Terence Corcoran: Ontario’s green energy plan sneaks in feed-in taxes

Posted: March 03, 2009, 7:49 PM by National Post Editor
Terence Corcoran, Green Energy Act

The main economic tool driving renewable energy under the Green Energy Act will be subsidies paid directly to producers of wind, solar and other renewables

In the midst of a major economic meltdown, and with looming budget deficits totaling more than $18-billion, now might not be the best time for the government of Ontario to be embarking on a crushing new green energy policy that could add billions to the province’s electricity costs. But Ontario Premier Dalton McGuinty is nothing if not immune to the folly of his own righteous policies and the fiscal crisis he faces as a result.

Mr. McGuinty once promised to maintain balanced budgets and to never raise income taxes, so he raised taxes, watched provincial revenues soar by 40%, and then spent all the money, ending up with major deficits. And now he is set to abandon another sacred provincial principle: electric power at the lowest possible price. Under a new Green Energy Act introduced last week by Energy Minister George Smitherman, Ontario’s new energy strategy is to deliver power to Ontarians at whatever price can be rammed through by government fiat to achieve green results.

Already famous as a green nanny state, where every course at every school is to be larded with environmental propaganda, Ontario is now set to become a kind of green fascist state. The new energy act sets up carbon reduction and renewable energy — wind, solar, biomass — as quasi-religious goals that will be achieved via a massive power grab. Clause by clause, the act transfers authority to the province, giving the Energy Minister and the McGuinty cabinet the right to operate, control, regulate and direct the production, distribution and consumption of every kilowatt hour of electricity.

Mr. McGuinty’s ministers, like the boss, have a habit of making grand pronouncements that turn to policy mush. Finance Minister Dwight Duncan once declared, when he was energy minister, that the government wanted a hands-off role. “We believe that politics has to be taken out of electricity pricing.” That was obviously before the government became a captive of the green energy industry, solar panel makers, windmill operators and environmental activists.

Borrowing concepts from Europe, where the price of electric power is often triple Ontario rates, Mr. Smitherman said the objective is to make Ontario a leading green economy in North America. The government, he said, wants “to increase the standard of living and quality of life for all Ontario’s families. That is best achieved by creating the conditions for green economic growth.”

With Europe as a model, Ontario can therefore expect European economic standards: slow growth, high unemployment, high energy prices — and a continued place among the world’s leading producers of carbon.

Toronto energy lawyer George Vegh writes on the University of Toronto Law Faculty Blog that the new act is not about energy as a supply resource; it is about energy as a contributor to environmental and social outcomes. Economic efficiency, cost effectiveness and sound business practices go out the window. Reducing carbon is the prime objective, regardless of cost. The goal is not to release an economically efficient amount of carbon, but to release as little carbon as possible even if it leads to a net decrease in economic efficiency.

In short, as Mr. Vegh puts it, Ontario’s Green Energy Act represents a decisive shift in Ontario energy policy. Agencies such as the Ontario Power Authority and the Ontario Energy Board will have their mandates rewritten to meet the new objectives. The independent transmission grid will now be forced to hook up renewable power facilities, cost being a secondary consideration, if it is considered at all.

The main economic tool driving renewable energy under the act will be so-called feed-in tariffs. Pioneered in Germany, a feed-in tariff is a subsidy paid directly to producers of wind, solar and other renewables for every kilowatt hour (kWh) of power produced. Ontario and Ottawa have been offering subsidies (see table) that are similar to feed-in tariffs. A solar power producer can sell a kWh of solar power into the grid and receive 42¢ when the going wholesale rate for power is 5.5¢. That means a subsidy of 36.5¢, which is spread out among all power users as add-on charges. Currently, Ontario power users already pay 20% more for power to cover such added costs.

The cost is allegedly small as a proportion of each consumer’s power bill. Canada’s solar power industry says it’s less than the cost of a candy bar; Germans talk about renewables being cheaper than an ice cream cone. That’s how all tax-and-subsidy regimes work — small hits on everybody, big gains for a few.

Energy experts say that the feed-in tariffs set the stage for steady future increases in power costs. The tariffs are essentially feed-in taxes and a great free lunch: The government forces consumers to pay renewable producers to engage in money-losing businesses.

According to Mr. Smitherman, all the subsidized activity will create 50,000 new green jobs. In Germany, they claim hundreds of thousands of green jobs have been built up in the country, erecting and maintaining money-losing windmill farms and solar industries. Such jobs, however, are actually drains on the economy, stolen from other potentially profit-making sectors to produce inefficient solar power. If it takes five people to produce a a million kWh of solar electricity, then the same amount of electricity could be produced by perhaps two people using gas or coal.

But the cost to the economy in lost productivity remains uncalculated. And as for the alleged benefits? The main objective is carbon reduction, but the costs of these alternatives for each tonne of carbon reduced is huge, way above what is touted as the possible market price for carbon — if such a market were to exist. (See Ontario Energy Subsidies table)

Carbon emissions are also not likely to go down. Renewables require the construction and maintenance of massive back-up fossil fuel facilities, using gas, to cover for the unpredictable down times that make wind and solar uneconomic and risky.

Ontario’s green energy future, by the numbers, will bring major added costs, intrusive government policies, subsidies to inefficiency and, in the end, no real environmental gains. Is that any way to get through an economic crisis?

This is the first of a series of FP Comment pieces on Ontario’s Green Energy Act. More tomorrow.