Sunday, May 3, 2020

Consequences of Ontario's Green Energy Act warn against creating green new deals as stimulus

As economic activity takes a seat way back from the driving priority of halting the spread of COVID-19, recession is looming, and proposals popping up for spending to spur recovery. People, particularly those in Ontario, should be informed on the actions to spur stimulus during the last big recession, for two big reasons. This post will concentrate on the first - which is the cost, and benefits, of the actions initiated by the Green Energy and Economy Act of 2009.  I'll tally up costs incurred due to the electricity procurement than followed, and note the impact on post recession Ontario in quickly noting how those costs have been getting paid - and then I'll conclude with the second reason people need to know this history and its current impacts.

The Green Energy and Green Economy Act (GEA) was introduced to the legislature early in 2009, and received Royal Assent 3 months later. It provided the basis for a contracting orgy that persisted until the fall of 2011 before slowing to occasional carnal encounters. The impetus of the "green energy" push was a waning economy, as described by Karen Howlett and Renata D'Aliesio in 2011:
[Ontario Premier Dalton] McGuinty began looking at where to place his strategic bets during the global economic recession in 2008, when manufacturing jobs were quickly vanishing in Ontario. He solicited many opinions, said a source close to the talks, and the jurisdiction that kept coming up was Germany.
Mr. McGuinty turned to David Suzuki, Canada's best-known environmentalist, to set up a meeting with the father of Germany's green energy revolution, Hermann Scheer, in June of that year. The German parliamentarian arrived in Mr. McGuinty's office in the Ontario Legislature with a blueprint for building a new economy from scratch.
The McGuinty government heeded the now-late Dr. Scheer's advice. George Smitherman, then the new energy minister, adopted the "feed-in tariff" model that Germany used to become the world's first major renewable energy economy, committing to pay above-market prices for green power.
Liberal MPPs learned about their government's push into green energy in the fall of 2008 during a caucus retreat at the Benmiller Inn in Goderich, where Mr. Smitherman talked about the potential to create 50,000 jobs...
Ontario's green energy procurement were far from Keynesian economics. Instead of government borrowing to invest in the infrastructure that would aid productivity and grow wealth in the future, the government avoided borrowing by attracting private capital by offering generous contract terms trusting its existing global adjustment mechanism would allow the costs to be paid by electricity ratepayers. My understanding of economic theory is deficit spending on infrastructure during bad times allows for productivity to jump when better times return - but the GEA's contracting avoided growing government debt in return for making electricity more expensive in better times.
The Government of Ontario is committed to fostering the growth of renewable energy projects, which use cleaner sources of energy, and to removing barriers to and promoting opportunities for renewable energy projects and to promoting a green economy.
The Government of Ontario is committed to promoting and expanding energy conservation by all Ontarians and to encouraging all Ontarians to use energy efficiently. -Preamble to Bill 150 2009
The obvious costs from the GEA period are the due to contracts awarded under the feed-in-tariff (FIT) program and related Green Energy Investment Agreement (GEIA) - better known as the "Sumsung deal". Less well known are the Hydroelectric Contract initiative (HCI) and Hydroelectric Energy Supply Agreements (HESA). Another stated goal of the Green Energy was the promotion of a 'culture of conservation' - with 'energy efficiency' and 'demand management' prominent phrases being joyously bandied about in and about the legislation. I've pulled the figures for those contracts, and conservation spending, from my database of estimates: