if the current tax rebates continue to stay in place, the combination of this incentive with the far more noticeable incentive of EHFs and electric vehicle rebates would serve as a convincing suite of price mechanisms. In addition, consumers would experience far more power to change the behaviour of car manufacturers and fuel providers by actively choosing vehicles with better EHFs.
Current carbon pricing policy in Canada accurately reflects a government hesitant to enforce stringent environmental policies in a political environment that spans a widely divided country. Proponents of Canadian oil will pose a challenge in passing this legislation. However, challenges like these are only the beginning of what Canada and her people are already facing due to climate change. The “true north, strong and free” must take a stronger stance on mitigating climate change in all areas. The transportation sector poses a unique opportunity to place a great deal of power in the hands of consumers while also creating an investment opportunity in a more robust recycling sector to create jobs and help mitigate emissions and waste.
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2. —. The Pan Canadian Framework on Clean Growth and Climate Change. Government of Canada. [Online] 03 30, 2019. [Cited: November 29, 2019.] http://publications.gc.ca/collections/collection_2017/eccc/En4-294-2016-eng.pdf.
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11. Consumer Perception of Environmental Harm and Willingness to Pay Environmental Handling Fees. Lakhan, Calvin. 2016, Environments.
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17. The Restructuring of Canada's Automotive Industry 2005-2014. Brendan Sweeney, Gregory Mordue. Ottawa : Canadian Public Policy, 2017.
18. Grubb, Michael. Planetary Economics: Energy, Climate Change and the Three Domains of Sustainable Development. New York : Routledge, 2014.