Increased prices nullifying the advantage of rebates

Rebate inflation

It sounded like a great idea. Women need menstrual products once a month. These products are not discretionary, they are necessary, so why should people in the United Kingdom be forced to pay the Value Added Tax (VAT)?

Following this reasoning the “tampon tax” was repealed in 2021, lifting a 5% tax. However, the results were unexpected and disappointing—retailers responded by raising prices and consumers only experienced a savings of 1%.

The same thing is happening in the sustainability space. There’s a particularly distorted interaction between the auto industry quotas and government rebates. In the U.S., California (and eleven other states) set up a “zero emission” vehicle program, which requires automakers to sell an increasing percentage of electric vehicles (EVs). The U.S. also has state and federal incentives—$1,000 to $7,500 in state incentives and $7,500 in federal tax credits.

Automakers find it more expensive to build electric vehicles. Automakers, whose goal is to make a profit, comply with the requirements by selling the minimum number of EVs.

In the absence of incentives, how do automakers encourage more EV sales? They lower prices. Then, along comes state and federal incentives, which raise consumer demand for EVs. But, because it is still in the automakers best interest to produce fewer EVs, this allows companies to charge more.

Canada is in a similar situation. Nationwide, EV sales for light duty vehicle automakers are required to be 20% of the total by 2026, 60% of the total by 2030 and 100% by 2035. B.C. provincial incentives are $2,000 to $4,000 and federal incentives are $2,000 to $5,000. Here we have the same tradeoff. It is in the automakers best interest to only meet minimum sales targets, so the rebates—rather than increase the number of EV sales—raises the cost to the consumer.

We see a similar situation with heat pumps and rebates in B.C. Clean BC, BC Hydro and FortisBC are all offering rebates for heat pumps. The general rebates range from $1,000 to $9000 (in addition to federal rebates) and cover systems from “minisplits” to central forced air. There is anecdotal evidence that suggests when the rebates began, quotes for installing heat pumps went up.

It is harder to identify rebate inflation because most contractors don’t provide itemized quotes. Larry Whaley with Nanaimo Climate Action found, when he went to have a heat pump installed in his home, quotes were between $22,000 and $32,000.

He did his research on affordable and reliable heat pumps and found the cost of the pump was a small fraction of the total cost. He asked for contractors to break the quotes into two parts—the cost of the heat pump and the cost to install it.

Of more than 10 qualified installers, only two would provide a break down, and those quotes were significantly lower. He finally chose Supersave Heating, Plumbing and Cooling, which provided a quote of $11,400. Income-qualified rebates covered all but $1,400.

There are reasons why contractors, in general, don’t provide itemized quotes. Some find they result in an endless round of bargaining (“How much would it cost to leave this in and take that out?”). Some find clients try to swap quality parts with cheaper items that break, forcing the contractor to come back and replace them. However, one of the strongest forces preventing rebate inflation is transparency, which will require itemized quotes.

Geoff de Ruiter is also concerned about prices for heat pump systems—in this case the markup between the manufactures and the homeowners.

In October 2023, he put together a study: “Supply Chain Costing Spotlight for Central Forced Air Heat Pumps.”

Heat pumps are marked up at three points—when the manufacturer sells them to the wholesalers, when the wholesalers sell them to the installers and when the installers contract with the homeowner. The most commonly installed heat pump is 36,000 BTU/3.0 ton/11 kW and the average installation cost in B.C. is $19,000. However, if B.C. could make use of wholesale pricing, the cost to the consumer would come down as low as $13,100.

If B.C. could take advantage of wholesale pricing, we could afford to install many more heat pumps. That is actually being done for PEI, where heat pumps are purchased at wholesale prices in order to provide low-income households with free heat pumps.

We don’t have unlimited funding to throw at carbon reduction, so it is critical every dollar of taxpayer or utility-payer money is put to good use. Pricing transparency is needed for rebates to do their jobs.

Let’s spend smarter when it comes to carbon reduction.

More information on pricing heat pumps can be found at Nanaimo Climate Action here.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Kristy Dyer has worked in the sustainability field for more than 10 years, including work with solar energy in New Mexico and cleantech in Silicon Valley. After she moved to the Okanagan, she ran a small business, Teaspoon Energy, doing energy audits of large houses. Most recently, she worked for a B.C. business doing carbon footprints for tourism organizations.

She has written about sustainability since 2012. You can find her columns archived at TeaspoonEnergy.blogspot.com.

Dyer has a background in physics and astronomy, and has occasionally been caught trying to impersonate an engineer.

A long-time member of First Things First, Penticton’s local climate change group, whose goals are to educate and lobby for solutions to the climate crisis, Dyer is honoured to live, work and play in the unceded, ancestral and traditional territory of the Syilx Okanagan Nation.

You can contact her at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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