The Coalition of Concerned Manufacturers and Businesses of Canada (CCMBC) represents small- and medium-sized manufacturers and other businesses 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 support and maintain healthy economic growth and keep good jobs in Canada. The Coalition is very concerned about the policy direction that the Province of Ontario has taken in its published statements concerning an “energy transition”, and especially that effecting such a “transition” in the province’s electrical energy system may require costs that far exceed any credible calculation of the benefits. It considers 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 support. The implementation of measures to “decarbonize” Ontario’s economy and electricity system could have profoundly adverse economic consequences that have not been adequately considered.
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.
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% (from $474 billion to $586 billion), but declined as a share of all-industrial income from 34% to 29%.
- 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% to only 9%.
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, generally 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 Ontario offers significant opportunity for growth in income and employment but faces major challenges in terms of the costs of inputs, notably energy. If the cost of electricity rises relative to the cost of energy in neighbouring jurisdictions, this will place Ontario’s remaining manufacturers at a competitive disadvantage, which will cause them to decrease their investment in the province or to move their operations elsewhere, as has already happened in many cases.
The Presumptions Underlining the Panel’s Review The central presumption that appears to underlie the Panel’s review is that decarbonization of the Ontario electrical energy system is desirable, even when significant economic costs may be imposed on Ontario firms and individuals and our electrical grid could become increasingly unreliable. CCMBC views this presumption as mistaken.
The Independent Electricity Systems Operator (IESO) has already provided to the government of Ontario two reports that should have indicated 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% 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.
It should be apparent to anyone familiar with Ontario’s electrical energy system that the costs that would be associated with decarbonization vastly exceed the benefits. In the period to 2030, the demand for natural gas to meet anticipated generation requirements might increase to a maximum of 12.2 million tonnes in 2030. In today’s terms, that would be 1.7% of Canada’s annual emissions, which are themselves only 1.6% of global emissions. As these levels are almost vanishing small in the global context, the avoidance of these emissions would have effects on the global emissions that are 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 that 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% 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% 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 Ontario 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.
For about 32 years, electricity demand growth in Ontario has been sluggish, and for most of that time generation capacity has significantly exceeded demand, resulting in increased costs to consumers. Today’s projections of much increased demand may indeed be misplaced; they certainly are 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
The discussion guides issued by the Electrification and Energy Transition Panel seem to envisage an even larger role for elected officials in the electricity planning process and indeed, a possible expansion of the planning function to include all other parts of the provincial energy system, including those largely governed today by free and competitive market forces. This is precisely the wrong way to go.
Electricity power system planning involves projecting the long-term demand for electricity and deciding how to meet that demand through adding more generation and transmission facilities and/or trying to “manage” demand through conservation measures. The Electricity Act, 1998 requires the Ontario government through its main electricity generating utility (today the Independent Electricity System Operator, or IESO) independently to plan and prepare an “Integrated Power System Plan” based on the best technical analysis available and to submit this plan for review by the Ontario Energy Board, the semi-independent regulatory body responsible to protect electricity consumers’ interests in terms of power costs and reliability of supply. Since 2004, however, the Ontario Minister of Energy has ruled the electricity planning and decision-making process through a series of political decisions issued as directives to the utilities, depriving the Ontario Energy Board of its role in assuring that decisions made were prudent, cost-effective and in the best interests of consumers.
Today, virtually all aspects of decision-making with respect to Ontario’s electricity generation transmission and distribution system are owned, operated, controlled and regulated by governments, not 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. The IESO is subject to legislated and political directions that control its 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.
As long ago as 2009, the adverse consequences of the politicization of Ontario’s electricity policy and planning system were evident to informed observers. Energy Analyst Tom Adams then noted:
“The Green Energy Act is a fundamental retrenchment of our basic civil rights and freedoms and also a perverse new electricity tax, the revenues of which will be paid to a group of private developers of renewable energy projects and also secret new government departments shielded from accountability to mechanisms that normally apply when government spending is involved… The GEA destroys the foundation for effective utility regulation by taking away the independence of the Ontario Energy Board and weakening the rights of citizens who might be seeking the protection of the Environmental Review Tribunal.”
The Green Energy Act authorized a series of poor political decisions that in many ways have continued unabated to this day, in spite of the changes in government since then. Notably, these decisions have included forcing ratepayers and taxpayers to purchase so-called “green” electricity at many times the market value from publicly subsidized for-profit corporations. The renewable energy must be bought by Ontario even during periods when it is not needed on the grid thereby displacing already available and more cheaply priced electricity. Worse, because of the variable nature of wind, IESO must reserve space on the grid (and on transmission corridors) for wind to appear when it will be there, not when it will be needed. This forces baseload nuclear generators, whose output cannot be quickly varied up and down, to be reduced in output.
On December 2, 2015, Bonnie Lysyk, Auditor General of Ontario, released her 2015 annual report on the value for money received by Ontario residents from the operations of the Ontario provincial government. Chapter 3 of the report contained a blockbuster – an extraordinarily damning assessment of the actions of the Liberal government of Ontario with respect to electricity power system planning over the period from 2003 to the end of 2014.
Here are the key findings of the AG’s report:
- The Ontario Minister of Energy issued 93 directives between 2004 and 2014, many of which went against the technical advice of its officials, resulting in significantly higher electricity costs to consumers.
- From 2004 to 2014, the portion of residential and small commercial customers’ bills covering electricity generation costs increased by 80%, from 5.02 cents per kWh to 9.06 cents per kWh. The overall cost of electricity to consumers increased by 56%, from $12.2 billion in 2004 to $18.9 billion in 2014.
- Generation costs increased by 74%, from $$6.7 billion in 2004 to $11.8 billion in 2014, and they are expected to grow to $13.8 billion by 2022.
- Electricity consumers have had to pay $9.2 billion more for renewable energy (wind, solar and biomass generation sources) over the 20-year contract terms under the Ministry’s current guaranteed price (i.e. feed-in-tariff) program than they would have under the previous program under which renewable energy was purchased through competitive bidding.
- “Global Adjustment” fees that cover the costs of newly contracted generation capacity from all sources grew from 2006 to 2014 by a total of $37 billion. Consumers are expected to pay another $133 billion in Global Adjustment fees from 2015 to 2032.
- Ontario has long had an over-supply of electricity generation capacity. Annual electricity consumption decreased from 151 million MWh in 2006 to 140 million MWh in 2014. Despite this, Ontario’s generation capacity increased by 19 per cent. From 2009 to 2014, Ontario’s electricity supply exceeded its maximum hourly consumption by 5,160 megawatts (MW) per year, on average. A significant oversupply is projected for the next decade.
- Although the average generation costs for new solar and wind technologies internationally have declined substantially from previous levels (78% for solar and 58% for wind since 2009), Ontario’s guaranteed prices remain high (around 28 cents per kWh for solar and 12.8 cents per kWh for onshore wind).
- Because of the mismatch between when wind and solar generation provides power and when consumers want it, Ontario increasingly has had to curtail generation from other sources (i.e. pay generators not to produce) and dump surplus generation on the export market. From 2009 to 2014, Ontario exported 95.1 million MWh of power; the total cost of producing this power was about $3.1 billion more than the revenue Ontario received for exporting it.
- Despite the persistent over-supply situation, Ontario spent $2.3 billion promoting electricity conservation from 2006 to 2014, and committed to spend another $2.6 billion from 2015 to 2020.
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 Ontario’s electricity generation should be provided by any one generation source should not be the responsibility or function of the Ontario Ministry, regardless of how aided by the Electrification and Energy Transition Panel and the obviously self-interested pleadings of the renewable energy industry. It should be the responsibility of a truly independent IESO, held to accountability by a truly independent Ontario Energy Board.
Q. What changes are needed to enable a customer-centered approach to integrated energy planning and the energy transition more generally?
A. 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.
Q. Which consumer groups and/or communities are experiencing/likely to experience disproportionate impacts related to electrification and the energy transition? Please describe the negative impacts and the positive impacts.
A. Customer groups consisting of manufacturers and other businesses are likely to experience severe impacts related to electrification. Examples are bakers, glass manufacturers, metals industries, chemicals industries etc. leading to bankruptcies and job losses.
Q. Who should pay for what, when and how when it comes to transition and electrification?
A. 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 provincial 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.
Q. In your organization's experience, what are consumers willing to do to support greater reductions in GHG emissions?
A. According to an Ipsos poll conducted for Global News (https://globalnews.ca/news/5948758/canadians-climate-change-ipsos-poll/) in September 2019, 46 per cent 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. Another 22 per cent are willing to pay up to $100 per year. Therefore, 68 per cent of Canadians are not willing to pay more than $100 per year to mitigate the effects of climate change.
In fact, the federal government in Budget 2023 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 $500 per person per year from just the direct federal government expenditures, five times what they would voluntarily pay.
Q. Do consumers have any issues or concerns with the reliability of the energy supply? If so, what are they and how would they like these concerns addressed?
A. 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 as natural gas. Any reduction in reliability can have serious economic consequences for Ontario. CCMBC members would like these problems addressed by having IESO freed to contract for the generation and transmission sources that are fully reliable, and intermittent energy generation sources be priced to reflect the costs of the necessary backstop generation and/or storage options.
The electricity system in Ontario 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 has led to increased costs, decreased reliability and a reduction in competitiveness for the Ontario economy. Low cost, reliable electrical power used to be a competitive economic advantage for Ontario and a benefit to its citizens. We need to return to that beneficial model for the province instead of jumping on to politically trendy bandwagons that have negative medium- and long-term implications for the province.
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