An argument for regional energy pricing in Ontario

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[Reposted from Troy Media]

By David Zylberberg
PhD Candidate in Environmental History
York University

TORONTO, ON, Sept. 16, 2011/Troy Media/

Industry needs energy, historically cheap energy.

In fact, during the Industrial Revolution? of the late 18th and early 19th centuries, manufacturing became concentrated around the coalfields of northern England and southern Belgium, where energy cost between a fifth and a 10th what it did in southern England or the Netherlands.

Currently, industry in Quebec and Manitoba benefit from some of the lowest energy prices in the world, thanks to the large hydroelectric dams in the northern parts of both provinces. Each province’s manufacturers pay under 3¢/kWh plus distribution costs, while in Ontario they pay a spot market rate that is frequently double that.

An economic advantage

Like the English and Belgian textile and metal manufacturers of the 19th century, industry in Quebec and Manitoba derive a major advantage over competitors in other regions. While northern Ontario also generates substantial hydroelectric power, it is not sufficient to meet all the needs of Ontario’s larger population, so more expensive sources are needed to supplement carbon-free hydroelectricity.

Meanwhile, higher electricity costs have helped to drive many northern lumber mills out of business in the last decade. Earlier this year, Timmins’ Kidd Creek Smelter closed, with 700 jobs lost. The large Ring of Fire mineral deposit west of James Bay is likely to be smelted in Manitoba or Quebec because of their lower electricity rates. The next contract for GO Trains, which were once manufactured in North Bay, was just this past summer awarded to a Montreal plant that bid 2 per cent less by capitalizing on Quebec’s lower energy costs.

These job losses have understandably upset Ontarians. As a result, Ontario Progressive Conservative leader Tim Hudak has called for a re-examination of the bidding process for the trains, while Andrea Horwath, leader of the New Democratic Party, has suggested that the provincial government mandate the Ring of Fire minerals be smelted in Ontario as part of the mining license. Both of these suggestions fail to address the fundamental problem of energy prices while risking the good faith of the bidding process and Ontario’s trade relationships with other provinces.

Because of the costs of generating other types of electricity, energy prices cannot be reduced for the province as a whole. But there is no logical reason why Ontario could not have different electricity prices for businesses in the different regions of the province.

If these prices were tied to the costs of producing electricity in each region, Northern Ontario could easily see rates more closely resembling what industry in Manitoba or Quebec is charged for energy. Northern Ontario is already a net exporter of energy to the south. Northern Ontario has less than 10 per cent of Ontario’s population, so prices would not rise significantly in the more populated south.

Northern Ontario’s economic advantage

Northern Ontario has natural economic advantages of cheap energy, plentiful lumber and some of the world’s richest mineral deposits. If Ontario moved to regional hydro rates for business, these advantages would easily lead to more Ontario trees milled in the province and minerals taken out of the ground smelted locally, while encouraging small manufacturing companies to set up shop from North Bay to Kenora.

Ontario is in the midst of a provincial election campaign, in which every major party has unveiled a Northern Ontario strategy. The Liberals propose, as an incentive, tax breaks for any company choosing to smelt the Ring of Fire riches in Ontario. Such a plan would use tax dollars to subsidize a large corporation, while failing to address the continued impact of energy prices on smaller companies that employ northerners. The Progressive Conservatives and New Democrats have generally ignored industrial energy costs while presenting a basket of promises to deal with many of the smaller problems in the region. Meanwhile, the Northern Ontario Heritage Party is instead campaigning for the elimination of all hunting and fishing regulations.

Unfortunately, not one of these proposals addresses the unique economic issues and potential of the north as effectively as regional hydro rates could.

David Zylberberg is a PhD Candidate in Environmental History at York University in Toronto.

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