Want to cut greenhouse gases? Cut taxes

Hey there, time traveller!
This article was published 05/03/2019 (2718 days ago), so information in it may no longer be current.

You don’t need to be an economist, let alone a Nobel Prize-winning one, to know there is a simple way of changing purchasing decisions: by adjusting the cost to the consumer.

Through the carbon tax, the federal government will steadily increase the cost of purchasing fossil fuels, making them increasingly less desirable to the consumer. The intended outcome is to cut their use and the resulting greenhouse-gas (GHG) emissions. Depending on the rate of increase and final price, this should change demand for fossil-fuel products over time.

Another approach would be to lower the cost of non-emitting technologies that would displace existing fossil fuels or prevent their expanded use. In the case of Manitoba, this would simply involve transitioning away from fossil fuels and into electricity, as our grid is 100 per cent non-GHG-emitting. Other jurisdictions that currently use coal, oil or natural gas for electricity generation would have a more difficult and complicated path ahead.

What if we eliminate the provincial sales tax (PST) from products that would compete with fossil-fuel-consuming ones in Manitoba? In the home-heating area, this would mean no PST on air-to-air or ground–source heat pumps (which can both heat and cool spaces), electric or solar water heaters, electric furnaces, biomass stoves and electric ovens and cooktops.

In transportation, it would mean no PST on electric passenger vehicles, electric motorcycles or bikes, electric transit and school buses, electric garbage and work trucks, electric trains and trolleys and electric charging stations.

In home maintenance, it would mean no PST on electric lawn mowers, snowblowers, leaf-blowers, chainsaws and grass-trimmers. In recreation, it would mean no PST on electric golf carts and community trams, electric snowmobiles, ATVs and even electric watercraft.

The overall cost of completely eliminating the PST from such products would be a fraction of reducing the PST by one per cent economy-wide, which has been a long-standing target of the current provincial government. Coupled with the federal carbon tax, this would encourage use of local green electricity in place of imported non-renewable gasoline, diesel and natural gas. It would leave money in the hands of Manitoba Hydro and the provincial economy.

To see the transformative power taxation can have on consumption behaviour, one doesn’t have to look further than tobacco. The World Health Organization clearly shows that raising the price of tobacco through higher taxes is the single most effective way to encourage smokers to quit and prevent youth from starting to smoke.

Recent examples in countries such as South Africa, Egypt, the Philippines and Turkey clearly support the direct link between taxation and reduced use. Even in Canada, where smoking rates have dropped from 22 per cent to 13 per cent in the past 15 years, the 2035 goal of reducing it to five per cent involves pricing measures.

But would a discount of eight per cent, by eliminating the PST from certain products, change the purchasing decisions of consumers? We know that in many cases (such as electric vehicles or heat pumps), the lifetime cost benefits of using electricity outweigh those of fossil fuels. The main barrier is the upfront purchase price.

In a recent visit to a car dealership, I explored the option of purchasing an electric VW Golf. The listed price differential between an e-Golf and a gasoline model with similar specifications was about $8,500. Eliminating the PST on the e-Golf would drop this differential to about $6,000. Depending how many kilometres the car is driven annually, the return on the differential investment would then be in the range of three years, based on savings on gas and oil alone.

Similar calculations could be made by individual consumers when considering an electric versus natural gas water heater, an electric heat pump (ground-sourced or air-to-air) versus a natural-gas furnace, or an electric versus gas lawn mower. The PST exemption would send a powerful message to consumers that broad-based electrification is important to the Manitoba economy and the environment.

If the federal government could be convinced to match the PST exemption on sustainable technologies with a GST exemption, the effect of this policy could be further amplified. The details could be worked out by studying the many other jurisdictions that already have incentivized electrification through reductions or elimination of purchasing taxes.

Cutting greenhouse gases by cutting taxes — that is a policy that both tax crusaders and environmental advocates should be able to get behind. There is no reason to wait; the light is green.

Nazim Cicek is a professor and associate head of the department of biosystems engineering at the University of Manitoba.