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Ontario's feed-in tariff jacks up electric bills with little evidence of creating "green" jobs or reducing carbon emissions

Appeared in the National Post
Release Date: May 20, 2011
Tim Hudak, leader of the Ontario Progressive Conservatives, recently announced that if elected as Premier of Ontario, he will put the brakes on the controversial feed-in tariff program introduced by Dalton McGuinty’s Liberal government. This would be a move in the right direction for electricity policy in Ontario.

The feed-in tariff program provides guaranteed prices to renewable energy producers that are above market rates and indexed to inflation. The rates offered range from 10 cents per kWh for landfill gas generation to 80 cents per kWh for rooftop solar generation. These rates are significantly higher than the current consumer electricity prices regulated by the Ontario Energy Board at 6.8 cents per kWh for usage up to 600 kWh and 7.9 cents per kWh for any additional usage. This means the regulated prices will increase significantly in the future to cover the difference.

The arguments in favor of the feed-in tariff program focus on creating jobs, improving air quality, and reducing greenhouse gas emissions. However, when looked at closely these arguments fail to pass the sniff test.

The job counts trumpeted by the Ontario government in support of the program are vacuous. Counting the jobs created by a project is meaningless unless the jobs destroyed by the project are also considered.

Granted the number of jobs is not the most informative indicator of success, but if you care about jobs, then it is net-jobs that is relevant and not solely jobs created. And in this instance, the government has failed to take into account the jobs destroyed through higher electricity prices to small businesses and consumers.

Several recent research studies on the European experience with feed-in tariffs have found that each job created by subsidized renewable energy comes at the expense of at least two or more jobs elsewhere in the economy.

As for air quality, concentrations of sulfur dioxide, nitrogen dioxide, ground-level ozone, carbon monoxide, and ultra-fine particulate matter have been, for the most part, decreasing over time in Ontario. Data for 2009 from Environment Canada shows that concentrations of these pollutants in Ontario have reached historic lows. These significant improvements in air quality were made prior to the implementation of the feed-in tariff program.

Plainly, the feed-in tariff program is an extremely expensive way to reduce greenhouse gas emissions. I have calculated very conservative estimates of the cost of greenhouse gas reductions achieved through the feed-in tariff program, and the estimates range between $87 per tonne of emissions reduced using hydroelectric to $820 per tonne of emissions reduced using ground mounted solar.

These emission reductions are expensive considering British Columbia’s carbon tax only puts a $20 price on a tonne of emissions and that carbon offsets in Canada sell for around $27 a tonne.

Given that renewable energy is often not economical and subsidizing it using the feed-in tariff is misguided policy, many Ontarians may be wondering what will replace Ontario’s coal-fired electricity plants. Fortunately, a viable alternative is available – natural gas.

Other than coal, natural gas generation is currently the cheapest source of electricity. In contrast to coal generation, natural gas generation produces negligible mercury emissions, negligible sulfur dioxide emissions, significantly less nitrogen dioxide emissions, and less greenhouse gas emissions. Although nuclear energy is also often mentioned as a clean source of electricity, current cost estimates published by the U.S. governmnet’s Energy Information Agency suggest that nuclear is also uneconomical.

Granted, the market should be allowed to determine the future mix of electricity generation and the fate of Ontario’s coal-fired electricity plants. However, for arguments sake, by replacing Ontario’s coal generation with new natural gas generation instead of subsidizing costly renewables, Ontario can make significant environmental improvements without burdening small businesses, consumers, and taxpayers with steep escalations of electricity rates and/or increased government spending.

Scrapping the feed-in tariff program is a good first step at reforming Ontario’s energy policy. A closer look at expanding the province’s use of natural gas would be a good-and economical-second step.