Toronto, October 4, 2016 — Canada’s biofuel policies have helped to reduced GHG emissions, but according to a new report from Canada’s Ecofiscal Commission, these reductions have come at a significant cost. The report, Course Correction: It’s Time to Rethink Canadian Biofuel Policies, examines the extent to which biofuel policies have achieved their stated objectives, and whether these policies have been cost-effective for Canadians.
Federal and provincial governments currently use two different types of policies to encourage the production and use of biofuels. Production subsidies provide cash payments directly to biofuel producers, financed by taxpayers. Fuel mandates require gasoline and diesel to be blended with more expensive ethanol and biodiesel, thereby raising driving costs for consumers.
Course Correction finds that these biofuel policies have reduced GHG emissions by an average of 3 Mt per year from 2010 to 2015, an amount less than one-half of one percent of Canada’s total GHG emissions. These small reductions have been very expensive, however. The total consumer and taxpayer cost has been approximately $640 million per year. On a per-tonne basis, the estimated average cost of the emissions reductions have ranged from $128 to $185, far greater than the cost achievable with a carbon price, such as the ones already available and coming by 2018 to all Canadian provinces as per yesterday’s Federal announcement.
An analysis of the policies’ other objectives appears unlikely to justify these high costs. When it comes to support for rural communities, the federal government’s own cost–benefit analysis for its renewable fuel mandate found that economic costs far exceeded benefits. Further, the Ecofiscal report finds that impacts on air pollution and on the development of next-generation biofuels have been negligible.
As a result, the Ecofiscal Commission recommends that all production subsidies be terminated as initially planned, and that renewable fuel mandates be gradually phased out. In their place, the Commission recommends that governments across the country continue to develop a rising pan-Canadian carbon price. The report also notes that as part of the policy transition, governments should consider complementing carbon pricing with flexible performance standards and broad funding for research and development to spur the shift to low-carbon transportation.
“Carbon pricing should be the backbone of any climate policy, as it is the most cost-effective way to reduce greenhouse gas emissions,” said Commission Chair Chris Ragan, an associate professor of economics at McGill University and member of the federal government’s Advisory Council on Economic Growth. “In the policy context now emerging in Canada, with over 80% of Canadians living in provinces with a carbon pricing system in place or soon to be, and the federal government stepping in to fill the gaps, it is prudent to re-examine older policies to see if they still make sense. Our research finds that biofuel policies don’t pass this test, and that it’s time for governments to correct course and shift to the more cost-effective policies now available: carbon pricing and flexible performance standards.”
“Furthermore, as Canadians across the country continue to embrace carbon pricing, it will be helpful to have a coordinated pan-Canadian system which will make the various provincial policies even more cost-effective,” Ragan continued. “This report shows that some sector-specific policies, though well-intentioned, may not be as sensible as many people think. A broadly applied carbon price, if well-designed, can ensure that we reduce GHG emissions while maintaining the strongest economy possible.”
Biofuel policies have been a contentious topic internationally, with the debate centred on the climate impacts of biofuels, and also their impact on food prices, air quality, and economic development. Course Correction assesses the economic and environmental case for biofuel policies in Canada and examines the extent to which biofuel policies have achieved their stated objectives. In particular, the report finds that biofuels policies have reduced GHG emissions by 3 Mt per year over the 2010-2015 period, however they have done so at a very high cost. Finally, this report concludes that low-carbon transportation policies are still likely needed to complement the emerging carbon pricing policies in Canadian provinces.
About Canada’s Ecofiscal Commission
Established in November 2014, Canada’s Ecofiscal Commission is a unique effort to advance fiscal policy reform for the benefit of Canada’s economy and environment. The commission comprises a dozen prominent economists from across Canada’s regions and 18 advisors including former political leaders and leaders from the business sector and civil society.
Over its six-year mandate, the commission will publish and promote discussion of research and recommendations grounded in Canada’s regionally diverse economic and policy context. It will focus on issues most relevant to Canadians and policy-makers including those affecting fresh water, air quality, environmental disasters, greenhouse gas emissions, transportation and road congestion.
The Commission termed these “ecofiscal” policies—a new word to facilitate a new conversation about solutions guided by both economic and environmental objectives. Several Canadian family foundations and Canadian corporations fund the Commission.