Cynical Politics, Bad Economics: Feed-in-Tarriffs and the Political Left

The following letter to the Editor of the Sudbury Star was published on Friday, August 30, 2013, under the headline, “All forms of energy subsidized in Canada”. I wrote this letter in response to a column from long-time Star-contributor Ruth Farquahar, titled “Farquahar: Islanders talking about wind turbines“,published in print August 26/13; online August 27/13. Over the past several years, Farquahar has written a number of columns in which she has been critical of a wind development project located on a geographic feature known locally on Manitoulin Island as ‘McLean’s Mountain”, which is located just sought of Little Current, Ontario, within the Municipality of Northeastern Manitoulin and the Islands.

Some of Farquahar’s concerns about this project have to do with the location of Northland Power’s project on a prominent and locally significant geographic feature. She has raised concerns about how this might affect tourism, and impact the property values of homes in the vicinity. Concerns about wildlife impacts have also been raised by Farquahar, who is passionate about Manitoulin Island.

Farquahar has also been very critical about the lack of local input into the proposal, and of how the provincial government has, through legislation, thwarted opportunities for public input, and taken out of the hands of local decision makers the final say about where wind projects are allowed to locate. Clearly, the process for public input and buy-in into decision-making has upset Farquahar, and I share her concerns about the process.

Feed-in-Tariffs

But, up until now, to my knowledge, Farquahar has avoided bringing up that anti-renewable canard which right-wing groups like Wind Concern Ontario have used as a bludgeon in an attempt to make their point: that the FIT program should be abolished, because it is a form of subsidy for energy we do not need. Usually, those on the left of the political spectrum have been reluctant to speak out against feed-in tariff programs, because most on the left understand that shifting to renewables has to be more of a priority that it is today, and a market-based solution such as FIT can go a ways to creating a preference for renewable energy while potentially creating new employment opportunities. Here in Ontario, our provincial left-wing political party, the Ontario NDP, have been critical of the Liberal’s Green Energy and Economy Act, but have largely bought into the idea of using the FIT as a tool to spur economic development and a switch to green energy.

Farquahar is certainly a champion of the “left”, so it was a little surprising for me to see her take up the right-wing anti-FIT arguments. But, it seems to me that over the past year or so, under the leadership of Andrea Horwarth, Ontario’s NDP has begun to question the FIT’s economic model, maybe in an attempt to woo disgruntled rural voters. In the eyes of many, the Liberal’s Green Energy and Economy Act and the FIT program are one and the same, so I suppose the NDP, in a simplistic way of trying to engage voters about the evils of the former, have started to be critical of the latter.

NDP: One Step Forward, Two Steps Backwards on Environment and Energy

In the 2011 provincial election, the NDP made it clear that they would restrict the FIT program to small-scale activities, which would interestingly have the impact of killing those opportunities for job creation (See GreenProsperity.Ca's webpage about the resuls of its questionnaire to Party Leaders). Voters concerned about the environment often cite the NDP as being environmental champions, but a closer look at NDP policy and positions reveals a political Party with a contradictory plan for the environment. On the one hand, the NDP champions alternative transportation, but on the other hand, they refuse to provide funding tools necessary to make infrastructure a reality. On the one hand, the NDP claims to be concerned about climate change, but on the other, they want to slow the (already very slow) switch to renewables by providing fewer incentives for green energy, and making fossil fuels cheaper by capping gasoline prices.

To give credit where it's due, the NDP at least had the good sense to vote against Progressive Conservative MPP Lisa Thompson's private members bill, which would have seen local authorities vested with decision-making powers for energy projects, and cancelled the FIT outright. There's a good quote from Peter Tabuns, the NDP's Environment Critic, about energy subsidies in this article, "Thompson's bill to change the wind energy industry defeated", published in Huron News Now (April 2013). So although the NDP object to the top-down decision-making process of the Green Energy and Economy Act, and they're not wild about FIT for large projects (like Northland Power's on McLean's Mountain), they still voted against this Thompson's loser private member's bill, so good for the NDP.

And in Nova Scotia, the NDP government in 2010 announced a 25% energy production target from renewable energy, in a massive shift away from dirty coal (currently, coal accounts for 90% of Nova Scotia's energy mix). One of the components to promote renewables was the establishment of a feed-in-tarriff which preferenced municipalities, First Nations, and local energy co-ops and non-profits (similar to an exciting not-for-profit energy co-op which is just getting off of the ground here in Greater Sudbury, as reported in the Sudbury Star, "SUN Co-operative planning 50-panel project on Vale property in Sudbury", August 27, 2013, which generated some lively discourse in the online comments section).

But, the biggest way of achieving the 25% renewable target in Nova Scotia has nothing to do with promoting wind, solar or geothermal (or even tidal power, something Nova Scotia could really take advantage of). Instead, the NDP government seems to have put most of its eggs into the environmentally destructive and massively subsidized Muskrat Falls super-hydroelectric project in Newfoundland and Labrador, which is just the kind of mega-project thinking that we need to start to move away from in the 21st Century, to ensure local energy independence.

Given the frenetic quality of the NDP’s environmental policies, it’s really no wonder to me that Ruth Farquahar and others on the left of the political spectrum have started to back away from market-solutions like Ontario’s FIT program as a means of addressing climate change. In doing so, the NDP claims to be for “the little guy”, by championing low taxes and low energy bills. But also by doing so, the NDP is clearly ignoring the larger picture: that the “little guy” is going to be the first to experience the most severe impacts of a warming planet. And that’s why the NDP continues to get it wrong when it comes to energy and climate change policy.

Here’s my letter:

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Re: “Farquahar: Islanders talking about wind turbines”, published in print August 26/13; online August 27/13.

I was disappointed to read Ruth Farquahar’s latest rant about wind turbines published in the Sudbury Star. Farquahar has penned numerous articles about the impacts of a wind development project on Manitoulin Island. Some of the issues she has raised in the past deserve to be aired, including questioning whether the locally important McLean’s Mountain area is the right location for this project.

However, in her latest column, Farquahar chose to attack wind energy in general, lamenting the “subsidy” wind producers receive from Feed-in-Tariff (FIT) programs. FIT programs guarantee that electric utilities will purchase renewable energy produced at a specific above-market rate, leading some to be critical of the “special treatment” received by small-scale renewable energy producers. Interestingly, those critical of renewable energy, like Farquahar, rarely explore the broader issues of how all forms of energy production are subsidized by taxpayers.

It is well known that Ontarians are not paying the full costs of electricity generation and transmission. Energy derived from fossil fuels (coal and gas) make up about one quarter of Ontario’s current energy mix, with nuclear energy taking up the lion’s share at 50%. Solar, wind and bioenergy account for a fraction of our current mix – about 4%. All forms of energy production receive subsidies.

Determining how much of a subsidy fossil fuel industries receive in Canada isn’t an easy task. The government of Canada estimates that fossil fuels have received a direct subsidy of $508 million over the past 5 years, and additional direct tax breaks of $1.5 billion. The government’s numbers contrast sharply with a recent study, little reported in Canada, by the International Monetary Fund (IMF), which estimated that Canada is subsidizing the fossil fuel industry by $25 billion a year.

These subsidies artificially keep the real costs of fossil fuels low, making it extremely difficult for renewable energy developers to compete on a level playing field. The entry of renewable production into the market is essential in order that we begin to wean ourselves off of climate changing fossil fuels. Yet, in Ontario, the energy production market is grossly distorted in favour of non-renewable energy as a result of subsidies to fossil fuels and nuclear. Nuclear producers are not paying the full life-cycle costs of energy production, mainly because they have failed to price the safe, long-term storage of nuclear waste into the price of production. Currently, the Nuclear Waste Management Organizations estimates that taxpayers will on the hook for the $25 billion needed to construct and maintain a nuclear waste repository, likely to be located in Northern Ontario.

Keeping energy prices artificially low has been championed by those on both the left and right of the political spectrum, as part of their pursuit of unfettered economic growth. We have benefitted from cheap energy production, but at what cost? The real price of historic and current fossil fuel and nuclear energy subsidization have accumulated in form of provincial and federal debts – debts which we will pass on to our children to pay. If we had to pay the real price of our energy consumption, we would certainly boost conservation efforts, leading to the need for less energy. It’s past time that we started doing this.

Farquhar appears to have some legitimate issues with the McLean’s Mountain wind project, but the subsidization of renewable energy isn’t one of them, given the our current distorted economic reality.

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Online Comment

Here's a response I provided to an online commenter (Danno) regarding what a "subsidy" is:

A fair question, Danno – and not an easy one to answer, either, as I alluded to in my letter. What some consider a subsidy, others wouldn’t, and as a result, studies of subsidies can vary widely in findings.

The Government of Canada, in the 2012 Fall Report of the Commissioner of the Environment and Sustainable Development, as made available through Environment Canada, considers direct disbursements, tax incentives and offering goods and services at below-market values as “subsidies”. These three forms of subsidization are probably the narrowest definition in common usage. So, using your example of “regular business deductions”, it’s clear that our government considers the use of those sorts of tax code deductions as being a “subsidy”.

Other forms of subsidies may be promotional in nature, or fall into the category of advocacy. Our federal government considers some of these to be subsidies. Certainly, our government carries out advocacy for Canada’s fossil fuel sector (as it does for other large and not-so large economic sectors, such as Canada’s auto manufacturers, wine producers and seal products producers) on an international stage. In my opinion, a broad range of government interventions in the marketplace are clearly forms of subsidies – that’s what market interference is about. Some suggest that it’s in the government’s interest to advocate for Canadian businesses, while others believe that the market should decide without taxpayer-funded intervention. Either way, though, when the government spends money, it picks winners and losers, and the winners are clearly the recipient of a subsidy.

Governments can also fund public relations initiatives on their own. Those Economic Action Plan ads with happy oil-workers and pipeline company execs sharing their economic success stories help build confidence in the economic activity of fossil fuel resource extraction. Since the economy operates on confidence, it’s important that consumers and investors have a good feeling about a business opportunity, in order to attract more investment and deter public opposition.

Funding provided to third-party and not-for-profit pro-business organizations are yet another form of government subsidy. This is similar to government-funded PR, although in this case, it’s tax breaks and grants given to third parties which then fund pro-industry ad campaigns. However, unlike direct advocacy taken by the government, the government of Canada does not consider this type of funding to third-parties as subsidies, even though the net impacts are similar.

Interestingly, Environment Canada doesn’t appear to consider programs like Ontario’s Feed-In-Tariff as a subsidy. With FIT, contracts guaranteeing a certain fixed rate of purchase over a period of time, are entered into between the government and power producers, just as private corporations often do for all sorts of materials and services. Others might consider these sorts of contracts a subsidy, given that the government is involved. Again, I simply note that our federal government doesn’t appear to consider fixed-price contracts for services as a “subsidy”.

Another form of subsidy would be to charitable organizations, like the Fraser Institute, which publish studies and issue news releases which are in keeping with the position of industry advocates. Again, these studies and media releases – published by a charitable organization – can and do influence public opinion around resource extraction, pipeline construction, deregulation and legislative changes.

There are lots of forms of subsidies, and it’s important to understand what the author is really talking about when it comes to “subsidy”. I’m not at all certain that I would normally view a number of the items studied by the IMF as “subsidies” – I think that the assertion that Canada is subsidizing energy to the tune of $25 billion annually needs more assessment. But the IMF is a pretty important and respected economic institution, and if that’s their finding, it certainly is worthy of comment.

(opinions expressed in this blog are my own and should not be interpreted as being consistent with the views and/or policies of the Green Party of Canada)