Politicians and Energy Subsidies

By Peter Jones

A recent BC Hydro study recommended that B.C.’s electricity rates be increased to encourage reductions in energy consumption and in the province’s carbon footprint. The increase will bring the rates paid by BC Hydro customers closer to a fair market price of electricity. With the average B.C. resident consuming 11,000 kilowatt hours per year, taxpayers would have to pay an extra $160 annually.

For many years the Paris-based International Energy Agency (IEA) has delivered a similar message to governments that shelter their citizens from the full market price of energy through measures that subsidize consumption. In the opinion of the IEA, consumption subsidies are particularly troublesome because they artificially increase demand for increasingly scarce and environmentally damaging energy sources.

The Ontario Government, which is facing a provincial election sometime in 2011, has just proposed a new energy subsidy for consumers. On November 19th last, the Government announced a reduction of 10% in Hydro bills to consumers. This reduction would continue over a five year period “to help consumers manage rising electricity prices.” These subsidies are roughly in line with an expected increase in cost of generation of electricity of 46%.

The Ontario Government labelled this program the Ontario Clean Energy Benefit. The rationale for this name is that the increase in costs is the result of substantial investments in the generation of electricity that will enable Ontario to retire “dirty smog-producing coal plants”. As taxpayers will pay for these investments, they should be rewarded in the form of reduced rates. In other words, it is a subsidy associated with the change from fossil based plants to renewable power sources.

Whatever the justification for this name, Ontario politicians remember that the Ontario Conservatives lost the 2003 election to the Liberals in part because of “skyrocketing” electricity costs. The New Democrats particularly campaigned on the issue of higher electricity prices by including in their election platform a promise of public power “at cost”.

The Conservatives also hurt their chances in the 2003 election by cancelling the privatization of Ontario Hydro, a step that alienated many of their supporters. Ironically the privatization of Ontario Hydro might well have led a market price that covered the cost of power generation. Privatization would have created an environment in which consumers would have more readily recognized the need for economies in their use of electricity.

It is not surprising that in practice politicians reject NGO advice that the public pay the true costs of energy simply because that such a policy will in the longer run lead to reduced energy consumption. The aim of politicians is to get re-elected, and steps that reduce a financial burden on voters are always vote getters. No other party will criticize the Ontario Liberals for introducing the Ontario Clean Energy Benefit.

But what about the subsidies paid by the Federal and some Provincial governments to the oil industry (roughly $4 billion in 2010)? Those amounts don’t go directly into the pockets of taxpayers, so perhaps a Federal Party will campaign for the elimination of these subsidies to “big oil” in the next Federal Election. Would you support FOG members in its effort to eliminate this subsidy?

Peter Jones

5 thoughts on “Politicians and Energy Subsidies”

Comments are closed.