When Daniel Arrega, 19, heads to work at a mall in Innisfil, he has few options for his commute. Walking along the highway would take nearly three hours. A taxi is faster but expensive.

So he takes the town’s public transit: Uber.

“It’s great for young people, especially if you don’t have a licence,” he said after arriving at the branch of Tommy Hilfiger where he works.

In 2017, the town in Ontario, Canada, embarked on an ambitious – and, to its critics, fraught – experiment. It handed responsibility for public transit to the ride-sharing app Uber.

Innisfil Transit’s Uber network connects popular areas, called ‘hubs’ such as municipal buildings and leisure amenities.

Instead of buses or trains plying regular routes, it is Uber’s roving cars that function as the transit fleet. When a rider opens the app, Innisfil Transit pops up as the cheapest option to travel between a network of popular areas called “hubs”, such as libraries, the recreation centre or municipal buildings.

The costs per ride vary, but on average passengers pay an average of CAD$5 (£3), with the city subsiding the rest. Trips outside subsidised areas receive a flat $6 discount.

Two years later, the Innisfil authorities argue that the project has been a success. Ridership is high – in 2018 there were 85,943 trips – and many residents have embraced the service.

The notion that Uber has anything useful to offer public transit is just preposterous Jarrett Walker, author and consultant

“We just absolutely love Uber. I take it, my son takes it, my dad takes it. I take it,” said Shannon Kelly-Robb, who works at one of the libraries.

But beyond the excitement of essentially having subsidised taxi service, experts paint a more troubling picture of questionable economic and environmental sustainability. The city has now spent more on Uber than the traditional transit option it was considering, and has dramatically increased the number of cars on its roads, with worrying implications for air quality and the climate crisis.

What’s more, Innisfil Transit has now attracted attention as the latest step in a growing assault on public transit systems by ride-sharing companies. Urban planners fear Uber isn’t just taking riders away from public transit but that it is hoping to replace public transit altogether.

Innisfil is a typical small North American town, with widely spaced houses on large lots, making efficient public transit a logistical challenge.

In London and Denver, Uber has integrated public transit options into its app to become a “one-stop shop for transportation”. In regulatory filings, published in advance of its May IPO, Uber said it wants to “replace personal vehicle ownership and usage and public transportation one use case at a time”.

Innisfil’s deal with Uber is nothing “other than a more expedited and abundant taxi system. That’s all it is,” said Jarrett Walker, a transit consultant based in Portland, Oregon, and author of Human Transit. “The notion that Uber has anything useful to offer public transit is just preposterous.”

But if you have a system with too many people using it, and you can’t afford to provide [the service], how will you handle that? Christof Spieler, urban planner

Innisfil saw it differently. A community of 40,000 north of Toronto, it is a typical small North American town, with widely spaced houses on large lots that makes efficient public transit a logistical challenge.

The town desperately needed transit, said Paul Pentikainen, Innisfil’s senior planner. But the option on the table – three bus routes – would cost the council nearly $1m. So they tried to think creatively.

“[We wanted to] connect all the drivers in the town with those that need these rides: that could be the basis for our transit system,” said Pentikainen. “And because Uber was already doing that, it just seemed to make sense for us.”

The contract also meant more work for Uber drivers, whose number in Innisfil increased to 2,203 in 2018. “I just needed a sustainable income after I retired,” said Dennis West, who started driving for Uber in December 2017. “This is a nice gig. You can do it when you want to do it – and you can do it as much as you want to do it. It works well.”

Paul Pentikainen, Innisfil’s senior policy planner.

But success has come at an ironic cost to the town. Because Innisfil subsidises each ride, the more successful it is, the more the town pays to Uber. That figure is now projected to reach $1.2m for 2019 – more than the bus programme would have cost, and well above the $900,000 the city allocated. With ridership increasing each year, costs will only rise.

“If you operate a regular bus system, you have a much better idea of what those costs will look like five or 10 years from now,” said Christof Spieler, an urban planner and author of Trains, Buses, People. “But if you have a system with too many people using it, and you can’t afford to provide [the service], how will you handle that?”

In fact, the town has taken the extraordinary step of deterring people from using Uber too much, capping the number of rides a resident can take per month. For mall worker Arrega, who has been “working like crazy”, that often means exceeding the limit midway through the month, although the town allows riders to apply for an exemption. It has also increased the cost of a ride by $1.

In a late May briefing note, however, Innsifil authorities said few cost savings had been made: additional revenues from the fare increase have been offset by increased ridership costs, as more residents successfully petition for exemptions.

A recently developed residential neighbourhood of Innisfil.

“For a transit agency, [a service like Uber] works best when not very many people are using it,” said Walker. “Because when people start using it in any numbers, it devours the the entire budget.”

Still, he understands why Innisfil made the decision, saying it might be the right thing to do for a sprawling town with low population density where bus stops would be far from destinations.

Nevertheless, Uber’s messaging is working: planners from other cities have contacted Innisfil for advice on how to create a similar system, said Pentikainen.

But Spieler warns that what might work for more rural areas would be a disaster in denser cities.

“If you are a city government and if you’re finding that the [best option] for providing any kind of transit is subsidising Lyft and Uber, you have made some really bad decisions in planning your city,” he said.

Troubling oversights have already emerged in the two years since the programme began: there are no ways for low-income residents to offset the costs of transit – despite staff identifying an average of 40 trips each month to the town’s food bank. Pentikainen says further subsidy for low income residents is “something we’re thinking of”, including using gift cards for residents.

Dennis West, who started driving for Uber in December 2017, in a Tim Horton’s carpark in Innisfil.

Pentikainen also brushed off concerns with Uber’s controversial labour practices, which have received intense scrutiny in many cities, saying drivers “absolutely love the job” and the town has received no complaints over compensation.

Since the introduction of ride-sharing companies such as Uber, transit use has fallen in major American cities nearly 2%, and those losses are cumulative: since Uber first started in San Francisco in 2010, bus ridership has dropped by more than 12%.

As well as harming transit revenues, ride-sharing is the likely culprit behind a surge in traffic congestion and increased emissions. A recent study in the journal Science Advances found that Uber and Lyft are the biggest contributors to San Francisco’s crippling traffic congestion. Between 2010 and 2016, congestion surged 62% – a dramatic increase over what modelling projected without the companies, and a strong rebuttal to corporates claims ride-sharing in fact reduces traffic congestion.

As for the environmental impact, there is even less doubt about the negative impact. Compared to fixed routes, said Walker, a system like Innisfil Transit “usually means carrying few people at higher costs, therefore achieving lower climate benefits”.

Both Walker and Spieler still argue that there is a role for private companies to deliver transit services, but say apps masquerading as novel innovations can obscure more important components of a transit system – namely, serving a public need beyond of any short-term costs savings by developing infrastructure to allow for environmentally sustainable and financially accessible services for the future.

What’s more, with the precarious finances of larger ride-sharing companies now well known, municipalities have yet another reason to worry.

“We know that Lyft and Uber are both losing massive amounts of money. We know they are both underpaying their drivers,” said Spieler. “If you’re doing this to save money, what insurance do you have that five years from now, it will still save you money?

In the meantime, Innisfil officials have openly mused about fixing some of the problems of Uber – by turning to Uber. The latest suggestion to the cost overruns? UberBus: a bus that runs a fixed route, just like a normal city bus.

Follow Guardian Cities on Twitter, Facebook and Instagram to join the discussion, catch up on our best stories or sign up for our weekly newsletter