Rising electricity costs kill 75,000 manufacturing jobs in Ontario

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Appeared in the Financial Post, October 17, 2017
Rising electricity costs kill 75,000 manufacturing jobs in Ontario

In the 1990s and into the 2000s, Ontario was a low-electricity cost jurisdiction. This was a competitive advantage for the province, helping attract business and foster economic growth. Of course, in recent years, due largely to the Green Energy Act and its inefficiencies, Ontario electricity prices have soared, hurting industrial competitiveness, especially in the manufacturing sector where electricity is a major cost.

The results have been devastating.

Between 2005 and 2015, Ontario’s manufacturing output fell by 18 per cent and manufacturing employment fell by 28 per cent.

More specifically, from 2008 to 2015, Ontario’s manufacturing job levels fell from 805,170 to 688,735. Crucially, in our recent study published by the Fraser Institute, we estimate that the province’s high electricity prices are responsible for roughly 64 per cent of the losses—that’s a staggering 75,000 manufacturing jobs.

Government officials are quick to tout job-creation in renewable energy (wind, solar, etc.). But even when those job-creation estimates are taken at face value, we estimate that Ontario may have lost at least 1.8 permanent manufacturing jobs for every new job created under the province’s green energy initiatives since 2008. And this is a conservative estimate, since many of the green energy jobs were temporary.

So how did we get here? Why has manufacturing fled the province in recent years? Ontario’s manufacturing sector accounts for almost 40 per cent of Canada’s exports, so its decline is a matter of national concern.

Ontario now has the highest electricity costs among all Canadian provinces and some of the highest costs in North America. In 2016, large industrial consumers (with a power demand of five megawatts and monthly consumption of 3,060 megawatt hours) in Toronto and Ottawa paid almost three times more than consumers in Montreal and Calgary and almost twice as much as consumers in Vancouver. Even some select large industrial consumers (Class A) in Ontario, which were granted rate reductions, still paid higher rates compared to large electricity users in Quebec, Alberta and British Columbia.

Ontario electricity costs are also among the fastest-growing. Between 2010 and 2016, electricity costs for small industrial consumers (with a power demand of one megawatt and monthly consumption of 400 megawatt hours) increased by 50 per cent in Ottawa and 48 per cent in Toronto compared to 15 per cent (on average) in the rest of Canada. Increases for large Ontario industrial consumers were also far above those in other provinces.

Notably, the paper manufacturing and iron and steel sectors—the two most electricity-intensive sectors in Ontario prior to the big price increases—shrank the most (32 per cent for paper, 25 per cent for iron and steel).

Moreover, while manufacturing in all provinces fell during the 2008 recession, only Ontario failed to recover to pre-recession levels.

In fact, compared to multiple American and Canadian jurisdictions, Ontario has seen the most substantial decline in manufacturing over the past decade. Between 2005 and 2016, while some nearby U.S. states such as Michigan boosted their manufacturing sector’s share of GDP, Ontario’s declined by five percentage points. Similarly, between 2005 and 2015, the manufacturing share of employment in Ontario fell by six percentage points compared to only 1.7 points in the United States.

The relative success of other competing jurisdictions proves that global factors such as world demand, exchange rates and technological change cannot explain Ontario’s poor manufacturing performance. Clearly, Ontario electricity prices, which have likely placed too large a financial burden on Ontario’s manufacturing sector, are to blame.

Finally, it’s worth emphasizing that rising electricity costs are a made-in-Ontario problem directly tied to provincial government policies, which include the aggressive promotion of renewable energy sources, poorly structured long-term contracts, and the phasing-out of coal. The dramatic job losses in Ontario’s manufacturing sector, and the overall stagnant employment and economic growth rates in the province, should concern policymakers across Canada. We urge the Ontario government to pursue meaningful reforms aimed at significantly lowering electricity costs in the province.