Pembina Institute

Can Obama help us cut our gas bills?

Last Friday, while many Canadians were gassing up their cars getting ready to hit the road for the long weekend, U.S. president Barack Obama unveiled new regulations to lower drivers' gas bills and cut pollution from American vehicles.

It was a bold move in the heat of the debt ceiling crisis, but as Obama explained, regulating the development of more fuel efficient vehicles is a smart economic move, saving Americans $US1.7 trillion at the pump over the lifespan of the program and reducing oil consumption by 2.2 million barrels a day. It means by 2025 drivers would fill up their gas tanks every two weeks instead of every week.

The new American regulations would require new cars and light trucks to achieve an average 54.5 miles per gallon by 2025. For us Canucks, that's 4.3 litres per 100 kilometers.

How should Canada respond?

Friday's announcement poses an obvious question to our government: will Canada commit to matching the U.S. goal?

Canada's government has been eager to "align" with the U.S. in other areas of climate policy, including the earlier round of vehicle standards. For example, when the U.S. announced fuel efficiency standards for cars and light trucks covering the 2011 to 2016 years, the Government of Canada made a matching announcement within hours; it also committed to align on post-2017 vehicle regulations when they happen.

So we are awaiting Environment Canada's response to Obama's Friday announcement, which is just for the draft regulations at this point — the official "Notice of Proposed Rulemaking" is not expected until late September.

But if we put the logistics of "alignment" aside, the real question is whether it would it be a good thing for Canada to adopt the U.S. standards. 

ThHarper and Obamae first point to make is that effective fuel efficiency standards are good news — not just for the environment, but for the auto industry too. With strong market demand for more efficient vehicles, a well-designed Canadian regulation would make it easier and fairer for manufacturers to transform their fleets.

In the U.S., autoworkers are applauding the deal, which will support a technological shift for long-term vehicle production. Six of the 10 best selling vehicles in America are currently small or midsized cars.  In Canada, sales of compact cars jumped 25 per cent from last year.

Canada's unique vehicle fleet — smaller is better

In fact, Canada's vehicle fleet has historically been more efficient than the United States' fleet, so Canada will need to be mindful of how it harmonizes with the U.S. It should aim to match — or even beat — the U.S. goal of doubling the average fuel efficiency of new vehicles by 2025, rather than necessarily matching the regulatory approach they have chosen to get there.

We can't give detailed comments on the U.S. proposal until we see their actual regulations, but the White House proposal does seem to contain some "flexibilities" designed for their specific legislation that we don't have to import.

Canada's current commitment to harmonize with U.S. standards for the 2011 – 2016 years has already put our efficiency advantage at risk, because the U.S. regulatory approach doesn't account for the more efficient starting point of Canada's current fleet. This problem, together with a few troublesome loopholes, means that it's unlikely that new vehicles sold in Canada will be required to make actual efficiency gains relative to business as usual until as late as 2016.

Cars in a lotThe good news is that Canada now has the opportunity to regain our efficiency edge by designing a strong and smart standard for the 2017 – 2025 period. To match the U.S. goal of 54.5 miles per gallon (or 4.32 litres per 100 kilometres), Canada should design its fuel efficiency standard so that it encourages manufacturers to offer a greater number of smaller cars, resulting in better fuel economy and more savings at the car dealership for Canadians. 

We can also avoid any U.S. loopholes that resulted from their specific legislation, such as exemptions for light trucks and the 'technology reopener' midway through the regulations in 2021, potentially allowing automakers to procrastinate until then.

Benefits of a strong Canadian standard

A preliminary analysis by the Pembina Institute finds that, in 2025, similar fuel efficiency regulations to what the U.S. is proposing in Canada would result in real relief at Canadian pumps:

  • An average vehicle driven by a Canadian will use about 600 fewer litres of gasoline per year. This means an annual savings"Making our vehicles more efficient is a significant part of the solution to cut emissions, reduce our dependence on oil, and transform to a sustainable and clean transportation future." of nearly $750 at the pump based on current prices ($1.25/L);
  • Greenhouse gas emissions from personal vehicles would be reduced by 15 per cent;
  • The average new vehicle sold would be about 46 per cent more efficient than it is today; and
  • The average vehicle driven by a Canadian would be approximately 34 per cent more efficient under this standard than it is today.

For manufacturers, a strong 2017 – 2025 standard sends a clear signal that the goal of boosting efficiency is here to stay. Current loopholes may allow automakers to coast to 2016 if they wish, but beyond that they will have to work at improving their vehicles' performance year after year.

The 2017 – 2025 goal gives automakers plenty of lead-time to start work on new models and roll out more innovative technologies; it allows them to plan ahead with confidence.

Going further

Transportation is responsible for a quarter of Canada's greenhouse gas pollution. Making our vehicles more efficient is a significant part of the solution to cut these emissions, reduce our dependence on oil, and transform to a sustainable and clean transportation future. But there are other important steps we need to take as well, including investing in more and better transit, implementing smart growth policies to reduce urban sprawl, offering incentives for commuters to drive less and adopting policies that support the use of electric vehicles and cleaner fuels. While the federal government can support all of those measures, a shift to sustainable transportation in Canada is going to require action from provincial governments, municipalities, businesses, and all of us as commuters.

Obama called the new regulations "the single most important step we've ever taken as a nation to reduce our dependence on foreign oil." He also committed to eliminate the US $4 billion that his country still provides in oil subsidies and dedicate it to clean energy research. With Canada in a healthier economic and political climate than the U.S., we are certainly capable of meeting — and beating — this effort.

 

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