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Should Canada continue to subsidize diesel?

July 21, 2017


In the wake of the 2017 federal budget, one can observe a clear change of direction by the government in its ambitions to build a stronger middle class, enhance affordable housing, support gender equity, and improve infrastructure and health of Canada’s first peoples.


Have a glance at the budget’s goals, and you will also see the government boosting massive investments into fixing the aging water system, developing clean-technologies, and implementing a national action-plan that responds to climate change-related risks. It also includes an imminent $2 Billion over five years to develop the Low Carbon Economy Fund. It will promote provincial and territorial actions that reduce greenhouse gas emissions to ensure that Canada will meet its 2030 target.


If these ambitions are genuine, Canada has much catching up to do compared to its OECD counterparts after years of delay in our efforts to address climate change. The Government has planned to reinforce historic investments in green infrastructure, public transit, and green technology and innovation. However, there seems to be a missing topic in the entire federal budget discussion, which we feel the urge to bring to your attention: the diesel-gasoline tax differential.


To the regular consumer, diesel is a cheaper, and more efficient fuel and its consumption is still widely supported in Canada by a diesel differential on both the provincial and federal level. While our federal government has mandated carbon pricing for all provinces by 2018, Canada still encourages diesel consumption with its diesel differential that charges, on average, an excise tax of just 4¢ per litre of diesel used, compared to 10¢ for gasoline. Shouldn’t tax rebates be placed solely on more innovative and greener sources of energy if the government wishes to operate according to the energy transition plan? Optimizing fuel efficiency only becomes a more powerful approach when combined with efficient policy-making.


According to the Government of Canada, the transportation sector accounted for 23% of total national greenhouse gas emissions in 2014. While the much contentious oil and gas sector has been well under scrutiny, our economy’s dependence on diesel fuels is still left neglected, if not encouraged. If Canada is genuine about its commitment to the Paris Agreement, it should not continue to subsidize diesel, which is currently taxed at a lower rate versus gasoline and promoted as an energy-efficient fuel. Several studies show that diesel is no less harmful than gasoline and that our government could in fact benefit from taxing diesel more severely.


Still today, diesel is the number one choice of fuel for long-distance transportation, generally by trucks. Trucks are the main source of transportation to carry payloads from railway pick-up points to Canada’s vastly spread-out communities  (Trucks and air emissions: final report, 2001). Since 1990, freight travel emissions increased by 86%, including a 132% increase from freight trucks specifically. The economic and population growth we have experienced during that period has significantly played a role in boosting national GHG emissions level.


A fact that is lesser known to truck owners is that after accounting for CO2 and other air pollutants such as methane and nitrous oxide emissions, 1L of diesel fuel produces 15.5% more GHG emissions than gasoline. Many sources of evidence show that the environmental performance of diesel is worse than gasoline and is no safer to our health than its counterpart (Equiterre).   




Meanwhile, our counterparts in Northern Europe and the UK have already started taking measures to phase out the diesel subsidy. The President of France, Emmanuel Macron and his government have recently announced their plan to end sale of petrol and diesel vehicles by 2040. It only makes good environmental and economic sense for Canada to follow suit if we, as a nation, mean to meet our GHG targets, transition successfully to cleaner energy, and generate additional revenue to back up swelling expenditures needed to meet the Liberals’ restructuring plans.


Fortunately, existing regulations in Canada require long-distance trucks to be renewed regularly for improved efficiency, but that is not enough. Clearly, there is a reason why from 1990-2014, emissions from cars declined by 30%, while emissions from light trucks (including trucks, vans and sport utility vehicles) increased by 123%. Since 1990, the increase in the number of light trucks has been more than three times greater than the increase in the numbers of the overall fleet of passenger on-road vehicles (Government of Canada). This goes to show that the continual improvement in fuel efficiency is not enough to offset increasing emissions.


In order to reduce reliance on diesel in indigenous and northern communities, Budget 2017 allocates $21.4 million (over four years, starting in 2018-19) to Indigenous and Northern Affairs Canada to continue the Northern Responsible Energy Approach for Community Heat and Electricity Program. Additional measures will be taken to address energy security in northern communities, to reduce the reliance of provinces’ rural and remote communities on diesel fuel, and to encourage the use of more sustainable, renewable power solutions.


Another $17.2 million (over five years, starting in 2017–18) will be provided to Environment and Climate Change Canada and Transport Canada to “develop and implement heavy-duty vehicle retrofit and off-road regulations, as well as a clean fuel standard to reduce emissions from fuels used in transportation, building and industrial sectors.”


The 2017 Federal Budget has succeeded to plan and promote the development of innovative clean technologies and the shift toward sustainable energy sources. In addition to moving away from diesel use, the Government should urge to close the diesel-gasoline tax. Now, the story doesn’t simply end with a tax raise in diesel. Ideally, after harmonizing the price of fuel and gasoline, the trucking industry will be forced to turn to other ways of keeping costs low as the dependence on diesel will most likely endure a tax raise. This means that while we await the introduction of electricity-powered trucks in the next decade (Our best bet: Tesla trucks), the government needs to step up investments into mechanical upgrades and retrofit programs, which are already made available by automobile giants such as Daimler, Volvo, and Mercedes. Volvo has even announced, for 2019, the partial or complete electrification of all vehicles manufactured. What we can expect for now is having the additional revenue (from closing the gap) reinvested into R&D, advancement in combustion engines, lightweight materials and aerodynamic improvements for large vehicles powered by diesel, as well as in promoting and educating vehicle owners about the true environmental costs of diesel.  

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