Carbon pricing is the sad political football that gets kicked down the field come election time. Most economists and sensible corporations in Canada supports putting a price on carbon—why tax income and profit, when you can tax carbon pollution instead? It is so blindingly obvious to anyone with even a modicum of economic sense. Unfortunately, economic sense does not drive voters nor politics. Certainly not the new Ontario government.
The Ecofiscal Commission, a group of eminent Canadian economists has provided convincing research on the economic benefits of pricing carbon and the conservative-leaning Canadians for Clean Prosperity supports a carbon tax. CEOs of oil companies in Alberta support Alberta’s carbon price system, and the Canadian Council of Chief Executives support carbon pricing, too. This week a new campaign led by U.S. Republicans called 'Americans for Carbon Dividends' came out in favour of a carbon tax. The question is, why isn’t Doug Ford? The cynical answer is that any politician can stand up and say I’ll get rid of a tax and get elected. Another possibility is that even a cut-out poster of a politician would have beat Kathleen Wynne, and that Doug Ford’s opinion on carbon pricing was immaterial.
Scrapping cap and trade and the Green Ontario Fund will do nothing to lower electricity rates, what it will do is cause huge disruption and costs to Ontario businesses. #analysis by @brucelourie #ONpoli #canpoli
Either way, the implications for the Conservatives are serious. Scrapping Ontario’s cap and trade system (we don’t actually have a carbon tax, that was part of the misinformation campaign) will be “messy and costly” according to the Ecofiscal Commission. Recall that Dalton McGuinty cancelled a gas plant for political reasons costing Ontarians up to a billion dollars. And the Tories went to town, for years, like dogs with a bone. That experience will pale by comparison to the political folly of Doug Ford cancelling cap and trade, with early estimates showing a figure that will likely exceed $4 billion in compensation, legal fees, penalties, administrative costs and who knows what else. And it will probably take four years to disentangle from the agreements in place with California and Quebec, not to mention the hundreds of major Ontario companies benefiting from the system. Many have already signalled a move out of Ontario into friendlier jurisdictions, taking jobs and investment with them. And these are the companies of the future, but sadly not Ontario’s. Good luck explaining that one next time around to the voters who thought they were getting lower taxes.
Where Ontarians will be hit hardest is when they look for their new furnace or insulation rebate and realize that the Green Ontario Fund, which distributed the cap and trade revenues to help homeowners and businesses save money on gas and electricity, has also been scrapped. No cap and trade revenue means no help for Ontario homeowners to offset rising energy costs.
It seems economics is not the strong suit for the Ford government. Independent studies show that investing in energy efficiency is by far the most cost-effective way for managing the energy system. Paying to save electricity costs the government, on average, 2 to 3 cents for every kilowatt-hour saved, whereas paying for new electricity supply in Ontario costs anywhere from 10 to 14 cents for new hydro power and in the 14 to 18 cent range for new nuclear energy. The nuclear cost doesn’t include the billions in other government subsidies, which push the real cost to over 20 cents, or ten times more than efficiency investments. Furthermore, according to a recent study by Efficiency Canada, energy savings investments create more jobs per dollar spent, across more communities, than investments in new energy supply.
Yet if there is one thing we have learned watching politicians play with electricity, it is that we are the ones who get burned, (they tend to go down in flames). A brief history lesson explains how we got where we are today. It started with Darlington adding $14 billion dollars to the backs of Ontarians, a decade late, and going $12 billion over budget. And that is in 1990 dollars. The Darlington boondoggle saddled Ontario rate payers and taxpayers with 25 years of debt payments and subsidies. Too afraid to reflect the real cost of electricity in the system, Bob Rae capped electricity prices, choking off future investment.
Enter Mike Harris and the electricity deregulation era. With ideological fervour and a lack of basic economics (e.g. all of our trading partners paid more for electricity and prices had been artificially suppressed for a decade), the electricity market was opened to competition, and low and behold, electricity prices in the free market sky-rocketed. Ernie Eves, the newly minted Conservative Premier panicked in the exact same way Bob Rae did, and capped electricity prices. Once again, this drove away investment and created an artificial market.
Enter the Dalton McGuinty Liberals. Facing decades of political yo-yo-ing, an electricity system in serious disrepair and brown-outs looming due to lack of investment, the Liberal government set out a plan that involved replacing the old polluting coal plants and building the infrastructure needed to serve Ontario. Brown-outs were diverted, reliability increased, smog disappeared and the Liberals created a system where, for the first time, Ontarians paid the real cost of electricity. It wasn’t perfect and mistakes were made, but Ontario’s electricity renaissance will be looked back on as a major achievement, both economically and environmentally.
All of this meant that the price people pay for electricity increased. Why?
For two reasons. First, we weren’t ever paying the real cost because prices had been artificially subsidized. This is what Doug Ford plans to return to, the Bob Rae – Ernie Eves approach to electricity management. Second, the system had been starved of investment, so a massive influx of new capital improvements was needed. With the Doug Ford approach we can rest assured there will be no new investment. And that’s not all. Critics of Ontario’s electricity system were heard regularly making bogus claims that Ontario pays more than anyone else in North America for electricity.
It isn’t hard to find out the truth. Comparing the four largest cities in North America, which happen to be similar, with large diverse economies, Torontonians pay less than half of what the residents of New York, Chicago and Los Angeles pay. Not only is our electricity a bargain, it is cleaner and more reliable. And yet Ontarians have been worked up into a fervour by our politicians, despite the facts.
Scrapping cap and trade and the Green Ontario Fund will do nothing to lower electricity rates, what it will do is cause huge disruption and costs to Ontario businesses. Ontario needs stability and continued support for ratepayers, not artificial subsidies and costly political flipflopping.