April 27, 2017

Gambling with our energy future, or "what are the odds you’ll win the lottery?"

Gambling with our energy future, or

This Canadians for Affordable Energy column was printed in The Province (Vancouver), Calgary Herald and Telegraph Journal (New Brunswick):

 

As pollsters regularly remind us, not everyone is the same when it comes to making prudent retirement decisions. Thirty four per cent of Canadians believe the lottery will come riding to their rescue for their golden years. 

While a well invested RRSP offers a 100 per cent chance of providing retirement income, the odds of winning Lotto Max are 1 in 29 million. But I doubt the stark difference in outcomes will do anything to dissuade those committed to their weekly trip to the lottery kiosk. Human nature is a stubborn thing.

Sadly, it’s all too easy to find examples of people who regret decisions made decades ago to follow a lottery mindset on retirement investing. I’d extend this analogy to some crucial decisions ahead of us when it comes to the fuels and electricity that we rely on for daily life.

As with RRSPs, the safest path is to work with things that have a long track record of success. Alternatively, we can place bets on longshot prospects that might pay off bit time, but are not favoured by the odds.  

In the category of RRSPs I’d place natural gas. Twenty million Canadians use it because it is flexible, it is abundant, and it saves the average family $2,000 if they use it for heating. Gas is so economical that despite counting for only 10 per cent of Canadians’ energy spending, it accounts for 30 per cent of energy use. Electricity, by contrast, consumes a quarter of spending for just over 20 per cent of use.

Natural gas also offers lots of room for continuous improvement. A new-built home today uses up to 40 per cent less natural gas than one from 1990. The innovation continues as industry invests, for example, to reduce the impact of leaks in the gas transmission network. Industry like mines and shipping are selecting lower-carbon natural gas products like LNG to lower both their costs and their eco-footprint. Choosing natural gas is absolutely consistent with doing the right thing for the environment.

Under climate regulations now being studied, a $150 a tonne levy could be applied to natural gas to discourage its use. That equates to a loss of $600 in disposable income for the average homeowner. Suddenly our safe choice becomes a lot less attractive.

And what’s the alternative? As Ontarians are now all too aware, when energy markets go wobbly they can do so with devastating impact. Policies that push consumers from secure, RRSP-like choices without offering equally appealing alternatives are already having an impact.

According to the recently created Coalition of Concerned Manufacturers in Ontario, a network of small and medium sized manufacturers, Canadian manufacturing companies are being aggressively courted by U.S. states that offer significantly lower electricity rates, comparable to natural gas rates, but with no imposition of emission taxes or cap and trade regimes.

Along with this, they are being showered with offers such as much lower corporate tax rates.  

At Canadians for Affordable Energy, we are mobilizing over our concerns. Our national network is already talking about the risks of swapping sensible RRSP-type planning for the lottery mentality of unreliable energy sources like solar and wind that sound just wonderful but can be terrible expensive if they are not part of well-designed energy systems. 

In coming months, we’re going to be looking at how the proposed CO2 levies affect everyday life. We’re going to be talking to Canadians and learning from their perspective about how to successfully balance our activities while developing adaptive strategies. At the end of the day, we hope the outcome will be the right strategies for the long term, and not left to chance.