In my Annual Energy Conservation Progress Report – 2010 (Volume One): Managing a Complex Energy System released earlier this week, I took issue with energy price subsidies, whether in the form of the 10% rebate on electricity bills currently delivered through the Ontario Clean Energy Benefit, or the idea of removing the HST from energy costs.

Removing energy subsidies is always going to be tricky politically, as Adam Radwanski skilfully pointed out in the Globe and Mail. But I still think it’s the right thing to do.

First off, let’s remember that the money for these subsidies doesn’t fall from the sky – it comes from your tax dollars. The Ontario Clean Energy Benefit will cost us 1.1 billion dollars this year. Under the Benefit’s current design, the size of your rebate is tied directly to the amount of energy you use. So if you and I have the same income, but I use twice as much energy, the Benefit will essentially transfer money from your pocket to mine; not very fair, and not an incentive to conserve energy.

As with many goods or services, the amount of energy we use will depend on the price. If we keep the price of energy artificially low through subsidies, we’ll use more of it, and undercut our conservation efforts. One study estimated that the 10 per cent reduction in the price of electricity provided by the Clean Energy Benefit will increase total electricity consumption in Ontario by 1.3 per cent. That will eliminate one-third of the electricity savings expected from utility conservation programs between 2011 and 2014.

It gets even worse in the long term. When deciding whether to invest in conservation measures such as insulation or higher efficiency appliances, most people compare the extra upfront cost they will pay with the savings they will see over time from lower energy bills. Keeping the price of energy artificially low distorts this comparison, making investments in energy efficiency less attractive to the consumer.

People often tell me that removing energy subsidies is unfair to low-income people or to families. There are two ways around this: A government can offer rebates or tax credits to protect vulnerable groups. You could expand these rebates and credits to everyone, but that will likely depend on your political beliefs. From an environmentalist’s perspective, I make just one request: don’t tie the size of the credit to the amount of energy you use!

Secondly, if you want to minimize any tax credits, create programs to help low-income households conserve energy by helping them make home improvements. My report commends the government for the province-wide low-income program it’s recently developed, particularly for encouraging a co-ordinated approach between electric and gas utilities.

This approach can be applied more generally to all consumers. Instead of subsidizing the price of energy, we could use government funds to reduce our energy bills by investing in conservation. That would be a much better idea than cancelling energy conservation programs such as the Home Energy Savings Program, which the Ontario government just did.

So it might not be popular, but I’ll stand by my comments – subsidizing the price of energy is not fair, and it hurts the cause of conservation.