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Road to Massive Economic Change and Uncertainty

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THUNDER BAY, ON  ---   May 22, 2016  ----  According to a report in the Globe and Mail “Ontario to spend $7-billion on sweeping climate change plan”, Ontario is about to up the ante when it comes to climate change and energy policy by embarking on a $7-billion dollar plan to completely transform how people use energy.  Ontario is planning to phase out natural gas for heating and provide incentives to retrofit buildings and buy electric cars.  Most concerning, the government is in a hurry to implement these changes.  For example, Ontario is planning to bring in building code rules requiring all new homes by 2030 to be heated with electricity or geothermal systems, and will set a target for 12 per cent of all new vehicle sales to be electric by 2025.

This massive government intervention in the provincial energy system has the potential to cause significant economic disruption and harm to a province that is already been suffering a protracted economic slowdown. The plan’s potential to cause economic damage is compounded by the fact it comes on top of two decades of change to the electricity system that have left Ontario with some the highest electricity prices in North America.

It also represents a massive intrusion into the automobile industry - a sector that is already reeling from economic change.

Moreover, what the government is proposing is a massive and relatively sudden transformation of the energy system, which historically has seen major adjustments take place over a much longer time horizon.

A good example of the protracted nature of energy transitions comes from Robert Bryce “Wood to Coal to Oil to Natural Gas and Nuclear: The Slow Pace of Energy Transitions”, who traces the evolution of energy use in the United States. Given Canada’s economic integration and geographic proximity to the United States, our energy transition experience inevitably parallels the American one.

Bryce notes that from the time of initial European settlement, firewood was the dominant American energy source and it was not until 1885 that coal finally surpassed wood as the main US energy source.  Coal then became dominant, supplying nearly 90 percent of US energy needs in the early 20th century.  However, with the onset of the internal combustion engine and the rise of the automobile then began to increase the demand for oil and by 1950, oil surpassed coal as the country’s dominant source of energy.  Natural gas also rose in importance and by the early 1970s became the second most important US source of energy consumption.

In each case, major transitions from one energy source to another took place over a substantial period of time. Firewood dominated energy for several hundred years, coal for about a century, and oil and gas for about 75 years now.  The transition periods have taken decades.  Ontario is proposing massive change over a much quicker time period that inevitably entails a disruption of current energy markets as well as the auto sector’s production.

According to the preamble in the new plan, Ontario’s premier Kathleen Wynne states that this plan is “a transformation that will forever change how we live, work, play and move.”   She is absolutely right.  If implemented as it currently stands and with the time horizons laid out, the Ontario government will build on the flawed green energy industrial policy set forth under the McGuinty government and deal another serious blow to Ontario’s economic competitiveness.

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