Course Correction: biofuels and carbon pricing report | Ecofiscal

Course Correction: It’s Time to Rethink Canadian Biofuel Policies

Abstract

Biofuel policies are costly. Carbon pricing will reduce emissions at a lower cost.
Biofuel policies have been a contentious topic internationally, with the debate centered 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 emerging carbon pricing policies in Canadian provinces.

Four Recommendations

#1: Provincial and federal production subsidies should be terminated, as initially planned.

Canadian biofuel policies were integral to building domestic capacity to meet federal and provincial fuel mandates, but they were an expensive way to achieve emissions reductions. When compared with other policies, especially carbon pricing, biofuels are clearly not the most cost-effective approach to reducing GHG emissions. The majority of recipients through the federal production subsidy program stopped receiving payments in 2015, so the transition from production subsidies is already well underway.

#2: Provincial and federal governments should phase out renewable fuel mandates.

Renewable fuel mandates have benefited the biofuels sector, but have been costly for consumers and inhibited the development of emerging low-carbon technologies. Decarbonizing the transportation sector will involve many different and competing technologies; the technologies that prove the most effective and economically viable should win the day. Only through this competition of ideas—via policies that provide equal incentives—will the most cost-effective technologies emerge.

#3: Provincial and federal governments should continue to work toward an increasing pan-Canadian carbon price.

The development of carbon pricing in Canada is changing the landscape for climate policy. Federal and provincial governments continue to work toward achieving a pan-Canadian carbon price, which is the most effective and cost-effective way to achieve Canada’s climate targets. Achieving a broad-based carbon price in Canada will shift the incentives for developing and deploying low-carbon technologies.

In particular, it will increase the value of low-carbon technologies—including some biofuels—that can deliver more GHG emissions reductions at a lower cost. The Ecofiscal Commission therefore continues to support Canadian governments in their pursuit of establishing carbon pricing as the best overall policy tool to achieve Canada’s climate targets.

#4: As part of the policy transition, governments should complement carbon pricing with flexible performance standards and broad funding for research and development.

By itself, a pan-Canadian price on carbon may not be enough to meet Canada’s emissions-reduction targets. Market failures can inhibit the development of low-carbon technologies. To make the shift to low-carbon transportation, complementary policies may be required in the short term, such as low-carbon fuel standards or zero-emission vehicle standards. In addition, governments should continue to fund research and development of low-carbon transportation technologies.

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