From Robert Lyman:
THE REAL COST OF ELECTRICITY IN ONTARIO
Anyone who tries to find out the real costs of the electricity delivered to customers in Ontario has to search one’s way through a jungle of different information sources and terminology. This requires hours of research; even then, the answers are elusive. Let us start with some basics.
General electricity service in Ontario is supplied by at least four different types of providers: electricity generators, the Independent Electricity System Operator (which buys the electricity from the generators and sells it), long-distance transmission companies and local distribution companies. Often, as in the case of Hydro One, the transmission and distribution companies are the same. Most of the participants are publicly-owned utilities (i.e. essentially free from market competition and driven by political as well as financial considerations) and are regulated by the Ontario Energy Board. The rates charged for electricity supplied vary by customer class, the most important of which are residential, commercial and industrial customers. (The reasons for this and the rationale for the differences are lost in the sands of time.)
The rates charged include at least four components: the cost of generation or purchase from another jurisdiction, the costs of the system operator, the costs of transmission, the costs of distribution, and other costs including notably taxes. I was informed by someone familiar with the system that a good “rule of thumb” is that, for residential customers, the costs of generation constitute about 62 per cent of the financial costs. The other 38 per cent is made up of the “delivery” (i.e. transmission and distribution) and regulatory charges. Unfortunately, it gets far more complicated than that, because the costs of generation are, by policy/political decision, divided into a basic “market price” and the “Global Adjustment” composed mainly of the costs of new generation facilities (i.e. primarily wind, solar, biomass ) the costs of which are allocated differently to different classes of customer (don’t ask why). The rate structure for residential customers is then made much more complicated by being differentiated by time of use.
In any other industry, such practices would probably be criticized as discriminatory pricing intended either to maximize profits or retain market share.
These direct financial costs to the ratepayers are offset to some extent by a long list of subsidies. Some of the subsidies are integral to the regulated system but most of them are the result of political decisions to bill taxpayers instead of electricity consumers. According to the Financial Accountability Office of Ontario, the province now has nine different energy and electricity subsidy programs, over 70 per cent of which come from the Ontario Electricity Rebate (OER) and the Renewable Cost Shift. The OER provides some households, small businesses, farms and long-term care homes with an on-bill rebate. The Renewable Cost Shift moves most of the cost of the 33,000 renewable energy contracts with wind, solar and biomass generators from electricity ratepayers to Ontario taxpayers. The various subsidies in turn are endlessly fine-tuned to differentiate between each of the income levels, household sizes or groups that the government or the Ontario Energy Board judges to be more deserving. For example, special rate subsidies are provided to farms, indigenous families, customers using electric heating, and customers using electricity-intensive medical devices.
The combination of policy-driven preferences for higher-cost generation sources, regulatory tinkering with rate design and multiple tailored subsidies makes the process of electricity pricing seem more like an exercise in social engineering than a market process.
Scott Luft publishes a Twitter (X) blog in which he analyses the sources and costs of electricity generation in Ontario. Table 1 indicates the estimated costs for 2022 and 2023.
Annual Cost of Electricity Generation by Source in Ontario (CDN$ Millions)
Group/Source 2022 2023
Nuclear 7,578 8,070
Hydro 2,522 2,396
Natural Gas 2,208 2,041
Wind 2,194 1,914
Solar 1,716 1,671
Biofuel 222 213
Imports 439 135
Exports (1,127) (521)
Conservation 250 265
Total 16,004 16,186
Note that Ontario lost over $1.6 billion during two years on electricity exports. The province has contracted for large amounts of intermittent energy supplies from wind and solar generators with a guarantee they will be given “first to the grid” access, and these sources produce energy when Ontario consumers do not need it, so it must be “dumped” at a loss on export markets. The contracted preference for renewables, in effect, caused Ontario ratepayers to subsidize electricity consumers in New York and Michigan.
So, subtracting the $521 million lost on exports, in 2023 Ontario ratepayers as a group paid $15,665 million ($15.7 billion) for generation and conservation. If we use the rule of thumb calculation, ratepayers as a group paid an additional $9,601 million ($9.6 billion) for transmission and distribution costs, for a total of about $25.27 billion per year.
The total costs of generation have risen from $8.8 billion in 2008 to $16.2 billion in 2023, an increase of 84 per cent. This helps to explain why Ontario homeowners and businesses are increasingly concerned about the effects of electricity costs on affordability and competitiveness.
According to the Independent Electricity System Operator’s financial statements for 2022, the total cost of the “Government Directed Programs”, presumably the subsidies referred to previously, was $6,460 million. No figures have been published for 2023. If, however, we assume that the total subsidy for 2023 will be at least what it was in 2022, then the total cost of electricity to both ratepayers and taxpayers (i.e. all of society) in 2023 was about ($25.27 billion plus $6.46 billion =) $31.73 billion. This is 25% more than what was paid in rates. If electricity users paid the full costs of meeting their needs, the effects on affordability and competitiveness would be even worse.
Because of the strange and complicated structure of customer classes and rates, I cannot estimate what would be the actual effects on residential, commercial and industrial ratepayers if the taxpayer subsidies were eliminated. On average, of course, they would be higher, although some would be more than 25 per cent higher and some would be less. Charging taxpayers rather than the people who actually get the electricity service may make for expedient politics, but it fails to provide the right price signals to users so that they can make better decisions about their use and investment in alternatives. It amounts to hiding the real costs in order to gain political advantage, and relying on the public’s ignorance about what society really is paying. So far, that cynical approach seems to be working.
We need a fundamental reform and simplification of the Ontario electricity regulation system to make it more comprehensible and fairer to all classes of customers and to taxpayers. First, the voters need to understand the basic problem – the true costs of electricity are much higher than they appear and that they should be.
SS CANADA – OFF COURSE AND HEADED FOR ICEBERGS
Many people who watched the 1997 romantic disaster movie know the story of the sinking of the Titanic luxury ocean liner in 1912. The story of the Titanic serves as a reminder that even the sturdiest of vessels and the people on them can meet their end if they ignore the icebergs in their path. The same, sadly, might be warned about the Canadian economy as it enters 2024.
There is already plenty of evidence that the Canadian economy is in dangerous waters. Real gross domestic product (GDP) per person grew at a meager 0.3 percent annual rate from 2015 to 2023. Many forecasters, including the International Monetary Fund and the Bank of Canada, predict falling GDP per person well into 2024. The OECD has projected Canada’s long-term growth (i.e. to 2060 and beyond) in GDP per capita as the worst (the worst!) among the developed countries. Business investment in Canada has been so weak since 2015 that capital invested in the economy per worker has been falling – part of what the C.D. Howe Institute calls “an ominous pattern of stagnating productivity and living standards”.
The situation is made worse by the Trudeau government’s fiscal, economic and environmental policies. In the government’s 2023 Fall Economic Statement, it stayed the course in its practice of attempting to present bad expenditure policies as good news theatre. It failed even to acknowledge that productivity is stagnant and that the stock of business capital per worker, driven away by anti-business policies, is falling. Instead of fiscal responsibility, it offered constantly rising budget deficits out to the end of the planning period in 2028-29. Debt servicing is projected to rise to just under $60 billion per year by fiscal 2028-2029, up by $10 billion over even the estimates in the Spring 2023 Budget. This is under economic growth assumptions that may turn out to be optimistic; the actual outcome could be far worse. The Statement promised far more federal dollars for new housing, but it said nothing about the conflict between the government’s professed concern about unaffordable housing and its 500,000 (and more) per year immigration policies.
The Trudeau government’s environmental policies have been especially damaging to investment. The oil and gas industry, long the powerhouse of the resource sector, has cut its reinvestment of income in half and instead allocates more funds to buying back shares and increasing dividends. The manufacturing sectors are being hollowed out by ever-higher electricity prices in some provinces and by ever-more-stringent regulatory reviews that delay or impede new resource and infrastructure projects. The Trudeau government has proudly embraced the goal of reducing Canada’s greenhouse gas emissions to zero by 2050, completely ignoring the enormous costs of and technological barriers to that goal, and the fact that attaining it would have little impact on global emissions driven by economic development trends in Asia.
As we enter 2024, we should ponder the long list of new environment-related measures that the federal government plans to undertake this year.
Some of them are continuations of the long-established policies. The rate of the carbon tax (and its evil twin, the Output Based Pricing System imposed on industry) is scheduled to rise on April 1st to $80 per tonne of carbon dioxide equivalent. This will increase the cost of almost all the coal, oil and natural gas consumed in Canada, and worsen the cost disadvantage that Canadian firms have vis-a-vis their competitors in the United States, Mexico and China.
Environment and Climate Change Canada plans several more regulatory changes that will raise Canadians’ energy costs and/or reduce their choices:
- Introducing a new cap and trade system intended to reduce emissions from the upstream oil and gas industry, thus in effect duplicating the existing carbon taxes that already apply in the sector;
- Introducing new regulations, the most stringent and the most expensive in the world, to reduce methane emissions from oil and gas by 75%;
- Increasing the severity of the existing regulations that reduce GHG emissions from electricity generation across Canada. The aim of these is to reduce to zero by 2035 the use of coal, oil and even natural gas for electricity generation, at enormous cost and likely adverse impact on reliability of supply;
- Increasing the severity of the existing regulations on the GHG emissions from light duty cars, trucks and SUVs to support the goal of forcing all consumers to purchase high cost all-electric vehicles by 2035;
- Increasing the severity of regulations governing GHG emissions from heavy duty trucks;
- Amending the schedule of the Canadian Environmental Protection Act to include carbon dioxide on the list of wastes subject to regulation (as though a gas that each of us exhales should now be subject to regulations, the contravening of which would be a criminal offence); and
- Amending the Federal Plastics Registry to require all producers to report annually on the quantity and types of plastic they place on the Canadian market, how it moves through the economy and how it is managed at end-of-life.
At the recent COP28 conference in Dubai, Environment Minister Steven Guilbeault announced that the government would this year introduce legislation to establish a “Biodiversity Accountability Framework”. At this point, we know relatively little about what will be included in the legislation. The bill, we understand, will establish an accountability framework for the federal government in fulfilling its “nature and biodiversity commitments” under the Kunming-Montreal Global Diversity Framework (GBF). The plan sets out 23 “targets” employing the full range of policy, regulatory and incentive measures available to governments. Ecojustice, the radical environmental organization, is pressuring the government to ensure that the bill put forward “sets effective and enforceable legal standards for plans to halt and reverse biodiversity loss by 2030 and achieve full nature recovery by 2050”. Such legislation has the potential to be as far-reaching and damaging to economic activity as the climate regulations.
The Senate of Canada continues to work on proposed legislation (Bill S243) to make all federal financial institutions require the companies that they lend to or otherwise fund to set baseline requirements to reduce GHG emissions; develop oversight and capital adequacy requirements; require directors, officers and administrators to align with the climate net-zero commitments; develop action plans and set climate targets; and ensure that there is “climate expertise” on the boards of directors. The law would also prohibit the appointment of directors with “conflicts of interest”, probably an oblique reference to any person who previously worked in a hydrocarbons-related firm. This shocking piece of legislation reportedly enjoys broad support in Parliament.
No doubt there will be other bad news events arising from the “net-zero” mandates given to publicly owned electric utilities and provincial agencies that regulate electricity and natural gas utilities.
In other words, beyond the federal measures already planned, well-funded environmental organizations may use their influence to inflict much more damage on the Canadian economy in 2024. They are now heavily focused on climate-policy related causes like seeking to end the use of natural gas; promoting electric vehicles, heat pumps and wind and solar energy subsidies and mandates; impeding the certification of all hydrocarbons-related infrastructure; and supporting lawsuits that will convert anti-economy policies into legislative requirements. They are pursuing the anti-plastics agenda with almost religious intensity. They are also very active in lobbying all orders of government – federal, provincial, territorial and municipal.
If organizations concerned about Canada’s economy and standard of living are to cope with this armada of environmentalist icebergs, they must focus and prioritize their efforts. The Canadian ship of state is in danger, and there are no safe harbours in sight.
THE WORLD GOES ONE WAY, CANADA GOES THE OTHER
COP 28, the recent United Nations summit conference on climate change held in Dubai, failed to attain most of its objectives. Most importantly, the conference failed to make any progress in narrowing the differences between the developed and developing countries over the funding of developing countries’ climate mitigation, adaptation and weather-related spending.
In brief, the developing countries demanded commitments exceeding USD two trillion per year starting in 2025; the developed countries committed just under USD 13.8 billion, 140 times less than what was asked. As the developing countries consider the provision of large financial and technology-related aid as the essential pre-condition for their efforts to reach “net-zero” emissions reduction goals, it follows that they will not pursue these goals and global “net-zero” will remain far out of reach.
In spite of this, the government of Canada chose to “double-down” on its all-out efforts to reduce Canadian emissions. Environment Minister Steven Guilbeaut announced during the conference three measures that go further to reduce emissions and raise costs: the world’s most stringent regulations to reduce methane emissions from the oil and gas sector; imposition of a cap on greenhouse gas (GHG) emissions from the oil and gas sector; and the government’s intention to introduce legislation in 2024 that will establish a “Biodiversity Accountability Framework”.
The announced draft regulations will seek to reduce oil and natural gas methane emissions by at least 75 percent below 2012 levels by 2030. Minister Guilbeault published an outline of them that estimated they will cost industry about $15 billion between 2027 and 2040. That cost will fall disproportionately on Alberta and Saskatchewan.
Minister Guibeault announced a long-awaited regulatory framework for capping GHG emissions in the oil and gas sector. They will be based upon an emissions trading system (i.e. “cap and trade”) in which total emissions are limited to 35 to 38 per cent below 2019 levels.
The oil and gas industry is already subject to the carbon dioxide pricing system (aka carbon taxes and the output-based pricing system). Adding another tax is simply piling on, or harmfully duplicating, the regime already in place. It is also blatantly discriminatory; no other industry sector, including the emissions-intensive mining and metals industries, is being so singularly targeted. It will add to the already long list of reasons why the Canadian oil and gas industry stands at a competitive disadvantage compared to the oil and gas industries in other countries.
At this point, relatively little is known about what will be included in the biodiversity legislation. The bill, we understand, will establish an accountability framework for the federal government in fulfilling its “nature and biodiversity commitments” under the Kunming-Montreal Global Diversity Framework (GBF). The GBF reads like a copy of the IPCC’s most alarming Summaries for Policy Makers. The plan sets out 23 “targets” employing the full range of policy, regulatory and incentive measures available to governments.
There are many signals that the goal of global net zero GHG emissions is doomed. We have over 30 years of failed climate diplomacy while global emissions rose by over 60 per cent. We have the remarkable growth in emissions since the pandemic, so that global fossil fuel use and GHG emissions in 2023 are at an all-time high, only to be exceeded by what happens in 2024 and later years. According to the United States Energy Information Administration, under no likely future scenarios are global emissions likely to decline enough to meet the UN targets by 2050.
Contrasting with this reality, we have the steadfast determination of the Justin Trudeau Government to undertake ever-more-costly and intrusive measures to reduce emissions (i.e. mitigation). It sustains these efforts even though the policies are sharply increasing the cost of living in Canada, impairing our international competitiveness and growth prospects, and doing perhaps irreparable damage to our national unity. Even if the federal policies succeeded beyond all rational expectations in reducing Canada’s emissions to nothing within 27 years, their effects would be overwhelmed by global trends that we cannot possibly hope to control or offset. It is time for voters to ask a simple question: why?
SUBMISSION TO ENVIRONMENT AND CLIMATE CHANGE CANADA
CLEAN ELECTRICITY REGULATIONS
NOVEMBER 2, 2023
The Coalition of Concerned Manufacturers and Businesses of Canada (CCMBC) represents small- and medium-sized (SME) manufacturers and SME businesses in other sectors across Canada. We work with business members to actively promote the interests of manufacturers and other businesses through outreach to lawmakers, regulators, think tanks, the media and the voting public. The CCMBC seeks to advance policies to benefit SMEs, support and maintain healthy economic growth and keep good jobs in Canada.
The Coalition is very concerned about the policy direction that the Government of Canada has taken in its published statements concerning an “energy transition”, and especially that effecting such a “transition” in Canada’s electrical energy system may require costs that far exceed any credible calculation of the benefits. We consider that the proposed approach is based on false premises about global energy and environmental trends, about the feasibility and desirability of sacrificing Canada’s energy-intensive industries, and about the benefits of government-funded, centrally planned economic transitions compared to those that would be achieved through reliance on competitive market forces with limited, and highly targeted, governmental involvement. The implementation of measures to “decarbonize” Canada’s economy and electricity system could have profoundly adverse economic consequences that have not been adequately measured or considered. Many manufacturers have already left Canada for more competitive jurisdictions in the US and elsewhere, and this exodus will be worsened as the cost of operating in Canada increases with the so-called “clean electricity” policy direction.
The Canadian manufacturing industry plays an extremely important role in the Canadian economy, but that role has changed with time. This can be seen from the data in Table 1.
GDP BY CANADIAN SECTOR TWENTY YEAR CHANGES
(MONTHLY TOTALS IN JUNE- BILLION 2012 DOLLARS)
Industry sector June 2002 Share(%) June 2022 Share(%)
All industries 1,413 100 2,054 100
Goods-producing 474 34 586 29
Service-producing 938 66 1,465 71
Industrial production 354 25 400 19
Manufacturing 208 15 194 9
Source: Statistics Canada
The table illustrates some key points. Notably, over the last two decades:
· the goods-producing sectors of the Canadian economy have increased their income by 24 per cent (from $474 billion to $586 billion), but declined as a share of all-industrial income from 34 per cent to 29 per cent.
· the income of the manufacturing sector has actually declined in inflation-adjusted terms from $208 billion to $194 billion, and has declined as a share of all-industry income from 15 per cent to only 9 per cent.
The decline in manufacturing sector income has been accompanied by a decline in employment in the sector, which fell from 1,978,000 in 2001 to 1,514,000 in 2021, a reduction of 464,000 permanent, well-paying jobs. All is not well in Canadian manufacturing.
The future for manufacturing and for the Canadian economy as a whole under current policies and trends is also less than promising. A recent report by the OECD secretariat examined the long-term scenarios to 2060 for the entire OECD group with a special focus on fiscal sustainability and risks, and paid special attention to trends in productivity. The study projected slowing GDP growth in most of the OECD countries, but with considerable differences among them. Considering the trends in labour efficiency, capital per worker, and potential employment (given aging populations) the study assessed potential GDP per capita. While Canada ranked 15th in GDP per capita among OECD countries in 2021, its stagnating economy and productivity will drop it to 21st or lower by 2060. Moreover, Canada ranks last among all 38 OECD member countries in the projected rate of change in GDP; in fact, average per capita income in Canada by 2060 is likely to be lower than it is today, again based on the continuation of current policies and trends. That’s potentially two generations of stagnating income per capita. If Canada continues to lose manufacturing and climate policies hollow out our traditional resource industries, things may be far worse.
The manufacturing sector in Canada offers significant opportunity for growth in income and employment but faces major challenges in terms of the cost of inputs, notably energy. If the cost of electricity rises relative to the cost of energy in neighbouring jurisdictions, this will place Canada’s remaining manufacturers at a greater competitive disadvantage, causing them to further decrease their investment in the country or to move their operations elsewhere, as has already happened in many cases.
The Presumptions Underlining the Clean Electricity Policy
The central presumption that appears to underlie this policy is that decarbonization of Canada’s electrical energy system is desirable, even when significant economic costs may be imposed on businesses and individuals and our electrical grid could become increasingly unreliable. CCMBC views this presumption as mistaken.
There have already been reports published by various provincial regulators and system operators that highlight serious problems. For example, the Independent Electricity Systems Operator (IESO) in Ontario has already provided to the government of Ontario two reports that indicate very clearly the problems associated with pursuit of the “net-zero emissions” or “decarbonization” objective. In the Decarbonization and Ontario’s Electricity System report of October 2021 and the Pathways to Decarbonization report of December, 2022, IESO set out its professional assessment of the costs and risks associated with decarbonization by 2050. The following, in our view, are some of the most compelling observations in those reports:
· Ontario’s electricity system today is 94 per cent emissions-free and contributes only three per cent to the province’s total greenhouse gas emissions.
· Natural gas generation plays a crucial role in the reliability of the electricity grid. It provides a range of services that no other resource today can provide on its own, including producing large amounts of power to meet high demand and running for extended periods when other resources are not available.
· Phasing out natural gas generation by 2030 would entail a capital investment of more than $27 billion and bring the cost of carbon reduction in the electricity industry to at least $464 a tonne (far above any reasonable estimate of the “social cost of carbon”).
· A “Pathways scenario” to decarbonization projects a system designed to meet winter peaks that are almost three times higher than those we experience today, and thus require an additional 69,000 MW of “non-emitting” supply and 5,000 MW in demand reduction from conservation. (“Conservation” is sometime a euphemism for demand destruction, the process whereby consumers are forced by higher prices to reduce their use.)
· The scenario includes an additional 17,800 MW of nuclear supply, and additional 17,600 MW of wind and 650 MW of new hydroelectric, plus an additional 2,000 MW of long-duration storage added in the late 2030s. It assumes that hydrogen becomes a cost-effective resource for meeting peak demand by 2036 and that new hydrogen capacity of 15,000 MW is available by 2050.
· This would require anywhere from 50 to more than 280 new transformer stations, at costs ranging between $5 billion and $10 billion. This would require new transformer stations to be built at the rate of up to 10 stations per year, a pace exceeding the addition of new stations over the last decade.
· The cost of building out the bulk 500 kV and 230 kV transmission systems to meet the Pathways scenario is estimated to be between $20 billion and $50 billion. This construction will pose “substantial” siting challenges. This is the understatement of the century.
· The bulk system expansion needed to enable decarbonization, including transmission, in this scenario would require an investment in the range of $375 billion to $425 billion.
The IESO reports did not include an estimate of the rate impact on electricity consumers, which was buried in an appendix. All of the foregoing is only related to one province, Ontario. Other provinces, notably Alberta, Saskatchewan and Nova Scotia, also rely heavily on natural gas and other fossil fuel sources. Phasing out these
fuels for generating electricity is not feasible by 2035 as the costs will be enormous and the risks to system reliability will increase greatly.
It should be apparent to anyone familiar with Canada’s electrical energy system that the costs associated with decarbonization vastly exceed the benefits. Considering that Canada’s electricity grid is already 83 per cent emissions-free and that Canada represents about 1.5 per cent of global emissions, bringing the grid to 100 per cent emissions-free would be hugely costly for miniscule impacts on global emissions. In the global context, they would be too small to measure. This should make it obvious that these changes are being pursued for reasons that are ideological and assumed to be politically popular but have no connection to facts or the alleged goal of avoiding global temperature increases.
Flawed Assumptions Behind the Decarbonization Objective
The scenario of complete decarbonization by 2050 in Canada is riddled with false assumptions about the costs of the measures required, the availability and costs of the technologies and the capacity of governments to centrally plan the economy to achieve revolutionary change in a period of 27 years.
To cite one example of a technological barrier, consider the prospects for hydrogen. It is highly debateable whether hydrogen power will play a major role in the future energy economy. Despite the investment of many billions of dollars in hydrogen power research, especially in the USA, the fundamental problems with hydrogen as an energy carrier remain. Consider, for example, the problems of transportation and distribution. Before hydrogen can be transported anywhere, it needs to be either liquified or compressed. To liquify it, it must be cooled to a temperature of −253◦C. At this temperature, refrigerators are extremely inefficient; as a result, about 40 per cent of the energy in the hydrogen must be spent to liquify it.
In addition, because it is a cryogenic liquid, still more energy would be lost as the hydrogen boils away during transport and storage. As an alternative to liquifying it, one could use high pressure pumps to compress it. This would “only” waste 20 per cent of the energy in the hydrogen. However, safety-approved steel tanks capable of storing hydrogen at 5000 psi weigh approximately 65 times as much as the hydrogen they can contain. Consequently, to transport 200 kilograms of compressed hydrogen, roughly equal in energy content to 200 gallons of gasoline, would require a truck capable of hauling a 13-ton load. In principle, a system of pipelines could, at enormous cost, be built for transporting gaseous hydrogen. But because hydrogen is so diffuse, with less than one third the energy content per unit volume of natural gas, these pipes would have to be very big, and large amounts of energy would be required to move the gas along the line.
Another problem is that hydrogen can penetrate readily through the most minutely flawed seal, and can actually diffuse right through solid steel itself. This would create ample opportunities for much of the hydrogen to leak away during transport. As hydrogen diffuses into metals, it also embrittles them, causing deterioration of pipelines, valves, fittings, and storage tanks throughout the entire distribution system. Unless very carefully monitored, the pipeline system could become a continuous source of catastrophes. Given these technical difficulties, the implementation of an economically viable method of hydrogen distribution from large scale central production factories is essentially impossible.
The net-zero by 2050 goal is an arbitrary target conceived to meet another arbitrary target; that is, to keep global temperature rises to less than 1.5 degrees. The goal is only meaningful if it is pursued by all countries, but as of today not one country in the world is “on track” to meet even the goals they have set. Global emissions growth is being driven by the aspirations of billions of people in other countries for access to the modern energy services and improved quality of life that we take for granted. Nothing that Canadians do will suppress those aspirations. Further, net-zero rests upon the rapid commercialization of many technologies that are either immature or simply not proven, such as hydrogen, carbon dioxide capture and storage, second generation biofuels, and small nuclear reactors. The continued pursuit of present policy will not only raise prices to unheard-of levels but it will lead to a future of rationing, oppressive regulations and economic decline.
It is important to move from pretending that we can control the climate to acknowledging that we first need to understand the climate. Even more to the point from a policy perspective, governments need solutions that provide more opportunity for people to thrive. The Canadian government has an opportunity to chart a new and better climate policy. The touchstones of that policy would be environmental responsibility, the pursuit of prosperity, reliability and resilience.
One of the best ways to improve electricity planning and policy making would be to establish realistic timeframes for decisions and actions. For far too long climate and electricity policy has been steered by the fiction that action is desperately urgent; that decisions must be taken at breakneck speed; that doing anything is better than doing nothing; and that there is no time for debate; no time to plan; no time for normal prudent analysis. The fact that virtually none of the climate goals set domestically in Canada or by international agreements such as the Paris Accord have ever been met demonstrates the futility of this approach.
The goal of electricity policy and planning should be defined in terms not of emissions reduction targets but of improved environmental quality through genuine pollution reduction and the preservation and advancement of prosperity, through assurance of safety, reliability, flexibility, affordability and operability. Electricity policy need not, and should not, become an instrument of social policy and “social justice”. There are many other instruments of public policy available to achieve those objectives.
The assumption that electricity demand will grow substantially in future may well be misplaced. It is certainly based on a long series of assumptions, many of which could turn out to be false. The potential renewable energy and other supply choices being championed today by various self-interested groups would produce trivial emissions while operating, but have large up-front capital (and environmental) costs. There is an alternative in preparing for a possible higher demand scenario that has low capital cost, and perhaps higher operating costs. That alternative is natural gas plants.
The Policy and Planning Process
Current discussions on electrification assume a greater role for political decision-makers rather than technical experts who can credibly predict future demand and how the system needs to change to ensure supply. Very little is left to markets, which are much more accurate in gauging what is needed than political whims. Many provincial energy systems operators are subject to legislated and political directions that control independent actions and decisions at every turn. The politicization of the entire decision-making process impairs it and subjects it to the vagaries of short-term political considerations rather than the attainment of long-term public interest objectives.
The system is made worse when politics determines the rates charged for electricity rather than considerations related to the underlying costs and benefits. Specifically, using billions of dollars a year in taxpayer subsidies serves to hide from the consumers the true costs of the electricity decisions being made. A key objective of electricity system reform should be a phased reduction in taxpayers’ subsidies.
Deciding what proportion of every province’s energy mix should be provided by any one generation source should not be the responsibility or function of politicians, government bureaucrats or the self-interested renewable energy industry, but rather the responsibility of independent regulators based on technical facts and market considerations.
The composition of the federally-appointed Canada Electricity Advisory Council is also problematic. It is composed entirely of various electric utilities and regulatory bodies across Canada, First Nations groups and a few representatives of organizations that make their living from preaching environmental extremism. There are no representatives from consumer groups, taxpayers or business groups who will be footing the bill for this extensive exercise. At a time when affordability is the number one issue for Canadians, this is a serious oversight.
A customer-centered approach must include customer choice. Customers, including CCMBC members, must be free to make their own decisions about energy use that rely on their knowledge, experience and needs. A government central planning top-down approach may result in the further destruction of valuable manufacturing companies and jobs.
Transition and electrification is a political initiative and should be paid for by the government using tax money. In other words, if a transition were justified, the costs of it should be borne by the federal treasury in a transparent manner, so that voters can see what is being spent and make their own judgments as to whether the expenditure is justified in the public interest. The massive spending on climate initiatives to date have been anything but transparent and no analyses of their benefits in relation to their costs has been made available to Canadians.
Public opinion polls indicate that about half of Canadians do not want to spend any additional money in the form of taxes or higher costs of goods to mitigate the effects of climate change. Others are willing to pay relatively small amounts of additional taxes to mitigate the effects of climate change.
Yet in Budget 2023 the federal government announced that over the period 2016 to 2022, it had spent over $120 billion on climate measures and that it planned to spend another $120 billion on climate measures over the next decade. Provincial governments have spent large amounts but these have not been published. The federal government expenditures do not include the costs to taxpayers and rate payers of climate policy-inspired regulations. It is clear from this that Canadian citizens already are paying far more than Canadians have shown themselves willing to pay.
CCMBC members are concerned that the government plans for energy transition away from natural gas will proceed without adequate sources of energy in place that are as reliable and flexible as natural gas. Any reduction in reliability will have serious economic consequences for Canada at a time when our economy is already uncompetitive with other countries.
The recent Supreme Court decision to strike down the Impact Assessment Act on the basis of it being unconstitutional has altered the legal landscape around these types of legislation. Given the clear recognition of electricity systems being an area of provincial jurisdiction in Canada’s Constitution, the Clean Electricity Regulations could well also be considered unconstitutional. The federal government should not proceed with this initiative until the courts have ruled on its constitutionality.
The electricity system in Canada should return to being managed by energy professionals who focus on ensuring an adequate supply of electricity at reasonable cost. The politicization of the system over the past couple of decades to pursue unrealistic ideological agendas has led to increased costs, decreased reliability, uncertainty for investors and a reduction in competitiveness for the Canadian economy. Low cost, reliable electrical power used to be a competitive economic advantage for many parts of Canada and a benefit to its citizens. We need to return to that beneficial model instead of jumping on to politically trendy bandwagons that have negative medium- and long-term implications for the country and accomplish little for the environment.
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