Short Circuited: Assessing Hudak’s Energy Policy

The following is a guest post by Brendan Haley:

Jim Stanford and I have written an assessment of the Ontario PC’s energy policy for Canadian Centre for Policy Alternatives entitled Short Circuited. In particular, we look into the idea that cancelling renewable energy policies will lead to job creation. Here are some highlights:

More Data Problems

There has already been extensive discussion of how the jobs estimates that come from the analysis behind the PC Plan have been over-estimated by a factor of 8. We find this problem for the electricity promise as well, but there is a more fundamental issue.

The PC Plan and the analysis by Benjamin Zycher are based on reducing electric prices to the “national average”. But, the data used for Zycher’s explanatory variable is not comparing electricity prices across provinces. Rather it is an index of the cumulative change in industrial electricity prices, between a particular base year and a particular month. These data do not tell us anything about the absolute level of electricity prices in Ontario versus other jurisdictions. We show that if you change the base year or the benchmark month, Ontario’s price index can be lower than the Canadian index. This makes the results of the econometric model essentially meaningless. The findings certainly cannot be given the interpretation that makes its way into the PC plan (namely that cutting electricity prices to the Canadian average would create over 40,000 new jobs).

The Real-World Context

To arrive at the jobs estimate Zycher and the Ontario PC’s just assume that cancelling renewable energy projects will reduce rates to the (falsely defined) “national average” with the flick of a switch. But there is no analysis of how to keep the lights on. A basic look at the context of the Ontario electricity system, in comparison to Canada, shows the assumption of dramatic price decreases to be quite unrealistic. The national average is brought down by cheap hydro in other provinces, and Ontario’s electricity system requires re-investment in transmission and distribution. Renewables would have to be replaced by something (like natural gas) that might not deliver significantly lower electricity prices. The Pembina Institute undertook a comprehensive and dynamic analysis of Ontario’s electricity system and found very little impact on electricity prices in the short-run, and potentially higher prices in the long-run.

The Zycher model only considers industrial and commercial rates. So one way the Ontario PC’s could actually reduce these rates is to essentially push costs onto residential electricity consumers. The irony here is that renewables could actually help reduce industrial electric rates because they would reduce demand (and hence price) in the wholesale electricity market, which determines industrial electricity rates to a greater extent than residential.

We also look at industrial electric rate policies in Ontario and explain that there are several mechanisms already in place to reduce industrial electricity costs. But in comparison to the Ontario PC’s plan for blanket price reductions, these policies come with strings attached that require contributions to overall electricity savings (by reducing peak demand) or job-creating capital investments.

Jobs!

Finally we note that the Zycher analysis makes no consideration for job losses that could occur from scrapping renewable energy policies. Renewable technologies tend to have a higher labour intensity than fossil fuels.

In short, yes the PC platform has multiple-counted the jobs predicted by their own consultants and the analysis at the foundation of their platform has a number of methodological errors. In addition, the original assumptions that it is possible to slash electricity prices with the wave of a wand, and that in turn will generate large numbers of new jobs, is not believable.