Earlier this month the Fraser Institute published a report sharply critical of one of the flagship policies of the Ontario government, namely the Ontario Green Energy Act (GEA). We found that the Act is costing Ontario over $5 billion annually but yields negligible environmental benefits, and that equivalent or greater benefits could have been achieved using conventional pollution control measures at less than one-tenth the cost.
We also found that, due in large part to the GEA, Ontario is going from having some of the cheapest electricity in North America to having some of the most expensive. This will increase industry operating costs and cut the rate of return to investment in mining and manufacturing by between 13 and 30 per cent, further weakening key economic sectors and threatening long term job losses. And we pointed out that the choice to pursue wind power under the GEA was a particularly bad idea, as wind power generation is almost perfectly out of phase with energy consumption in Ontario, resulting in the dumping of surplus wind energy into the U.S. market at a loss of some $200 million annually.
Shortly after its release, our report was cited during a debate in the Ontario legislature on the GEA. Ontario Energy Minister Bob Chiarelli dismissed it out of hand, saying: "The Fraser Institute report recommends that we go back to coal. They claim that coal is clean, and they're recommending we go back to coal." That was the justification for shutting his eyes to the disaster that GEA policy has created.
Even if what the Minister said was true, it would in no way be an adequate response to our findings. Ontario has lost a quarter of a million manufacturing jobs in the past decade. And it has thrown away its long-standing competitive advantage in electricity prices for the sake of minuscule environmental benefits that could have been achieved in other ways at a fraction of the cost.
But what makes the Minister's response most disturbing is that it is so disconnected from reality. Ontario has always used coal for at least some of its electricity. So do many Canadian provinces, most U.S. states, most of Europe, China and all the other jurisdictions our exporters compete against. Even Germany, which Ontario claims to be copying in its green energy strategy, opened two new coal-fired power plants last year, will open six more this year, and plans six more after that. Ontario is ready to price our manufacturing sector out of business based on an ideologically-driven energy strategy at odds with all our major trading partners.
Moreover, our data on the environmental consequences of various air quality measures come from the same study the Ontario Ministry of Energy relies on as the basis for its decision-making. We are not making some random claim that "coal is clean," we are reporting the numbers the government itself uses.
The study we cite (originally confidential) by DSS Management Consultants was commissioned in 2005. It estimated potential air quality benefits under various scenarios: a continuation of business-as-usual, different combinations of extra nuclear and gas facilities to replace the Lambton and Nanticoke coal-fired power plants, and a complete retrofit of the coal plants focused on upgrading its pollution control equipment. DSS found that shutting down the coal-fired power plants altogether would have extremely small effects on the air contaminants that determine the Ontario Air Quality Index, and the changes would be essentially identical to those achieved by a relatively low-cost coal plant retrofit.
The scenarios involving expanded gas and nuclear options would also have yielded small environmental improvements at a fraction of the cost of the GEA path. None of the scenarios in the DSS report examined or recommended the wind- and solar-power option Mr. Chiarelli's government actually pursued, nor did the government do any cost-benefit analysis of the GEA prior to implementing it, an omission sharply criticized by the Ontario Auditor General.
What seems to have annoyed Mr. Chiarelli (as well as Ontario's Energy Commissioner and the Canadian Wind Energy Association) is that we did something the government should have done long ago: assess the costs and benefits of Ontario's radical, go-it-alone green energy scheme. Had Mr. Chiarelli's government done so, Ontario might have avoided the disaster we are now in.
This column was co-written with Ross McKitrick, Fraser Institute senior fellow and University of Guelph economics professor.