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Ford’s Electrifying Magical Thinking

Doug Ford has promised to cut electricity prices. It is easy to do, as Kathleen Wynne has shown. You borrow money and pay the bills for people. Your future taxpayers pay back the loan.

There is a little question of whose books to who should carry the debt. Wynne’s government decided to keep her loan off the books. Auditor General Bonnie Lysyk said that under proper accounting procedures the loan should be added to the provincial debt.

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Lysyk is right, of course. The premier bowed to political pressure over our moderately high electricity prices. She made a political decision to borrow money on behalf of taxpayer and to pay part of the electricity bill for taxpayers. That is a perfectly legitimate thing for the taxpayers to ask for, and it is OK for Kathleen Wynne to give them.

What is not legitimate is to tell taxpayers they won’t have to pay the bill later.

It doesn’t really matter whether we pay off the debt through our electricity bills or our taxes. Paying through electricity bills means more of the cost fall on the poor, so it is relatively regressive. Paying though taxes shifts some of the cost to the rich.

Repaying Hydro’s debt already makes up about 5.3% of electricity bills. Basically, voters and the opposition party scared Kathleen Wynne into borrowing money to postpone paying the cost of past debt.

The fact is that Ontario electricity prices are not especially high. They are below comparable US jurisdictions, although they are much higher than Quebec or Manitoba, two provinces with a surplus of cheap hydro power. Quebec’s electricity prices are actually artificially low. They are subsidized by sales to the USA and because Hydro-Québec buys power from Labrador at 1969 prices.

From an efficiency point of view, consumers should be paying what economists call the marginal cost of generating electricity. That is the cost of generating the next Kwh. Surprisingly, we are paying something like marginal cost.

Off-peak rates are 8.7 cents per kWh. Add in distribution costs and this is just above the baseload cost of nuclear power at 6.8 cents per Kwh.

The peak-load charge is is now 18 cents per kWh. Peak loads are handled with natural gas that costs about 13.2 cents per Kwh. Peaking plants don’t run full time so we have to pay extra to cover the downtime as well as operating time.

The long run solution is knocking on the door. Alberta has signed wind-power contracts at 2.8 cents per Kwh. We could certainly add capacity at the margin for 4 cents per Kwh or less.

Unfortunately, Ontario already has excess generation capacity. The province built extra capacity when demand was expected to rise. Demand fell. The fact that we have this excess capacity should drive the price down, but Hydro is tied into a number of long term contracts that raise costs. Ford has promised to reduce costs by breaking some of these contracts. It is likely he really would try, given his past unconcern about legal niceties.

Even if some of the contracts could be broken, someone has to pay the cost of building the nuclear plants in the 60s, of mistakes made then that raised costs, of rebuilding the transmission system and closing down two gas plants under political pressure. Stranded debt is added to electricity bills. People don’t like that.

Private sector companies can go bankrupt, making lenders and workers swallow their unpaid debts. In the public sector we taxpayers swallow the debt one way or another.

Kathleen Wynne let voters think that some of their debt had magically gone away. The Auditor General reminded her that magical thinking doesn’t really change things. Hydro’s debt still had to be paid.

Now Doug the Illusionist is offering to make more debts disappear. He’ll be using the same trick Kathleen tried: distract the voters while moving the debt to a different taxpayer pocket. Only the distraction is different.

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So the CBC thinks local politics is boring…

CBC will not sponsor candidates’ debates in this provincial election. Instead they plan to take another step into the celebration of celebrity. From now on if you are not already elected the CBC won’t give you a platform. The campaign managers of the three biggest parties will decide what issues you hear about.

This year the CBC provincial debate for Sudbury will pit France Gelinas against Vic Fedeli and Glenn Thibeault. These are all nice people, and I like each of them. I am not sure that our publicly funded broadcaster CBC should be helping elect them.

Focusing on Party heavyweights is part of an ongoing trivialization of local elections. Local politics has become little more than entertainment for the local CBC. Real politics is all about leaders and important people.

The trivializing of local politics isn’t out of character for the CBC. CBC moderators at previous debates worked hard to achieve a game-show tone with gripping questions like “What is your favorite song?”

It is true that the local candidates often show pretty badly. Sometimes you can see that they don’t really understand the issues. Glenn Thibeault talking about climate change and energy policy comes to mind. Of course this is exactly what local voters need to know. For a real journalist, the weaknesses of the local candidates should be like blood in the water for a shark.

It is true that local candidates have been known to contradict party policy, as a CBC journalist has pointed out. This isn’t something for the CBC to brush under the rug: it is actually important news. As a voter I want to know if the candidate is just badly prepared or is showing some backbone. That is the kind of thing local debates are supposed to show us.

It was embarrassing when a certain Christian candidate in a recent election made hateful remarks about Kathleen Wynne, and it is always disconcerting when representative of the very unfashionable Communist party sounds more sensible than some mainline candidates. It seems to me that these unpleasant fact are the kind of thing that the CBC’s audience needs to know.

Let’s be fair. It is not the job of the CBC to show local voters what really happens in local elections. That should probably be left to the local soft-rock and country stations. The main job of CBC radio is increasingly to show of Canadian celebrities, and that is what the local station is doing in its small way.

So I have a suggestion for Markus Schwabe. How about a new Morning North contest with big prizes for the listeners who give the best impressions of France Gelinas, Vic Fedeli and Glenn Thibeault spouting their party lines. The scripts have already been written.

And lets hope that other organizations pick up the ball that the CBC has dropped. Democracy would be better served if we had 20 or thirty local debates instead of the 4 that we are likely to see.

http://www.cbc.ca/listen/shows/morning-north/

 

Kinder Morgan is just bad economics getting worse

I have not been focusing on this project because I don’t believe it is a good investment for the company – I’ve thought that falling oil prices would make any expansion of Alberta bitumen production unprofitable.

The simple fact is that Alberta oil can’t compete on cost with oil from other sources.

Now it appears that the Federal government is prepared to subsidize transportation costs for bitumen. Naomi Klein points out that they’re doing this to bail out the richest, most powerful and polluting industry in history.

How can this make risky project economic sense to anyone? Part of the story is is the deep discount on Canadian oil. In the simplest terms oil sands companies are pushing out more oil than the American refineries and pipelines want. They have to drop their price.

Oil sands producers went ahead on the assumption that demand would stay high and that the pipelines would magically appear when they were needed. North American demand has actually fallen by about 7% since 2006. At the same time, American production doubled, passing its 1970 peak level. American production is set to rise farther and the American producers are closer to the US refineries. Tar sands producers are competing for pipeline and refinery time with a better product in a better location.

It is easy to see why increasing capacity to the west coast makes sense for the tar sands and for the Alberta government. Now that the tar sands plants have been built it makes sense to keep them operating. They may never pay of the cost of building the plants, but that is a sunk cost – it does not affect the profits going forward. Ignoring the capital cost, the cost of production is competitive.

But if the companies can’t keep production high, which means keeping sales high, those plants will operate at a loss and they will be shut down. That is what is at stake for Alberta: help the companies keep up sales in the face or rising US output or have the oils sands jobs and revenue gradually disappear.

Some analysts say that the pipeline will not increase total world oil production. They argue that it is just a question of whether Alberta sells the oil or some other country with loser cost reserves sells the oil. That is roughly correct.

It is clearly a waste of resources to pump high cost oil when there is low cost oil available, but at least Canadian workers get paid and Canadian governments get taxes.

Contrary to the view of many proponents, however, the pipeline will increase total CO2 emissions. Extracting bitumen takes energy and release carbon. The Tar sands plants will absolutely increase production even if no new plants are built. Technical refinements to the existing plants will continue to increase throughput. Companies will invest in refinements to bring average cost down. CO2 emissions will rise.

Balanced Coverage

On one side of the front page of today’s Sudbury Star, reporter Mary Katherine Keown reports on a new study by urbanMetrics on the “impacts related to the arena and the impacts that might occur with the relocation of the arena and the casino to the proposed Kingsway Entertainment District.” The report concludes that the Zulich/Kirwan project is not good for the city (“Why a casino would be bad for Sudbury: report,” the Sudbury Star, March 14, 2018).

Right beside her article on the new expert report, Mary Katherine Keown interviews Councillor Robert Kirwan, who repeats his unfounded assertions that the project will be absolutely terrific for the city (“Why a casino would be good for Sudbury: supporters,” the Sudbury Star, March 14, 2018).

This is what passes for balanced coverage in Sudbury. As long as anyone believes that the project might have a positive impact, Mary and her editor will give them equal coverage.

We saw CBC using the same approach in its reporting on climate warming. As long as anyone was willing to deny it – even though they were vastly out numbered by real experts, even though many of the deniers were funded by oil and coal companies – CBC would give them equal coverage.

The result was that it took years longer for the truth of climate change to sink in. The CBC’s notion of “balanced coverage” turned out to be misleading. The Star’s notion of “balanced coverage” is just as bad.

urbanMetrics is a consulting practice with more than 35 years of expertise. The firm provides custom market analytics and municipal strategies that drive investment in real estate, infrastructure and community assets. It is the kind of company that Cities consult to make sure they understand the economic and social impact of projects.

Robert Kirwan is a freshman councilor whose grasp of economics was never very solid (as I and others pointed out repeatedly).  I happen to be an economist who has done a number of economic impact analyses – I’ve felt fairly confident in refuting many of his obviously unfounded assertions in blogs and interviews. Basically Mr Kirwan proved unable to support his assertions. Mr Kirwan dismissed me as a “washed up dinosaur” of a professor.

So along comes another professional report, and the Star puts Robert’s nonsense beside it on the front page. It is a bit like putting the Sudbury Wolves into a Stanley Cup match with the Boston Bruins. Great story, but no one would pay to watch the slaughter if the two sides actually faced off.

Balanced coverage isn’t a matter of treating all opinions equally. It is a matter of balancing facts. It is not about pandering to each faction in the community. It is about helping the community decide what the truth is.

The simple fact is that every expert report has come down against the Kingsway project. The simple fact is that the most informed and active citizens in the region have come down against the Kingsway project. The simple fact is that Council, driven in part by a man who sees dinosaurs under his bed, ignored the expert advice of consultants and staff.

The simple fact is that the Star’s “balanced reporting” amounts to treating tinfoil-hat economics with the same respect as the work of professional consultants. That is what the CBC did with the climate change debate.

CBC’s policies probably delayed action on climate change. Delay will almost certainly result in people dying. CBC’s reporters and editors are partly responsible

The Star’s editorial policies in this case help shore up one of Council’s most egregious mistakes. The mistake will almost certainly cost the City tens of millions of dollars. Mary Katherine Keown and her editor are partly responsible.
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Postscript: Mary Katherine Keown is a good reporter, and I like her. She doesn’t decide what goes on the front page of the Star. Getting Mr Kirwan to respond to the report makes sense – his views got clobbered and his response deserves a line or two in her piece on the urbanMetrics study. Treating him as though his economic opinions deserve equal play, however, is misleading even though it is standard journalistic practice and helps sell papers.

Urban Metrics Report Cover

Sudbury and Canada: Going our Different Ways

The Labour Force Survey from Statistics suggests that Sudbury may no longer part of Canada. Employment. Employment in this most successful country rose by 1.5% over the last year. Employment fell in Sudbury by 2.6%, or 2,100 jobs. Ontario’s employment rose by 1.6%.

Sudbury’s unemployment rate, at 6.7%, is well above the national rate of 5.8 or Ontario’s rate at 5.5%

Why the differences? It would be nice if we could say it is just provincial mismanagement, but there are some larger forces at work. Employment in the forestry, fishing, mining, quarrying, oil and gas extraction sector-declined by 8.6% across the country. We depend on the mining part of that sector. Most of the decline was in the oil sector, largely in the west, where expensive tar sands production is having difficulty competing with American shale oil. The mining sector is having difficulty competing with crypto-currencies for development funds. The crypto-currencies are just a lot more rewarding for get-rich-quick speculators than traditional, slow moving mining plays.

And around the world, hinterland regions like ours are losing people. Production in these regions is tied to the resource base, and we are not getting more resources. Meanwhile, technology keeps eating away at the workforce. Production in the cities, on the other hand, is based on people. Job growth in the cities is not limited by the resource base.

So what do young people do in the resource areas? They move to the cities. In fact, the most talented ones move to the cities, further reducing the growth opportunities.

Management is an issue, of course. Northern Ontario remains an internal colony for Queen’s Park. Northern Separatists are right to think the North would be more prosperous if it were run by Northerner’s for Northerners. Adam Smith said it long ago – self-governing areas develop more and are wealthier than areas governed from outside. Modern research keeps finding Smith was right.

You can’t really blame the North’s slow decline on Kathleen Wynne or her henchman, Glenn Thibeault. The job of Premier of Ontario is probably the toughest political job in the country. Kathleen inherited a system that she promised to make work. It is a nearly impossible job. As a southerner she probably believes it works pretty well already. She is not going to rethink the foundations of the province.

Glenn is a different story. We can’t expect a guy hand-picked by the southern Premier to be a radical advocate for the North. He has been given the job of watching bureaucrats run the provincial energy system on behalf of Ontarians (96% of whom live in the south). Part of his time is taken up in delivering checks to local organizations. Besides, Glenn has never been a “policy guy’ or a deep thinker.

The odds are that the Province will be unable or unwilling to come up with a “Northern Growth Plan” that really works. The odds are that the political system will go onward the same though dynasties pass, to quote Thomas Hardy. And the odds are that Sudbury will continue to slide slowly.

What is certain is that nothing much will change until we start to face the political and economic realities of the North.

Sudbury is Charging Ahead

Three Cheers for Sudbury’s Rethink Green. Instead of waiting passively for the electric car revolution, Rethink Green is bringing it on with “EVOGS.”

EVOGS stands for Electric Vehicles of Greater Sudbury. It may be the ugliest acronym in town, but it is a beautiful, brilliant, simple idea: actively encourage local businesses and organizations to install charging stations.

EVOGS objective is to actively promote the use of green vehicles: hybrids, plug-in hybrids, and electric vehicles. They also want to see Sudbury include “green” parking spots, and expand on its growing electric charging station network.

Green car symbol

ChargeHub.org already shows 10 charging stations in the city. There is one supported by the Ministry of Transportation, one Tesla SuperCharger and one at Science North. The Quality Inn has an electric vehicle charging station available in their parking lot. There are already four charging stations between Toronto and Sudbury.

EVOGS may seem like an almost insignificant local project, but it is a sign of real change happening just under the surface. Rethink Green is making Sudbury fit for the electric car.

There is a tendency to think that the electric car invasion is a long way off – “Batteries aren’t good enough”, “There are not enough charging stations”, “Everybody has range anxiety,” “Northerners only want pickups and there are no electric pickups,” “Electric cars don’t work in cold weather.”

Like most technological revolutions, the electric car revolution is accompanied by a chorus of reason why it can’t happen. And like most technological revolutions, this one is coming faster than you think.

All the major car companies are committing to electric cars – they all have multiple models coming out in the next few years. Existing batteries are more than adequate for 95% of the population’s needs already, and the batteries get better every year. It is widely acknowledged that electric cars are already cheaper to run, are definitely cheaper to maintain because they have fewer, simpler parts, and will soon be cheaper to produce. That happens as soon as car companies achieve competitive volumes. The only super cars that can still beat electric cars are hybrids with electric motor assist to give them comparable acceleration.

At the moment the Province of Ontario offers remarkable incentives for consumers to purchase electric vehicles as well. This is a transitional program. The incentives will disappear as soon as the number of electric vehicles on the road reaches some critical number. And when that happens you will know that the revolution has happened and there is no turning back.

https://www.facebook.com/evsudbury/

Carbonic Confusion

I am constantly surprised at the fuzzy thinking of all the politicians I know and read about when it comes to the topic of revenue neutrality for the carbon fee.

Revenue neutrality is used as code for ” I won’t raise your taxes.” In political speak it has come to mean I will cut some other taxes so that the government budget does not increase.

the-route-to-successful-carbon-pricing

The government budget is not the relevant budget, however. It is the budgets of the ordinary people – the “household budget”, in the language of economists. A carbon price has to be revenue neutral for households.

The problem is that a carbon tax raises the price of hydrocarbons for transportation, heating and production of goods. This has two effects – people will substitute away from goods with high carbon content because they cost more. This is good. Economists call it at “price effect”

People will also buy less because they are poorer. The cost of carbon has gone up and they can’t jump completely out of the carbon economy so the cost of living rises. They have less money for other goods and services. Economists call this the ‘income effect’ of raising prices. We do not want to exacerbate the income effect. We don’t want to make households poorer.

A big reason to worry about the income effect is that it has serious negative macro-economic effects. Less real spending. Fewer jobs, poorer people.

Can you have the (good) price effect without the (bad) income effect? Sure. You give all the revenues collected with the carbon fee back to the households, preferably in a monthly check.

This way your get revenue neutrality for the government, but you get something much more important: revenue neutrality for households.

The Citizen’s Climate Lobby was the first to come up with a scheme that achieves revenue neutrality for households with their “Carbon Dividend.” Some politicians and members of the press have come around to the idea (Patrick Brown was one – and it seems many in the Conservative Party of Ontario hated him for it).

Most politicians, though, are still afraid of the carbon tax. Only a high carbon tax can have a significant effect on behaviour. Given their limited grasp of economics, they imagine a high carbon tax will destroy the economy. They are sure that a high carbon tax will destroy their political careers. The are wrong on both counts, of course. With revenue neutrality for households, a high and effective carbon tax is almost painless.

Unfortunately, the politicians have gotten hung up on the the idea of revenue neutrality for governments. Some – -mostly on the `left’, but also the liberals in BC and Ontario — are even more confused. They think that if they spend some of the carbon tax revenues on good environmental projects or research they still have revenue neutrality. Our Minister of Energy, Glenn Thibeault suffers from this dangerous mindset, alas.

Real revenue neutrality for households is the key to fighting climate change. It is time our leaders got this straight. If you are still reading at this point, take the chance to explain relevant revenue neutrality to someone. If you are a Liberal — and I know many of my readers are — explain it to Glenn or another Liberal. Their confusion matters more than Andrea Howarth’s or Doug Ford’s, at least for now.