Cap and Tirade

The Ontario governing party with five criminal investigations ongoing including several related to document destruction, the party of pay-for-access policy-for-hire fundraisers, the party that dismisses the Auditor General as confused about many things to do with energy, that is the party that is right now concocting a carbon market in Ontario out of government decrees.

Here is my column in the Toronto Sun Jan. 15 looking at the cost implications of cap and trade for Ontario consumers and the similarities this new program has with the Green Energy and Green Economy Act of 2009 and also the provincial government’s continued program of subsidized energy conservation programs. (The text of that column is also archived at the end of this post.)

Cap and trade is merely the Ontario government’s new all-fuels tax dressed in a cloak of green.

The main purpose of Ontario’s new cap and trade program is to fund a governmental form of cheque kiting: developing a new tax to try to cover up the public’s concern with rising power rates. The largest single spending item — now officially forecast to be $1-1.3 billion — for cap and trade revenue is earmarked in the government’s Climate Change Action Plan (p. 67) is to subsidize the cost of power in time for the next election. (My next post addresses Premier Wynne’s coming electricity rate freeze.)

In Ontario, all major road fuel tax increases have historically been associated with recessions, the last jump in provincial gasoline and diesel taxes was during Bob Rae’s NDP government in 1991 and 1992. Since then, successive governments had left the tax alone. Except when provincial fuel taxes were introduced in 1981, there has never been a sharper jump in provincial fuel taxes than cap and trade’s impact on gasoline and diesel, so say nothing of the impact on propane and natural gas.

Ontario consumers already pay a massive hidden carbon tax on electricity arising from the coal phaseout. Figuring out the cost per unit of emission reductions is complicated by the fact that initially the coal phaseout was officially justified on the grounds of smog reduction and then became justified on the basis of GHG reductions and now is justified on some combination of the two. I figure the cost to consumers in 2016 of the phaseout is in the order of $5 billion — a little less than a quarter of the overall revenue requirement. This estimate is very crude but takes into consideration the likely added cost of negotiating with Bruce Power for a long term contract immediately after announcing a capacity shortage due to an accelerated coal closure commitment, premiums for green energy over the market value, the cost of accelerating gas replacement power, and extra wires costs to facilitate wasteful generation choices, Smart Grid, and increased requirements for interconnections. If we consider the coal phaseout as a GHG abatement strategy alone (i.e. ignoring health benefits) and delivered savings in the order of 25 MTCO2e, the resulting cost is in the order of $200 per tonne. By comparison, the cost under cap and trade is initially in the order of $17-$18/tonne. It might be better to share the costs of the coal phaseout between GHG reduction and smog reductions, but as Ross McKitrick and Elmira Aliakbari recently demonstrated, the value of the smog reductions are pretty trivial.

Electricity in Ontario has never been more exposed to government intervention than it is today. If other fuels are politicized, the risk of intervention spreads. Notice that the Ontario Government’s Climate Change Action Plan includes a commitment by the provincial government to intervene in the market for wood stoves for home heating.

New Corruption Risks

The way the Ontario Libs are proceeding with cap and trade creates a risk of corruption. The government has decided to charge some companies for CO2 emission permits while handing out free permits to others in secret.

I asked the Ministry of Environment and Climate Change for a list of the companies that have been granted free emissions allocations. The response:

Free emission allowances are a transitional measure, which Ontario intends to assess for future compliance periods. A public list of companies receiving emission allowances free of charge is not available at this point in the process. As set out in the legislation, we will make the details publicly available within two years of distributing these allowances.

That two-year disclosure delay shifts the release of information until after the next election, if the law as currently written stands. More importantly, the delay helps to conceal who the government’s current friends are. There is no way to verify who on the list of beneficiaries of free allowances, much less what they had to do to acquire those favours. Meanwhile, here are some companies and trade associations who think the Liberal cap and trade program is the awesomest thing ever: Canadian Vehicle Manufacturers’ Association, Cement Association of Canada, Unilever Canada, Ontario Forest Industries Association.

How much will Premier Wynne’s cap and trade program cost your family?

There are estimates all over the place of what cap and trade will cost your family. Wynne/Sousa’s budget announcement on February 25, 2016 included information about potential fuel cost increases, indicating that the introduction of the cap and trade system will likely result in an increase of 4.3 cents per litre of gasoline and 4.7 cents per litre of diesel in Ontario. As of today, the Ontario government’s main web page explaining cap and trade says:

Gasoline will cost about 4.3 cents a litre more in 2017 as a result of the cap and trade program. Natural gas will cost households about $5 more per month on average.

In her year-end interview with Alan Carter of Global TV, Premier Wynne downsized that impact on the household natural gas bill to $4 per month. Wynne made this claim at almost the same time the OEB announced that the cost will be up to $6.70.

Although it claims to be committed to consumer empowerment and education, the OEB’s disclosure decisions on cap and trade tell a different story. Many people have criticised the OEB — justifiably in my view — for ordering the costs of cap and trade be hidden on natural gas bills. Notice also that the OEB never issued a press release on the January 1, 2017 cost of cap and trade, only releasing the information by way of an obscure technical bulletin about something call a “Quarterly Rate Adjustment Mechanism” for natural gas utilities.

In her 2016 annual report, auditor general Bonnie Lysyk said households will pay an average of $156 next year in added costs because of cap and trade, rising to $210 in 2019 plus another $75 that year in indirect costs on goods and services.

Trevor Tombe and Nicholas Rivers have posted a piece on the Maclean’s site analyzing the impact of the carbon dioxide tax in Alberta and cap-and-trade in Ontario. They calculate that the per family cost of cap and trade in Ontario will be in the order of $250. Across about 4.9 million families, that yields in the order of $1.2 billion. But the Ontario government intends to bring in $1.8 to $1.9 billion. In the order of $600-$700 million missing between the two estimates.

In researching my column for the Toronto Sun, I asked the Ministry of Environment and Climate Change when the Ontario government expects to make available a detailed plan explaining how it will spend cap-and-trade revenues. MOECC says, “When a detailed plan explaining how it will spend proceeds from the cap and trade program becomes available it will be shared with the public.” Not so helpful, or encouraging.

Sales tactics

Like so many taxing initiatives based on claims about Global Warming, the Ontario government relies on exaggerated claims and in some cases outright falsehoods about costs and benefits.

The official government of Ontario justification for their new cap and trade revenue tool is:

Climate change costs everyone. This means:
– higher food prices
– more frequent extreme weather events that cause property damage and raises insurance costs
To ease that cost, we’re investing cap and trade proceeds to fund retrofit programs to help homeowners use less energy and save more money.

It is possible that these outcomes might materialise at some future point, but so far the trends with respect to all of these claims are in the opposite direction in recent decades despite atmospheric CO2 concentrations increasing from about 340 ppm in 1980 to about 405 ppm now.

Food price inflation has been way below general inflation in Canada for the last 20 years. The performance of food prices would be better if not for widespread government policies in the name of stopping global warming that have diverted massive volumes of grains and oilseeds from the food supply to be converted into ethanol and biodiesel for road fuel.

The notion that global warming is increasing extreme weather events and therefore increasing property damage is a popular sales tactic for insurance companies wanting to increase property insurance profits and also for governments wanting to impose new taxes. We also hear it constantly from the interest groups lobbying government, whether from those demanding farm subsidies, from those who pour concrete for road construction, power utilities, municipalities seeking to jack up taxes, and on and on.

The global-warming-causes-extreme-weather proposition is at very least subject to uncertainty. Even the Inter-governmental Panel on Climate Change (IPCC) now accepts that Global Warming is NOT causing an increase in extreme weather. The IPCC’s findings substantiate the findings of Roger A. Pielke Jr., who is the leading debunker of the claim that global warming is causing an increase in extreme weather. The IPCC’s most recent report addressing this issue found:

“Apart from detection, loss trends have not been conclusively attributed to anthropogenic climate change; most such claims are not based on scientific attribution methods.” (AR5 10.7.3)

Here is another update from Roger Pielke Jr with more evidence indicating that there still is no evidence indicating that global warming is driving more frequent and dangerous extreme weather.

To its credit, Ontario government tends to lay off the climate catastrophists claims that rising CO2 levels are killing all the polar bears and eliminating the ice from Greenland. However, environment and climate change minister Glen Murray, in some of his more unhinged moments, has blamed Global Warming for the rise of Islamic terrorism and local weather news.

If the Ontario government’s climate control strategy could reduce emissions while actually encouraging prosperity, even for those without government contracts, nearly everyone would be on board.

In his budget speech in February 2016, Finance Minister Charles Sousa claimed, “Cap and trade will create an even more dynamic and innovative business environment.” We have a chance to see whether he was right about that.

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GUEST COLUMN (Toronto Sun, Jan. 15, 2017)
Cap and trade deja vu
Wynne government appears to be making the same mistakes the Liberals did with their disastrous Green Energy Act

If you doubt carbon dioxide (CO2) is a dangerous pollutant, you probably think the $156 Ontario Premier Kathleen Wynne claims her new cap and trade policy will cost your family this year in direct charges for gasoline and natural gas home heating, is a rip-off.

After all, the hidden carbon price you’ve been paying on your electricity bills for years — which has nothing to do with cap and trade — might be enough for you.

But even if you think the polar bears are dying, extreme weather events caused by CO2 have accelerated, the glaciers are disappearing, and that climate change is already spiking up food costs, you might still be concerned with how Ontario’s new climate control program is being administered.

Ontario Auditor General Bonnie Lysysk has warned, “As of June, 2016, no mechanism had been put in place to prevent the double-reporting of emissions reductions from the buying and selling of (CO2) allowances” under Wynne’s cap and trade plan.

Indeed, the complexity of that program and its still unclear rules make it impossible to verify the government’s assurances they have their accounting right.

The fear is Wynne’s cap and trade initiative may repeat history by following in the same footsteps as the Liberals’ disastrous Green Energy and Green Economy Act of 2009, with its multi-billion dollar boondoggles.

Indeed, the government is using the same rhetoric to justify cap and trade as it did the Green Energy Act.

That is that it will, “save households and businesses money, create good jobs in clean tech and construction, and generate opportunities for investment in Ontario”.

But the Green Energy Act also caused a sustained upward march in electricity rates.

There was a green economic bonanza, but only for the relative few who were awarded fat government power contracts.

Assigning tonnages to foregone carbon dioxide emissions with free “emission offsets” under cap and trade, is similar to the way the government previously justified heavily subsidizing energy conservation programs.

Also, similarly, cap and trade creates vast new opportunities for bureaucratic and consultant growth, and staffing such new requirements as “accredited verification bodies”.

The new “green bank” the government has announced will no doubt need lots of executives.

Wynne claims, “By law, all proceeds from cap and trade must be invested in projects that reduce greenhouse gas emissions.”

Another Liberal talking point is that, “Ontario’s residential electrical rates are also average relative to the rest of North America.”

To the extent the government has disclosed its plans, something quite different appears to be happening with the proceeds of cap and trade.

It suggests even Wynne’s green gang realizes their electricity rate equality claim is nonsense.

If they checked, the Liberals would see Ontario’s average residential power rates are about 13% above those in the contiguous United States.

The main purpose of Ontario’s new cap and trade program appears to be to fund a new revenue stream to address the public’s concerns about rising power rates.

Indeed, the largest single spending item for cap and trade revenue — $1 to 1.3 billion — is earmarked to subsidize the cost of power in time for the next Ontario election in 2018.

Additional spending and regulatory interventions under the government’s climate action strategy attempt to push consumers into greater dependency on electricity for transportation and home heating.

One of cap and trade’s dark corners is that not all large industrial greenhouse gas emitters are being treated the same.

Some are getting free allocations of carbon dioxide emission permits for the first four years of the program, while others are being charged for them.

When the government says, “The free allocations are to protect Ontario jobs in industries that are competing with jurisdictions without a carbon pricing system, and to recognize industries that have made significant emission reductions already and need time to invest in new technology”, it isn’t wrong.

But are friends of the government getting free carbon allowances, similar to the way many wind power companies who donated to the Liberal party received heavily subsidized power contracts?

For now, the government says the list of companies who have received free allocations will remain confidential, to be released at a later date.

But secret handouts of valuable free emission allowances to certain industries (and not others), is a recipe for public concern about the potential for political corruption.

At a minimum, if politically favoured companies are showered with valuable emission allowances granted for free, it will make the government’s cap and trade mess even more difficult for any future government to unwind.

One Comment

  1. Very interesting as usual. From afar, it nevetheless seems as if the Ontario Liberal party will be re-elected regardless of what they do. The only question is if the mandate will be a majority or a minority. I am left wondering what it could possibly take to develop an effective political oppostion to the Ontario Liberal party?

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