Ontario might reduce its gas tax. Alberta killed its tax. Will this mean more driving?

If he’s re-elected as Ontario’s premier this June, Doug Ford is pledging to reduce the province’s gas tax by 5.7 cents a litre for six months starting on July 1. He’d be following behind Premier Jason Kenney, who on April 1 eliminated Alberta’s 13 per cent gas tax indefinitely, promising to review the decision every quarter. With everything from food to fuel getting more expensive, each said the move was an effort to give people financial relief.

This is one of a series of car-related cost relief measures Ontario’s Progressive Conservative government has introduced lately — in March, it permanently eliminated licence plate renewal fees, which it said would save vehicle owners about $465 this year when combined with the gas tax reduction. It also scrapped tolls on two highways in Durham Region in April. 

Making it cheaper to drive seems counterintuitive to the core climate goal of reducing fossil fuel emissions. But is the equation that simple? The Narwhal asked Chad Lawley, a professor of agribusiness and agricultural economics at the University of Manitoba. 

In 2018, Lawley and a fellow researcher, Vincent Thivierge, looked into the opposite question: did a rise in car-related costs discourage drivers from getting behind the wheel? Specifically they looked at whether British Columbia’s 2008 fuel-specific carbon tax — the first of its kind in North America — had reduced the amount of private vehicle use in the province. 

The broad answer was yes, though drilling down into specific locations complicated the picture. Much hinges on how long-lasting incentives and disincentives are, Lawley said — as well as whether people have any other alternative for getting around. 

This interview has been edited for length and clarity.

In 2008, British Columbia introduced a carbon tax on fuels used within the province. Why did you want to look at the effects on driving habits? 

B.C. was quite an innovator, the first North American jurisdiction to put in a carbon tax. There had been an earlier study in 2015 that found the carbon tax had pretty big impacts on gasoline use in British Columbia, much larger impacts than an equivalent increase in price would have. I was interested in the research question itself — my gut reaction was that it was an overestimate of the impact. We had a different data set from Statistics Canada that we could use, data from a household survey that Stats Canada does nationwide that we thought was better in a couple of ways. 

So we did the study and actually found very similar results using this different data set. We found similarly large impacts of the B.C. carbon tax on B.C. gasoline use.

You found that a five cent per litre carbon tax reduced gasoline consumption by about eight per cent province wide. But when you looked at specific jurisdictions, it was more fine-tuned than that. Can you tell me a bit about what you found?

We were able to locate where each of the households were. So we knew if the household was in Vancouver or in a smaller city in British Columbia, or in a more rural or northern area. When we separated the sample in that way, we found pretty big effects of the carbon tax in Vancouver, but more moderate impacts in the smaller cities. And then almost no impact in rural and remote areas. 

We attribute this to the notion that rural or more remote households would have a harder time adjusting to the tax. So they’re locked in, in terms of where they live and distance from groceries and places of work. They don’t have public transit options to fall back on if prices do change substantially. Whereas people in Vancouver have more flexibility, so they’d be more responsive to a change in gas prices.

Right, because they could take transit, or maybe even walk or ride a bike.

Yeah, that’s right.

You also found that a gas tax affected driving patterns differently than changes in the price of gas, is that right?

That’s right. There are a couple of rationales for that. I think probably the most likely one is that taxes tend to be permanent price changes. It makes sense to make changes in your life to adapt to permanent price change. But the market price can fluctuate pretty wildly, as we’re seeing. So it makes less sense to change your lifestyle or change your car or that sort of thing in response to more short-term price changes.

So I’m asking you about the opposite scenario from your research. You’ve found that a five cent gas tax decreases driving by eight per cent. Doug Ford has said that if he’s re-elected, he’s going to lower the gas tax in Ontario by 5.7 cents a litre. Do you think that would increase people’s driving by eight per cent? 

It’s a permanent change? Or temporary for right now?

Ontario’s would be temporary, for six months. Alberta has cut its gas tax entirely, and the government said it will review the decision every quarter. 

A temporary reduction can make some sense I think. You’re just helping people get through a hard time. They’re sort of locked into a certain transportation mode right now and so you can provide some relief for these high prices. A permanent reduction seems like a terrible idea. But a short term reduction might help people cope, at least in the short run. 

I think if it’s permanent, people think about that when they’re making the car purchase. You’re gonna buy a bike, so you can bike more often. I don’t think a temporary one would change behaviour too much.

I have not followed the Alberta tax reduction closely, but a permanent tax reduction would have a bigger impact on consumption. That said, given the unclear message from the government, most consumers who are paying attention will likely view it as temporary, so I don’t think it will have a big impact.

In general, I do think taxes on gasoline should be higher, with the revenue invested back into transportation or recycled back to consumers, as in a carbon tax. The recycling could be targeted to lower income households.

When we talk about reducing emissions, we talk about a layered approach. So in Vancouver, the gas tax went up, but also public transit was improved, when the new Canada Line opened in 2009. The Ontario government is also eliminating some highway tolls and eliminating renewal fees for licence plates. Those two actually are permanent changes. Do you think this layered effect could increase people’s driving?

He’s eliminating tolls? 

Yeah. On a couple of big highways.  

I see tolls as being an effective way to manage traffic flows. I’d like to see more tolls personally. Especially if you’re worried about congestion. You really do want to manage traffic flows. Maybe the tolls they have in place are not ideally designed, but I would err on more tolls rather than less.

Is that something that you’ve seen in your research, or other people’s, that tolls do reduce people’s driving?

They change where people drive. For some people that would be making their fastest route a little bit more expensive, so then you’d expect it to reduce driving. But I think more importantly, it probably changes where people drive. You could use them to manage congestion. Sitting in traffic is not a great way to increase fuel efficiency. If people aren’t sitting in congestion on the highway it’s good.