Ontario’s 2012 budget attempts to adapt to a new economic reality.  This reality is defined by slower economic growth than experienced in the past as the labour force ages and traditionally strong industrial sectors, such as manufacturing and forestry, wrestle with globalization and the surge in the Canadian dollar. This new economic reality must also be viewed within a context of the interconnected energy and climate challenges that are becoming more severe as conventional oil reserves are depleted and greenhouse gas emissions are pumped into our atmosphere in ever greater quantities.  Dwindling global fossil fuel resources are one of several factors contributing to rising gasoline prices (note that Ontario motorists spent a record $17.6 billion buying gasoline in 2011) and intensifying climate change impacts from the use of fossil fuels are manifesting themselves in the form of hotter weather and more erratic and intense precipitation and wind patterns.

Maria Van Der Hoeven, executive director of the International Energy Agency, addressed the climate and energy challenge at a recent conference of the world’s energy ministers in London England: “the current state of affairs is unacceptable precisely because we have a responsibility and a golden opportunity to act. Energy-related CO₂ emissions are at historic highs, and under current policies, we estimate that energy use and CO₂ emissions would increase by a third by 2020, and almost double by 2050. This would be likely to send global temperatures at least 6C higher within this century.”  Unfortunately Ontario’s 2012 budget fails to address the long-term challenge of transitioning to a low carbon, climate-resilient economy.  The Drummond Report released earlier this year chastised the government for the lack of a long-term perspective in the budget-making process, but apparently no-one was listening when it came to the serious risks posed by climate change and fossil resource depletion.  It doesn’t have to be this way.  We only need to look east of the Ottawa River to see a provincial government that is leading in the transition towards a low-carbon future and reflecting this within its budget process.

Quebec, while admittedly blessed with extensive low-carbon hydroelectric resources that aid in this transition, faces fiscal challenges that are perhaps worse than Ontario.  Its debt-to-GDP ratio is around 50 per cent compared to Ontario’s 35 per cent, and its population is relatively older which means a smaller labour force and higher healthcare costs. But in spite of these fiscal challenges, Quebec’s 2012 budget doubled down on low-carbon investment.  This money is coming directly from carbon pricing revenues that will escalate to $425 million/year by 2015-2016 as the province’s cap-and-trade program is extended to cover transportation and residential fuels.  And, while the Ontario government falters in implementing its formerly ambitious Climate Change Action Plan, in February 2012 the Quebec government launched a formal public consultation on a new Climate Change Action Plan (only available in French) that will help it achieve its 2020 target of reducing emissions by 20 per cent over 1990 levels.  I hope that the Ontario government can follow the Quebec lead and overcome this current period of policy stagnation to demonstrate a long-term perspective on climate mitigation that sets us on a path towards resilience and prosperity in an uncertain future.

A key message emerging from Ontario’s Adaptation Strategy and Action Plan (“Climate Ready”) is that Ontario’s public infrastructure is vulnerable to changing climate conditions and extreme weather events.   Infrastructure investment in sectors such as water, energy and transportation creates long-lived networks that enable economic prosperity for present and future generations. But the infrastructure we build can also hinder future generations if it is built to cope with climate and weather conditions that no longer exist. For example, an August 2005 rain storm in Toronto – rivaled only by Hurricane Hazel for the intensity of precipitation – overwhelmed stormwater infrastructure in a northern part of the city and wiped out a section of Finch Avenue. The costs of that storm exceeded $500 million, making it the most expensive disaster in Ontario’s history.  With Ontario’s climate beginning to show the effects of the build-up of greenhouse gases (GHGs) in the atmosphere such events will happen more frequently and could be just as costly unless we start planning now.  Many years of underinvestment have left significant portions of public infrastructure, for services such as water and electricity, near the end of their useful life.  This is fortunate, in a perverse way, because it provides the Ontario government with an opportunity to reinvest now to make critical systems more resilient to present and future conditions.  The Ontario government’s 10-year infrastructure plan recognizes the need to build adaptation into public infrastructure planning, which is a good first step.

As I note, however, in my recent preliminary assessment of the government’s climate change adaptation strategy (“Ready for Change?”) – key areas of public infrastructure – notably the provincial electricity grid – are not receiving adequate attention despite the fact that they are inherently vulnerable to a changing climate.

The idea that investment in infrastructure now yields greater payoffs than delayed action holds true on the climate change mitigation (i.e. GHG reduction) front as well.  The International Energy Agency (IEA) provides a stark reminder of this fact in its World Energy Outlook 2011.  Devoting an entire section to climate change, the IEA showed that unless we change the carbon footprint of our infrastructure going forward, a global average temperature increase somewhere between 3.5°C to 6°C by 2100 can be anticipated.  This is far beyond the range for which Ontario is planning, and would most certainly result in a severe reduction in living standards across the province.  This is because infrastructure built now will last for decades and thus “lock-in” emissions long into the future.

The IEA calculated the amount of GHG emissions that could be emitted over the next several decades while still having a likely chance of meeting the internationally agreed target of limiting global temperature rise to less than 2°C. This is the carbon budget that needs to be managed in order to avoid the most dire predictions, such as extreme sea level rise and mass extinctions. Shockingly, the IEA found that existing and planned capital stock (power generation, buildings, transportation and industry) will emit 80 per cent of that budget and that, without a clear economic signal to direct development towards a low-carbon path the entire carbon budget will be eaten up in just five years.  As we wait to embark on a low-carbon pathway for reasons of economic expediency, fossil-fuel infrastructure continues to be built and planned. Within Ontario, the Long-term Energy Plan calls for several new natural gas power plants over the next 20 years. It is precisely this type of fossil-fuel infrastructure that will need to be mothballed early (or undergo costly retrofits to capture the GHGs emitted) if we hope to keep the planet within its budget. Given the capital expense that goes into such infrastructure, it is unlikely that governments would be willing to make such politically unpalatable moves.

The IEA information illustrates the critical link between climate adaptation and mitigation.  As Ontario moves forward, we need to plan so that our children can live within the atmospheric budget using infrastructure networks that can cope with an uncertain future climate.  If we fail to accept this challenge we risk condemning our children to live in a less prosperous world.  Policy options exist to avoid this fate, including: aggressive energy efficiency; investment in renewable energy; a focus on climate resilience in the building code; and a move towards comprehensive carbon pricing to direct investment towards the low-carbon path. There is no time to wait.

The government of Canada has announced the end of the ecoENERGY home retrofit program, effective immediately, citing fiscal constraints. The popular program (which was previously matched by the Ontario government) helped homeowners cover part of the cost of energy efficiency retrofits such as a more efficient furnace or improved insulation.

As part of my statutory role in reviewing conservation initiatives in Ontario, I have previously reviewed the results of the home retrofit program. In its first three years, the program raised awareness of conservation among homeowners, with more than 150 000 Ontario households undertaking at least one energy efficiency action through the program and reducing their energy bills. Most retrofits led to a reduced use of natural gas for space heating, therefore the program also had an impact in reducing greenhouse gas emissions. However, I did note that the bulk of Ontario’s buildings had yet to be retrofitted (the program had reached only 4% of Ontario’s housing stock), and that the Ontario government’s lack of analysis as to the benefits of the program made it vulnerable to cancellation.

While disappointing, the federal government’s action is not surprising given the hints of restraint from Ottawa and Queen’s Park: a daily shock doctrine to prime taxpayers for release of the governments’ spring budgets. The Ontario government had already withdrawn its contribution to the home retrofit program, as well as cancelling energy conservation programs in other sectors. In this time of fiscal deficits, there will be pressure for further cuts, despite the very small percentage of public spending devoted to the environment (for example, the combined budgets of the Ministries of the Environment and Natural Resources accounted for less than 1% of Ontario’s budget in 2010/11). The former Ministry of Energy and Infrastructure also accounted for less than 1% of the Budget (and a fair portion of this was money spent on infrastructure as opposed to energy programs).

I expect more environmental programs to come under threat in the near future, regardless of the long-term consequences. As I have said previously, at some stage we will reach a tipping point. Beyond this threshold, we will lose meaningful policy and program capacity in these ministries for the sake of spending reductions that can really have no substantive impact on the deficit.

As reported recently in the media, John Podesta from the Center for American Progress in Washington DC visited the MaRS Centre in Toronto and presented a compelling case for continued public policy support for and political commitment to green energy in Ontario.

In his presentation, Podesta praised the Green Energy and Green Economy Act (GEGEA) and its pivotal Feed-in Tariff (FIT) program as being the key drivers responsible for $21 billion in investment in Ontario and the creation of about 20,000 jobs since 2009. He credited the program for creating the kind of stable investment climate that manufacturers, financial institutions and entrepreneurs must have to hasten the transition to a low-carbon economy.

Podesta also referred to a recent Brookings Institute report in his presentation. The report indicated that the growing “clean economy” in the US is manufacturing- and export-intensive, with over 25 per cent of its 2.7 million workers in “green” jobs originating in the manufacturing sector. Median “green collar” wages in the US are 13 per cent higher than median wages in general. Between 2003 and 2010, the US clean economy outperformed the overall economy by a factor of two. He added Ontario is now a North American leader in the creation of these higher paying, export-oriented “green” industries.

Podesta provided the cautionary tale of China’s efforts to corner the renewables market, both in terms of technology development and dominating the export market. Recent media reports make it clear that China, as part of its push to become a world leader in green technology, is intent on putting a price on carbon as a component of its transition to a greener economy. I’ve made my position clear on the need for pricing carbon in Ontario in a previous blog. What’s really interesting about China is that it is being supported, in part, by the US Energy Foundation. As Podesta noted, China’s centrally controlled economy and its ability to regulate “at will” means they will increasingly challenge for world market dominance.

So, it’s concerning when a report just released by the Deutsche Bank in July singled out Ontario as a jurisdiction of concern where the outlook for green energy has “deteriorated” in part due to uncertainty over the future of the FIT program. Ontario has to decide where it wants to be in the international green economy in coming years.

The electrical grid is at the heart of our daily activities, yet we rarely think about how electricity is delivered to us. In its simplest form, the grid is made of a series of wires that carry electricity from the source of generation to our homes and businesses, as well as equipment like transformers that regulate the voltage of the power delivered. This is the electricity we use to power almost everything, from computers, televisions and air conditioners, to our traffic lights, hospitals and shopping malls.

In my Annual Energy Conservation Progress Report – 2010 (Volume One): Managing a Complex Energy System, I discussed the importance of a smart grid, which is the next step for our electrical grid.

Tomorrow's Smart Grid, as shown on pg. 45 of Managing a Complex Energy System.

What is a smart grid?

A smart grid involves monitoring and controlling the electrical grid to ensure it remains balanced and reliable. This will allow us to adopt newer and greener technologies, such as electric vehicles, without compromising our electrical grid’s reliability.  This is a simplified diagram of a smart grid, illustrating how the different components of the grid are connected together.

Report highlights

My report highlights some important components of a smart grid, including smart meters, distributed generation and energy storage. For example, smart meters record when and how much electricity is used, allowing consumers to learn more about their electricity consumption habits.

Several Ontario utilities (such as Toronto Hydro) have taken the lead by providing Internet applications that show users their metered electricity consumption data collected from smart meters. At these websites, consumers can monitor their electricity usage to identify sources of electricity waste and shift some of their electricity use to times when the overall demand is lower. This will reduce the strain on our electrical system and help avoid the need for new and costly peaking power plants that are built for use during times of very high electricity demand. I believe that for the smart grid to succeed, one organization must establish the vision and provide overall leadership necessary to guide all participants towards the common goal of modernizing the grid.

Conserving electricity in this province has never been more important. According to Ontario’s Long-Term Energy Plan, provincial electricity consumption will grow by 15 per cent between 2010 and 2030, meaning that we will need more generating stations to provide power. However, if we use what we already have more efficiently, we could decrease the amount of new generation required. Due to the physics of delivering electricity over wires, Ontario loses about 6% of its electricity between the generating stations and consumers. By minimizing these losses, we can get more power from our existing generation stations to the end-users. In fact, my report recommends that the Ontario Energy Board encourage and facilitate smart grid investments that reduce line losses, putting these investments on an equal footing with conservation investments.

Ontario’s existing grid was developed long-ago and, although our electricity needs have increased and evolved, our grid has not changed in a similar way. We expect that our grid will continue to provide us with reliable electricity, and modifications are needed to ensure the grid remains reliable and dependable.

For more information on Ontario’s smart grid, you can visit the websites for Ontario’s Smart Grid Forum and the Smart Grid Working Group. These groups are monitoring and facilitating progress in developing the smart grid.

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.

Toronto, June 14, 2011 – Ontario’s Environmental Commissioner says the province’s energy regulator is putting up barriers to increased energy conservation. This is just one of the conclusions from his Annual Energy Conservation Progress Report – 2010 (Volume One), Managing a Complex Energy System, released today.

• Watch the webcast of the press conference live from Queen’s Park
• Watch videos of the Commissioner outlining key points of the report:
  • Overview
  • Electricity pricing
  • Smart Grid
• Click here for more information about the report
• Download the report on your computer (.pdf)
• Download the entire report on your mobile device (.epub)

“The Ontario Energy Board (OEB) plays a valuable role in protecting consumer interests, but this traditional regulatory function is in conflict with its expanded powers over conservation,” says Commissioner Gord Miller. He points to recent decisions by the OEB that have forced both electricity and natural gas distributors to restrict the conservation programs they offer to consumers.

One of the OEB’s key objectives is to promote energy conservation, but the Board recently told Union Gas and Enbridge Gas Distribution to curtail proposed increases in their conservation budgets and instead, freeze them at existing levels for the next three years. “The ‘low-hanging fruit’ in conservation has already been harvested,” says Miller, “but the Board won’t approve the investments that are necessary to accomplish further energy savings. The Board is ignoring the benefits that will come with reduced infrastructure costs and lower greenhouse gas emissions.”

The progress report also says the OEB has established rules that could hinder the Conservation and Demand Management (CDM) programs offered by the province’s electricity utilities. “The Ontario Power Authority has designed province-wide conservation programs, yet it’s the electric utilities who will carry them out. The Ontario Energy Board has given utilities all of the responsibility but none of the freedom to modify or improve programs if necessary.”

Conservation is only one of the areas where the OEB has been asked to take on an expanded policy-making role. The government has also told the OEB to facilitate the adoption of the smart grid – a modernized electricity system that uses information technology to operate more efficiently. Miller believes that “one entity has to be given the responsibility for establishing the vision of an integrated electricity system, and providing the leadership for modernizing our electricity grid.” However, the Commissioner questions whether the OEB would be the appropriate choice to achieve this innovative objective, given its conflicted responsibilities.

For more information, contact:

Maria Leung
Communications and Outreach Coordinator
Environmental Commissioner of Ontario
416-325-3371 / 416-819-1673
1-800-701-6454
Maria.leung@eco.on.ca

For French language release and bilingual support, please contact:
Jean-Marc Filion, 705-492-6997
The report is available for download at www.eco.on.ca

Aussi disponible en français

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The Environmental Commissioner of Ontario is the province’s independent environmental watchdog. Appointed by the Legislative Assembly, the ECO monitors and reports on compliance with the Environmental Bill of Rights, the government’s progress in reducing greenhouse gas emissions and its actions towards achieving greater energy conservation in Ontario.

Toronto, June 14, 2011 – Ontario’s Environmental Commissioner says the Ontario Clean Energy Benefit (OCEB) is a perverse incentive that could endanger the energy conservation savings the government is hoping to achieve.

• Watch the webcast of the press conference live from Queen’s Park
• Watch videos of the Commissioner outlining key points of the report:
  • Overview
  • Electricity pricing
  • Smart Grid
• Click here for more information about the report
• Download the report on your computer (.pdf)
• Download the entire report on your mobile device (.epub)

In his Annual Energy Conservation Progress Report – 2010 (Volume One): Managing a Complex Energy System, released today, Gord Miller says “The 10 per cent rebate on electricity bills is an artificial subsidy on the price of electricity so it encourages consumers to use more.” A study by energy analysts estimated that the OCEB could wipe out a third of the planned conservation savings over the next four years.

Miller praises the government for introducing time-of-use pricing that encourages households and businesses to shift their consumption away from periods of high demand, but noted that price subsidies undercut this development. Prices will necessarily rise because of a backlog of transmission investments and new generation projects.. “Unfortunately, the government hasn’t addressed the issue of rising prices in a way that prioritizes conservation,” says Miller. “Instead it has continued the failed policy approach of the past where the government’s only answer to higher electricity prices is to artificially lower electricity prices.”

If the government feels the need to help consumers with the higher energy costs it could make the benefit a fixed amount, instead of tying it to consumption levels. “That way,” says Miller, “the Clean Energy Benefit would be less of a disincentive to electricity conservation.”

Miller is also concerned about delays in rolling out Ontario’s important Conservation and Demand Management (CDM) programs. Between now and 2014, electric utilities, supported by the Ontario Power Authority, are supposed to reduce overall electricity use, as well as peak demand. “Province-wide conservation programs were all supposed to begin in January 2011,” says the Commissioner, “but the delays mean we will miss opportunities this year.”

The Environmental Commissioner is also questioning a recent decision by the Ontario Energy Board to freeze conservation budgets for Union Gas and Enbridge Gas Distribution, particularly at a time when the government has cancelled its own conservation programs for gas consumers. “The Board has too narrow a view about the benefits that will come with increased conservation. It is ignoring the avoided infrastructure costs and reduced greenhouse gas emissions that will come with reductions in consumption of natural gas.”

For more information, contact:
Maria Leung
Communications and Outreach Coordinator
Environmental Commissioner of Ontario
416-325-3371 / 416-819-1673
1-800-701-6454
Maria.leung@eco.on.ca

For French language release and bilingual support, please contact:
Jean-Marc Filion, 705-492-6997

The report is available for download at www.eco.on.ca

Aussi disponible en français

- 30 -

The Environmental Commissioner of Ontario is the province’s independent environmental watchdog. Appointed by the Legislative Assembly, the ECO monitors and reports on compliance with the Environmental Bill of Rights, the government’s progress in reducing greenhouse gas emissions and its actions towards achieving greater energy conservation in Ontario.

ECO Gord Miller appeared on TVO’s The Agenda last week discussing green energy in Ontario. Watch the video here.

Part III in The Agenda’s “Pressures of Progress” series: Ontario is trying to become a world leader in green technology. And while the McGuinty Liberals believe it’s the future, citizens and industry aren’t fully buying in. Do we all want to go green, until it happens?

Click to go to episode page.

Energy has been a hot topic of debate lately, and on November 23, the government of Ontario released its Long Term Energy Plan, which sets out a plan about where our electricity will come from over the next 20 years and how much conservation of electricity we can achieve during that time period.

The stakes are high. Given the long lifetime of our energy infrastructure, the choices Ontario makes now will have environmental and economic impacts that will be felt for many years to come.

What you may not know is that there is still an opportunity to have your views considered. The government has posted a draft Supply Mix Directive on the Environmental Registry for comment. This directive is the legal tool by which the government lays out the goals of the Long Term Energy Plan. More background on government directives and Ontario’s regulatory framework for electricity is available in my report Rethinking Energy Conservation in Ontario: Annual Energy Conservation Progress Report 2009 (Volume One) . The Supply Mix Directive is the first step in a process that eventually leads to the development of the energy projects needed to achieve the Plan’s goals.

You have until January 7, 2011 to provide your views on the Supply Mix directive through the Environmental Registry. Following this, the government will consider the comments received and make a final decision.