1. Read the article below, and answer the following questions at the bottom.

The new Saskatchewan Electric Vehicle (EV) fee of $150 per year is predicated, says the government, on fairness. Fuel-based car owners pay a tax of 15 cents per litre for gasoline; EV owners don’t, since they don’t use fuel. The EV fee makes sure all drivers contribute to highway maintenance.

But is it the case that EV owners do not contribute to provincial coffers that support services? EV owners contribute as much as an average car owner does to provincial coffers. In fact, one can argue that they pay even more. They just pay it through a different budget item.

If an average driver does 15,000 kilometers per year in a car that gets 8.9 liters per 100 km, they would buy about 1,355 litres of fuel and pay $200 fuel tax. At the average residential rate for electricity of 18.6 cents per kWh (as per SaskPower’s annual report), an EV owner will see a rise in their electricity bill of about $558 per year, or $46 per month. And SaskPower makes profits from these additional sales. They report average costs of power generation at 11.6 cents per kWh. This means EV owners are paying seven cents per kWh above generation costs. This works out to $210 in profit for SaskPower, because they can sell the additional power to EV households without additional service upgrades.

But what happens to SaskPower if EVs grow in number? Well, the profit grows, too. The current fleet of EVs in Saskatchewan is just over 600. If we had 10,500 EVs in Saskatchewan driving an average amount, that would add up to 31,500 MWh of additional demand on the grid. That would be only 0.14 per cent of total annual generation and only one percent of total residential demand. This demand from 10,500 EVs is unlikely to impose any burden on electricity infrastructure, but would contribute over $2 million in additional profits to SaskPower.

The residents of Saskatchewan own SaskPower so that profit comes to us through our government, just like the fuel tax. Of course, if we added something like 100,000 EVs, the additional demand would be something that SaskPower would likely have to accommodate through grid and service upgrades to houses.

Each EV owner currently contributes more than $210 per year to SaskPower’s bottom line. This is the same ballpark contribution that gas car owners contribute to government revenues through the fuel tax — which EV owners will also have to pay via the EV fee. Piling on that $150 tax, in addition to the $210 EV owners already pay to SaskPower, is unfair.

1. Based on an evaluation of public goods, subsidies and taxation, explain why you either agree, or disagree with the author’s conclusion about the fairness of Saskatchewan’s transportation policy.
2. Saskatchewan's carbon price of $40 a tone translates into an added 8.84 cents a liter for gasoline in 2021. The province proposes to reduce its existing gasoline excise tax to offset half of future increases in carbon charges, through to 2030. At this level the carbon tax is insufficient to offset the negative externalities of gasoline car emissions. Using an appropriate economic model explain how the carbon savings of EVs could be used as an argument to exempt EVs from the road tax.

Answer rating: 100% (QA)

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