Last month's announcement by Ontario Premier Kathleen Wynne that her province would link up with the existing Quebec and California carbon dioxide cap-and-trade systems prompted an editorial in this newspaper headlined, "Is this Green Energy Act Round Two?"
Ontario's Green Energy Act offered so-called "feed-in rates" almost four times existing electricity rates for wind and more than 10 times for solar power. Like bees to honey, wind and solar companies rushed in. By the time the government realized that these subsidies were driving Ontario from one of the lowest to one of the highest power cost jurisdictions in North America, the province had signed myriad 20-year-locked-in-rate-guaranteed contracts that will drive power rates up a further 40 per cent to 50 per cent in coming years. Adding salt to this self-inflicted wound is the reality that much of the green power comes on stream when it isn't needed. This unneeded electricity is dumped into the United States at bargain-basement prices that Ontario's Auditor-General found has already cost Ontario power consumers billions of dollars, with much bigger losses yet to come before those 20-year contracts expire.
Given these disastrous results, one would think that Ms. Wynne and her cabinet colleagues would have carefully studied experience in other jurisdictions before implementing green policy two. The first and largest carbon cap-and-trade scheme is Europe's 10-year-old system. As in Ontario, the story begins with huge subsidies for wind and solar power that drove up electricity prices precipitously. Cap-and-trade handed wind and solar power companies a second windfall by creating a "carbon trading market" that allowed them to sell "carbon offsets" from their low-emission projects.
On the other hand, many factories and industrial plants, already struggling with high power costs, found it more profitable to shut down and sell their carbon credit allocation in the carbon trading market. As a result, the bulk of Europe's emissions reductions have been achieved by the departure of energy-intensive industries to overseas locations. Many of the products consumed by Europeans are now produced in countries without emissions limits, demonstrating the futility of imposing local carbon cap measures without global commitments. And since European industry was already among the world's most energy efficient, the emissions embedded in most of those imported goods are higher than when the same goods were produced domestically.
Adding irony to this job-exporting fiasco, some European countries, including Germany, have implemented subsidies in an effort to keep the remnants of their industrial sector from shutting down. German electricity consumers paid some €20-billion ($27.2-billion) in green power subsidies last year, while at the same time their government spent billions of euros to help industrial plants survive the combination of high electricity and cap-and-trade costs that made them uncompetitive in the first place.
The Ontario announcement has promulgated a debate as to whether cap-and-trade is a tax. Clearly, for those having to buy carbon credits, it amounts to a tax. But for those who have credits to sell, it amounts to a subsidy.
But what most commenters have missed is that former premier Dalton McGuinty's Green Energy Act created what is, for practical purposes, an indirect tax on energy consumers. Now comes Ms. Wynne's equally ill-considered cap-and-trade tax. In mirror image to Europe's green-power-driven levy on electricity consumers followed by cap-and-trade, Ontario's ill-considered green scheme No. 2 could strike the final blow that drives industry elsewhere.
This leaves the question as to why Quebec so warmly welcomed Ontario's decision to join its cap-and-trade system. Quebec's electricity comes almost entirely from cheap, emissions-free hydropower, mitigating much of the competitive impact of cap-and-trade. Quebec has just announced a massive expansion of its hydropower capacity and is looking for markets. The net effect of signing Ontario onto its cap-and-trade system may well be the export of jobs from Ontario to Quebec businesses and the export of electricity from Quebec to Ontario consumers, along with the added bonus of selling carbon credits to Ontario businesses unable to meet cap-and-trade targets.
Ontario generates just 0.5 per cent of global carbon emissions. Even a giant 20-per-cent reduction would knock just a tenth of 1 per cent off global emissions. A minuscule gain for the globe, at a potentially enormous cost to the people of Ontario, and all Canadians.
Gwyn Morgan is a retired Canadian business leader who has been a director of five global corporations.