Montreal, March 3, 2016 – Alberta must heed the lessons of Ontario and Quebec before taking further steps in implementing green energy policies that will drive up power prices for its residents, explains an Economic Note published today by the MEI.
In late 2015, the Alberta government announced a plan to increase the tax on carbon emissions that will cost the average household $480 a year by 2018, and double that amount by 2030, according to a report commissioned by the government itself. In addition, it has announced that coal-fired electricity generation must be shut down by 2030.
“The cost of replacing coal-powered electricity generation with more expensive renewable alternatives in Alberta will likely be passed on to consumers in the form of higher electricity prices,” says Mark Milke, independent policy analyst and co-author of the publication. “Also, alternative energy power generation will require government support, as it has in Ontario and elsewhere.”
Quebec and Ontario have both subsidized the use of renewables in the production of electricity. These provinces now find themselves in surplus situations in which the resale price of this additional electricity does not cover its cost. As a result, households and businesses are paying higher rates to cover these losses.
Power prices in Ontario grew from 5 cents per kWh in 2004 to 9 cents per kWh in 2014, an 80 % increase. Over and above the amount that the province’s pre-2009 program would have cost consumers, the Auditor General found that under its post-2009 program, an additional $9.2 billion will be paid to alternative power producers over the 20-year term of their contracts.
Based on Ontario’s experience, Albertans will likely pay a lot more for power in the future, both as consumers (through higher rates and a higher carbon tax) and as taxpayers (to subsidize early coal plant shutdowns and alternative power generation) if the announced policies are adopted. But no precise estimates of these costs have been made public yet.
“In the spirit of transparency, the government should be upfront about these costs so that Albertans can have an honest, informed debate about the wisdom of the policies that they will be called upon to finance,” says Mark Milke. “And regardless of how the government describes its approach to green energy—as different from Ontario’s or Quebec’s approach—early coal phase-outs and subsidies will just replicate the expensive experiences of those provinces under another name.”
“Alberta’s Climate Leadership Report recognizes that the carbon tax, the expedited shutdown of coal plants, and the subsidies for green energy will lead to higher costs, demands for taxpayer- or consumer-financed compensation for utilities, and explicit subsidies,” says Youri Chassin, director of research at the MEI and co-author of the publication. “If the Ontario and Quebec experiences are any guide, Albertan consumers and taxpayers can expect these government policies to increase power costs in Alberta above and beyond existing expected increases.”
The Economic Note entitled “Green Energy Subsidies: Is Alberta Jumping on the Bandwagon?” was prepared by Mark Milke, an independent policy analyst, and Youri Chassin, Research Director at the MEI. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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