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What does Ottawa do with all those 'green' taxes on cars?

Wheels contributor Jil McIntosh discusses what happens to all those "green" levies you pay when you buy a car.

  • Car queue in the bad traffic road. Selective focus.

You’d really think a “green” tax would be used to fund environmental projects.

You’d think, but it doesn’t always happen. To encourage fuel efficiency, the federal government currently tacks levies onto almost every passenger vehicle sold in Canada.

But every penny goes into the government’s general revenue stream. There’s no separate accounting in Canada, no specified use, no specialized department receiving it.

If any of the money you pay in “green” taxes funds any environmental program, that’s strictly a coincidence.

If your new car has air conditioning, there’s a $100 tax. If its combined fuel consumption is 13.0 L/100 km or more, you’ll pay between $1,000 and $4,000 for the Green Levy, the so-called “gas guzzler tax”

And up until July 1, 2010, Ontario drivers might have been dinged with the Tax for Fuel Conservation, which charged between $75 and $4,400, based on fuel efficiency.

All of these are levied at the manufacturer level, paid by the automaker and passed on to consumers.

The auto air-conditioning tax was introduced in 1976 to push energy conservation. That year’s federal budget papers noted “air conditioners affect gasoline consumption by adding to the weight of the vehicle and by consuming energy directly.”

Exactly how much isn’t clear. Today, the U.S. Department of Energy says that operating a/c on maximum “can reduce m.p.g. (miles per gallon) by roughly 5 (to) 25 per cent compared to not using it.”

Natural Resources Canada says it can increase fuel consumption “by more than 20 per cent in city driving.”

But several sources, including SAE researchers, say that using a/c at higher speeds is more fuel-efficient than opening the windows, which increases wind resistance.

Natural Resources says fuel consumption can also be affected by the weight or energy use of options such as power seats and windows, seat heaters, fog lights and sunroofs, but there’s no tax on those.

In a pre-budget recommendation in 2003, the Canadian Vehicle Manufacturers’ Association said that “consumers pay $100 on each new vehicle with an air conditioner despite the fact that modern air conditioners are environmentally friendly and are no longer considered luxuries,” and asked that the tax be eliminated.

It’s still around, even if it doesn’t always make sense. Although the tax appears to be about fuel consumption, Nissan confirms it will apply to the Leaf – an all-electric car that can’t even be filled with gas.

Check the paperwork if you’re buying an entry-level car without a/c, too. Since most cars come with it, the dealer might forget to leave it off the sales sheet.

The Green Levy arrived in the 2007 federal budget, intended to discourage the purchase of thirsty vehicles and part of a larger plan to get Canadians into more fuel-efficient choices. (It excludes pickup trucks and some other work-related vehicles.)

The budget also included the ecoAUTO rebate, for buying fuel-sippers, and laid the groundwork for Retire Your Ride, which offered incentives to scrap older vehicles.

The budget allotted $160 million for the two-year ecoAUTO program and up to $36 million for Retire Your Ride. It also estimated that the Green Levy would ‘increase federal revenues’ by $215 million over the next two years. The ecoAUTO rebate ended on March 31, 2009. Retire Your Ride ran from January 2009 to March 2011. The Green Levy remains.

Ontario encouraged fuel-efficient purchases with its Tax for Fuel Conservation (TFFC), which applied to model-year 2006 through 2010 and is now finished.

At its lowest fees, the TFFC seemed more cash cow than deterrent: it’s doubtful the $75 levied against such pricey vehicles as a BMW 5 Series, Cadillac CTS or Lexus LS had buyers rethinking their choices. At the other end, it jumped exponentially: a car that got 9.4 L/100 km was charged $250, but at 9.5 L/100 km the tax was $1,200.

When my husband bought a 6.1 L V8 car in 2008, we paid $2,300 in penalties: $1,000 for the Green Levy, $1,200 for the TFFC, and $100 for the a/c. I’m not looking for sympathy-if I can afford a thirsty car, I can afford the tax-but I would have preferred seeing the money earmarked for environmental purposes.

The only new-car “green” fee that actually goes toward the environment is the tire levy. The $5.84 per passenger-vehicle tire goes directly to Ontario Tire Stewardship (OTS), an industry-run private corporation originally mandated by the provincial government.

It differs from previous fees, including the $5 tire tax of 1989 to 1993 that also went straight into the government’s general coffers, and the more recent disposal fee charged by tire stores to have used tires taken away.

OTS now pays haulers directly to pick up scrap tires and deliver them to recyclers. Through the program, consumers can drop off tires at designated depots at no charge (visit to find them).

Under the old system, some haulers stockpiled or dumped tires to avoid paying tipping fees at disposal centres. OTS says this doesn’t happen anymore because the new program covers all the haulers’ costs.

The money is also used to clean up stockpiles and invest in Ontario companies that turn old tires into new products. The program is now into its second year and OTS says that approximately 15.6 million tires were recycled in 2010.

In contrast, last year the Ottawa collected more than $16.2 million for the Green Levy and more than $136 million for air conditioners. All that money was funneled into the general revenue stream.

It’s fine to emphasize the environment and tax us for its future. But it sure would be nice if we were actually getting something “green” for all our cash.

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