The Ontario Liberal government's ambitious "Draft Climate Change Action Plan," the text of which was leaked to The Globe and revealed on Monday, left us scratching our heads. The problem is not the ambition: Ontario has rightly pledged to reduce greenhouse gases, with 1990 emission levels to be cut by 15 per cent in 2020, 37 per cent by 2030 and 80 per cent by 2050. Those targets won't be easy to achieve, but if the science on global warming is right (we think it is), and if the international commitments that Canada and much of the world have signed onto mean anything (they should), then a long-term plan to steadily reduce greenhouse gas output is necessary.
It's not Ontario's low-carbon destination that has amber lights flashing. It's the road it is choosing to get there.
Governments are terrible at central planning. They aren't any good at micromanaging an economy, because they don't have enough information to do it as efficiently as millions of consumers and companies, each of whom can size up their own costs and savings opportunities, while adjusting to constantly changing price signals. That's why most economists think the most efficient way to achieve a big social objective like reducing carbon emissions is to put a price on carbon and let citizens and businesses, through billions of individual decisions, figure out how best to lower their carbon costs. Unfortunately, Ontario's Liberal government appears to be cribbing from a different textbook.
The strategy laid out in the draft climate action strategy calls for Queen's Park to cajole or financially bribe Ontarians into or out of various forms of energy. The big objectives in the plan are to be achieved by subsidies, or flat-out government orders.
For example, 76 per cent of Ontario homes are currently heated with natural gas. The Liberals are proposing to offer subsidies "of up to $20,000" to anyone purchasing a new home using electricity, rather than gas. That's the carrot. The government also wants new building regulations, which by 2030 will make it against the law to heat new homes with natural gas. There's the stick.
Switching millions of homes from natural gas to electricity is not technically difficult; it simply involves building more electricity-generating facilities and more transmission lines. But it won't be cheap. And that's the issue: How much will it cost – and is it the most cost-effective way of reducing greenhouse gas emissions?
Ontario also says that, within eight years, it wants every two-car household to have at least one electric vehicle, and it wants new car buyers to be "encouraged" to go electric when buying their first car. The highway to that destination will be paved with taxpayer dollars. Electric car buyers will get a subsidy of "up to $14,000 per vehicle" and "up to $1,000" per home-charging station. There will be extra cash for low-income electric buyers, plus no sales tax on electric vehicles. And electric car owners will get free electricity if they charge up overnight.
Again, all of this is technically possible. Subsidizing hundreds of thousands of electric cars; building billions of dollars' worth of upgrades to the transmission grid; free electricity, paid for by taxpayers – it's all doable. But everything comes at a cost. Voters should be asking whether this is the low-cost route to a low-carbon future, or a high-cost detour that, by abusing society's most finite resource – the wealth of its taxpayers – will actually end up making it harder to reach that low-carbon future.
Some skepticism about the Great Electric Leap Forward is in order. The Ontario Liberals are, remember, the government behind the last attempt at remaking the electricity system – which was so poorly conceived and so little understood by its architects that it turned the province into North America's leader in overpriced power. According to the provincial Auditor-General, consumers and businesses have overpaid for electricity by $37-billion over the past eight years, and will overpay by another $133-billion by 2032.
Those costs have put not one extra cent into provincial coffers. The province simply figured out how to make electricity production more inefficient. Taxpayers and ratepayers will be footing the bill for decades.
But Ontario's last energy fiasco does provide at least one lesson the government should be taking to heart: Consumers pay attention to prices. Over the past decade, Ontario's population has risen by 10 per cent and real economic output is up 14 per cent – but in the face of skyrocketing electricity costs, power consumption has fallen 13 per cent. When people are charged more for something, they will figure out how to use less of it. They don't need the government to order them to do it.
Instead of trying so hard to impersonate Soviet central planning, it would be better if Ontario put more emphasis on reducing carbon by taxing it. Consumers are usually better placed than central planners to read the price signals and figure out how best to save energy – and save their own money.