The Ontario Clean Air Alliance’s groundbreaking report looks at how we can decrease the environmental and health impacts of electricity generation while improving our quality of life and economic competitiveness. The report calls for a dynamic new approach to redeveloping Ontario’s electricity system.
It used to be that the favourite Canadian topic of conversation was the weather, but this subject is rapidly being eclipsed by discussions of rising energy costs, including rising rates for electricity. The potential impact of these rising rates on residential energy bills and industrial competitiveness have raised serious concerns about Ontario’s future prosperity and its ability to remain economically competitive.
From a broader economic perspective, however, many of the concerns expressed about rising electricity rates are based on a fundamental myth – that jurisdictions with lower electricity prices have a competitive advantage that leads to a better quality of life and better economic performance. This report takes a detailed look at the real relationship between electricity costs and economic performance and finds that, in fact, it is jurisdictions with higher costs that are the most productive users of electricity and the most successful in terms of general prosperity (as measured by incomes and GDP).
When we compare Ontario to its North American economic peer group (states and provinces with populations of six million or more), we find that it trails in general productivity as well as more specifically in electricity productivity (kilowatt hours used per unit of goods produced). As a result, it also trails the pack in its overall economic success as measured by GDP per capita.
What we also see is a direct relationship between electricity prices and electricity productivity, with Ontario and Quebec boasting among the lowest prices in their peer group, but as well some of the lowest electricity productivity levels. In fact, today Ontario is one of the largest per capita electricity consumers in the world, using, for example, 60% more electricity per capita than neighbouring New York State.
Ontario has largely kept its electricity prices artificially low by providing massive public subsidies to its dismally performing fleet of nuclear power stations — a system that the International Energy Association ranked as having the worst reliability record in the OECD from 1990-2002. Despite the claim of nuclear boosters that nuclear power would be “too cheap to meter,” it has proven to be anything but. Cost overruns, delays, unexpected shutdowns and ongoing maintenance problems have made nuclear the highest-cost and highest-risk power source in Ontario.
This fact has been disguised to electricity consumers by the off-loading of a $15 billion nuclear debt onto taxpayers and ratepayers and the cross-subsidization of nuclear by Ontario’s low-cost heritage waterpower system. But the reality is that Ontario’s outdated “cheap power” strategy has actually resulted in high-cost power being sold at artificially low prices that simply encourage inefficient use and wastage.
With a clearer understanding of the links between true power costs and economic performance, we can begin to intelligently redesign our power system to focus on rewarding efficient use instead of subsidizing inefficient consumption. To do this,we need to adopt a much more diverse and flexible approach to our electricity system, an approach that properly prioritizes conservation and efficiency as our least-cost and highest-benefit options for meeting our incremental power needs.
We also need to rethink our current focus on providing increasing quantities of electricity and move instead to a focus on finding the most efficient way to provide required services. In other words, we need to think about the best way to keep our beer cold and our showers hot instead of simply continuing to try to pump out more and more kilowatts. This focus on end products and services rather than production can also help increase badly needed innovation and efficiency in our electricity system.
Similarly, by embracing the longer-term goal of moving to a 100% renewable electricity system – with an interim goal of 60% renewable power by 2020 – we can set the stage for significant improvements in our energy productivity, while creating new energy-sector economic opportunities, and an improved quality of life for all Ontarians.
To be successful, Ontario will need to put in place the right motivations and structures to drive significantly higher electricity productivity. A real-cost rate for electricity usage that encourages all users to invest in efficiency and conservation measures is one such key motivator. This would also produce many ancillary benefits, such as cleaner air, less need for expensive generation and transmission infrastructure and more efficient industries, while helping to ensure that the bottom-line impacts of higher energy costs are minimized or even eliminated.
The result of this approach will be to truly move Ontario forward as a province that is ready and able to compete in the global knowledge economy.