Ontario’s Ethanol Lie

Ontarians will pay hundreds of millions of dollars for pointless new fuel standards

Ross McKitrick and Douglas Auld: Ontario has jettisoned any pretense of economic logic in its climate policy mix

Special to Financial Post December 20, 2017

Ontario has announced plans to double the required content of ethanol in our gasoline, from five per cent to 10 per cent. This regrettable decision will have harmful effects on everyone. It will worsen the mileage of gasoline, raise food and fuel costs and yield minuscule environmental gains at best.

Ratcheting up the ethanol mandate also defeats the purpose of Ontario’s new cap-and-trade system. The logic of carbon pricing through permit trading is that it leads the market to identify and implement the lowest-cost ways of reducing greenhouse gas (GHG) emissions. If ethanol blending was cost-effective then, under cap and trade, fuel producers would do it automatically. The fact that they have to be coerced means it fails a cost-benefit test, making it precisely the kind of inefficient option the trading system is supposed to guard against. Forcing firms to do it anyway means Ontario has jettisoned any pretense of economic logic in its climate policy mix.

In earlier research we found that ethanol-subsidy programs during the 2008–12 interval cost Canadians over three dollars for every one dollar in social and environmental benefits achieved. The overt subsidy programs have largely been scaled back, but the blending mandates amount to a hidden subsidy, where the costs are transferred away from taxpayers onto industry and consumers.

It is highly misleading for the province to promote its policy as being equivalent to “taking up to 130,000 cars off the road.” Such statements only remind us how clean our cars have become. The policy itself yields tiny overall emission reductions, but since modern cars are so clean and efficient that translates into a lot of vehicles as an equivalent. By way of illustration, it would translate into taking an infinite number of bicycles off the road, since they emit nothing at all, but that is an equally uninformative comparison.

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