Benefits of Green Energy Act exaggerated, report says

By Lee Greenberg, The Ottawa Citizen November 23, 2010

Ontario's government is overstating the benefits of its Green Energy Act, according to a new report on economic competitiveness to be released today.

The report, by the Task Force on Competitiveness, Productivity and Economic Progress, points out that rising electricity costs could nullify some of the 50,000 new jobs the Liberals claim will be created.

The prediction is based on some stunning price estimates that go much further than the government's own projections of hydro rate increases.

The task force notes a study of the Ontario green energy program by London Economics International, a global consultancy which estimated the Act's cost at between $247 and $631 per household per year, or the equivalent of two to six additional monthly electrical bills per year.

The task force report also cites a study by Aegent Energy Advisors Inc., an energy consulting group, which estimated recently that partly because of GEA-related expenses, residential electricity costs are expected to increase at an annual rate of between 6.7 to eight per cent over the next five years.

The government has said the program would lead to a more modest one-per-cent annual increase -- or $15 per year.

The predicted job creation impact is also based, the report says, on what happened in Germany, which has implemented a similar green energy program that initially saw job increases that were eventually eroded by rising power prices.

"I think the province would be wise to have a fresh look at this and really ask themselves is this the best way to go," says Jim Milway, executive director for the Institute of Competitiveness and Prosperity, the task force's government-funded research arm. "I'd strongly reconsider it before we get too far wedded to this."

Milway says impact on rates "will probably be higher than what the government says."

The task force, created by the Ontario government in 2001 to recommend strategies to bolster long-term wealth, also casts doubt on the job creation from the act.

"While the GEA may create 50,000 new jobs, the higher energy costs may result in employment losses elsewhere in the economy, particularly in industries that are intensive energy users," the report states.

The Green Energy Act offers huge 20-year guaranteed contracts for wind, solar, hydro and bioenergy projects at rates up to 20 times more generous than the current market price for electricity. The legislation was seen as a way to kickstart a home-grown green energy industry, but has lately become the focus of consumer anger as its costs begin to show up on home electricity bills.

Those bills have risen 20 per cent in the past seven months.

In the past week, the government has moved to mitigate the mounting political damage, introducing a $1.1-billion hydro subsidy on Thursday and hinting Sunday it will expand off-peak pricing by two hours each weeknight, moving the start to 7 p.m. from its current 9 p.m.
A major report to be released by the energy minister today is also expected to set limits on the amount of green energy contracts being awarded.

The task force report, meanwhile, also points to continued troubles with productivity in Ontario's economy.

Ontario ranks 14th of 16 equivalent-sized North American states and provinces. It is trailed only by Michigan and Quebec.

"Ontarians are among the leaders in developed economies in work effort, hours worked per person, but we are laggards in creating economic value per hour worked," says Roger Martin, chair of the task force. Martin is also the dean of the Rotman School of Management at the University of Toronto.

The shortfall in productivity is the result of numerous factors. Ontario businesses invest less in research and development, produce fewer patents and its managers are still not as good as those in comparable U.S. jurisdictions. Ontario workers also have less university education, are less urbanized and our businesses invest less in technology.

Its authors praise recent tax changes made by the McGuinty Liberals, including the imposition of the harmonized sales tax (HST), a lowering of corporate tax rates and the elimination of Ontario's capital tax.

But they also criticize other policies.

The institute bemoans the government's focus on hard sciences and invention rather than innovation, which could be nurtured through investments in business programs that develop good managers.

The task force report has in the past been highly influential on Liberal policy, and is in part credited with pushing Ontario into enacting its harmonized sales tax.

Other recent policy measures, including the $30 million investment in university scholarships for foreign students, have roots in task force recommendations.

The group is now pushing for an Ontario carbon tax similar to B.C.'s.

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