Ronald Reagan once joked that the scariest words in the English language were, "I'm from the government, and I'm here to help." American satirist P.J. O'Rourke wrote that giving money and power to government was like giving whiskey and car keys to teenage boys. The lines are funny because they're true, at least sometimes. Government is necessary for a prosperous and healthy society, and a long list of problems cannot be fixed unless government acts. But when it shows up with hot new wheels, a half-empty bottle of whiskey and a certainty that nothing can possibly go wrong – watch out.
This week, Ontario's Auditor-General released her annual report. The big bombshell is that the province's electricity system is broken, and the government broke it. Power in Ontario is a never-ending story of costs that have spiralled out of control, prices that have risen far faster than inflation, producers paid to produce more power than the market wants, others paid to not produce, some consumers paid to not consume, and yet more subsidies doled out to generate enough surplus power to light up all of Manitoba.
Ontarians have paid $37-billion more than they should have for electricity over the past eight years, according to Auditor Bonnie Lysyk – with a projected $133-billion more overcharging to come in the next 18 years.
This cautionary tale should be required reading at the Paris climate change talks. Ontario's Liberal government, it is important to understand, paved this road to hell with a smile, insisting all the while that it had the best of intentions. To a large extent, it wasn't lying. This has been a failure of head, not heart.
The province did have real issues that needed tackling. It had a smog problem, in part due to the burning of coal to generate power. It had and still has a greenhouse-gas problem, and carbon-reduction targets to hit. Its economy was buffeted by the loss of manufacturing jobs. The issues were real, but the solutions then premier Dalton McGuinty's government put in place, a grand scheme to green the power system, attract new private investors and subsidize solar and wind energy as a way of creating a new industry in Ontario, entirely missed the mark.
All the Ontario government wanted to do was help – but its idea of "help" in this case meant disregarding the best advice of economists and experts. It seized upon real environmental issues – smog and greenhouse gases – but used them to launch a policy of politicized decisions in the power sector from which the province has been unable to wean itself. It devoted a lot of time to enumerating hoped-for benefits, while studiously not counting costs. It put on blinders and threw away the calculator. It chose wrong.
Climate change may be the greatest long-term challenge facing humanity, and if governments simply stand aside, with no changes to laws, rules or tax regimes, it's a challenge our species will fail. But if governments pick the wrong policies, the rescue mission will fail, too.
We already know a lot about what works. If you want to get people to use less of something, tax it. To reduce consumption of carbon-based fuels, raise their price. Canada's best model is in British Columbia, with its $30-a-tonne carbon tax, worth roughly 7 cents of tax on a litre of gasoline. B.C. has used most of the money raised, about $1.2-billion a year, to lower taxes on individuals and businesses. In other words, it has raised taxes on something it wants less of – greenhouse gases – and lowered taxes on things we all want more of, namely, investment and income. B.C. has the highest carbon levy in Canada – but has used those revenues to cut personal and corporate income tax rates, delivering among the lowest rates in the country.
The B.C. model, which is remarkably simple, has shown significant results. B.C.'s carbon usage has fallen far faster than the rest of the country over the past few years, with no discernible impact on the economy. Consumers and businesses have responded to higher fuel taxes by consuming, on average, slightly less fuel.
A recent report by the group of experts advising the B.C. government on climate policy recommended annually hiking the carbon tax, which has been frozen since 2012. The idea is to keep greenhouse-gas consumption falling while using carbon revenues to continue lowering other taxes.
That's a good plan. It's a case of the government helping as much as it can, by interfering in the economy as little as it must. It's government sending price signals, but leaving it up to millions of consumers to decide how to best respond.
Alberta, which last month announced its own carbon levy, is partly following this model, and similarly trying to use a tax to reduce carbon emissions. However, it looks like most of the money raised in Alberta will not be put back into the pocket of consumers, but will instead allow the province to have a new pot of money with which to subsidize its favourite green causes. This has obvious risks.
And in Ontario, the government that broke the electricity system with a smile remains confident that its soon-to-be-unveiled, carbon-reducing, cap-and-trade scheme will be exactly what the province needs. However, all signs are that it will be far less transparent and far more complex than B.C.'s system, or Alberta's. The carbon revenues raised appear destined to be spent on Ontario's pet green causes, not returned to taxpayers. And the cap-and-trade model appears to roll out the welcome mat for a carnival of lobbying by industries and companies hoping to win an exemption or compensation. Ontario's electricity fiasco is an ominous precedent.
Climate change can't be beat without government action. But beware governments bearing gifts, or collecting them.