Ontario's crisis of unaffordable energy
It’s human nature to take many important things for granted—until they are taken away. For example, most of us take for granted the ability to breathe the air around us. It’s only when we develop a respiratory disease that a deep breathe of clean air comes to feel like a great blessing.
Affordable energy is to the economy what oxygen is to the human body. Just as we all need fresh air, the economy needs a reliable supply of affordable energy to thrive. In Ontario, we are now learning painful lessons about what economic life is like without affordable energy.
Last week a video went viral, showing a distraught woman at a town hall meeting with Prime Minister Trudeau, weeping as she described what her family has experienced thanks to their enormous hydro bill. She described working long hours to pay her electricity bill, while keeping the power off on hot summer days and surviving on an inadequate diet of instant oatmeal and canned soup.
The now famous exchange between Kathy Katula of Buckhorn, Ontario and Prime Minister Trudeau has put a face to the severe problems high energy prices have created for Ontarians by straining their household budgets.
But unaffordable electricity also hurts people by making it harder for businesses to form, compete successfully, and expand. This can lead to less demand for labour, which depresses wages while making job opportunities scarce. The result is even more economic insecurity and more people unsure how to pay their mortgage, buy nutritious food, and cover their hydro bill all at the same time.
It’s important to recognize that the high electricity prices in Ontario are not simply the result of forces beyond our control—this is not caused by some global spike in fuel prices. Rather, misguided policy choices have contributed greatly to price increases.
Consider the effect of the Green Energy Act (GEA) of 2009, which contributed to higher energy prices by guaranteeing rates above market prices for wind and solar electricity.
A recent report from Ontario’s auditor general showed that in 2014, Ontario’s guaranteed prices for renewable energy were about twice as high as the average cost paid in the United States for wind, and three times the American average price for solar. The predictable consequence is that we’ve wound up paying an awful lot of money for not much power, driving prices higher.
Crucially, many of the policies that have pushed electricity prices skyward have been enacted in the name of environmental protection. And of course protecting the environment is an important government responsibility.
But governments should meet this responsibility in smart, cost-effective ways. Recent policy choices by Ontario governments fail these tests. Consider one recent study showing that if Ontario’s government had merely continued with the ongoing retrofits to coal plants, it could have achieved many of the same environmental benefits of the GEA—at one-tenth the cost.
As people like Ms. Katula struggle to cope with sky-high hydro bills, policymakers at Queen’s Park should refocus electricity policy to ensure a reliable, affordable supply of energy to Ontarians. If they can deliver, it will feel like a badly needed gasp of fresh air for an economy now struggling to breathe.