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Business Commentary Ontario energy agency could correct province's past policy mistakes

George Vegh is counsel at McCarthy Tétrault and teaches regulatory governance at the University of Toronto.

The Ontario government's proposed creation of an agency with a mandate to reduce carbon emissions by buying offsets, funding cleaner factories and buildings, and co-ordinating rooftop solar and energy conservation has been met with skepticism, particularly in light of the province's experience with energy agencies. As a Globe editorial put it: "Ontario's alphabet soup of electricity bureaucracies will now get another, the 'ultralow-carbon service provider,' which promises a 'state-of-the-art 21st-century approach' to managing power and more."

There is reason to be skeptical. Ontario's energy agencies were established with mandates to independently address energy costs, planning and procurement, but have largely been taken over by the government to pursue shorter-term political objectives at very high cost.

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However, there is also reason for optimism.

An agency focused on carbon reduction could bring a rational and cross-sectoral approach to environmental policy with reducing carbon as a common criterion. For example, investments in transportation and energy can be compared to each other by reference to the best bang for the buck in reducing carbon.

Also, the Ministry of the Environment traditionally makes science-based decisions, dealing with air- and water-quality standards, environmental assessments and so on. It has the capability for making fact-based decisions, which is a rare quality in government.

Finally, a new agency with a new mandate permits a fresh start. Energy policy decisions have been mired among a small group of players and decision makers, creating intertwined vested interests and legacies that have to be defended. It would be good to challenge the methodologies and assumptions that have governed the sector for decades by bringing in fresh perspective, ideas and people.

But while there is the potential for good things from a new agency, there are no guarantees. Promise will be realized in the design and implementation of effective regulatory governance. The energy experience can be drawn upon for some lessons.

The first lesson is that bad processes lead to bad decisions. The electricity sector had no effective checks and balances. The Minister of Energy could direct billions of dollars of public expenditures with the stroke of a pen. Any new regulatory structure will require clear oversight to prevent or at least reduce imprudent investments.

Related is the need for greater transparency in decision making. In the energy sector, the agencies engaged in public consultations, but everyone knew where decisions were made. This gave consultations the appearance of a facade.

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Finally, facts matter. Ontario energy decisions were made in a factual vacuum. Supply and conservation were pursued with little regard to system reliability needs, leading to massive surplus and acquiring resources that did not meet demand requirements. Tied to this, the electricity revenue system is so complex as to be nearly incomprehensible, and has led to counterintuitive results. The recent controversy over electricity prices going up as a result of conservation is a case in point. Any new system should have strict cost-benefit requirements so that decisions can be made and evaluated through a straightforward analysis.

The prospect of a new agency to make decisions around investment in carbon reduction is daunting for those who fear a repetition of Ontario's previous experience in energy management. However, if the right lessons are learned, the province may be able to pursue the important goal of reducing carbon in a rational and cost-effective manner. Much of the answer will be in the design and implementation of effective regulatory governance.

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