The Next Economy?: The Continuing Economic Evolution of Humanity

“A study from the University of Madrid should give Ontario voters even more pause for thought. Spain experienced a state-sponsored solar bubble that was, in the words of the authors, “terribly economically counterproductive.” Spain was at the forefront of supporting renewable energy with billions of taxpayers’ dollars but the study found that for every green job created, massive government subsidies killed more than two jobs, principally because the higher cost of electricity affected the cost of production for energy intensive businesses.”

– John Ivison, National Post, Sep 9, 2011, John Ivison:
Dalton McGuinty  continues to sell his unsustainable green
energy plan

I love reading John Ivison. He is a smart man that makes many great points. For example, he notes that Dalton McGuinty’s Green Energy Plan is more expensive today than conventional choices.  Mr. Ivison indicated that “if the Tories are smart, this could be fertile ground for them, since they have the benefit of having the laws of economics on their side.” And in many respects, this might be true. However, the problem is that those short term economic truths are wrong in the long term.

If you question this go back to the beginning of the modern “Free Market”: the Industrial Revolution. No more than two hundred years ago, the British, the Americans, the French and the Spanish used slave or indentured labour to power their economies. Or put differently, few countries had economies which were made up exclusively of wage earners. This mean that the economies of those countries were structure differently. For example, the main purpose of an Empire’s or nation’s navy was to protect their nation’s flagged ships. Flagged ships held slaves, raw and finished products for internal trade.

If ships were stopped labour shortages would be felt. This would affect the economy. The truth is that while the lack of raw or finished products might cause problems, the lack of available labour would destroy any economy. Consequently, it was essential for countries to protect their trade by having large navies. This is why the defeat of the Spanish Armada is so important in English history. The ascendancy of the British Navy meant the ascendancy of the British Economy.

This economic expansion led to an expansion of the slave population. So it was not a surprise that some of the biggest proponent’s to the freeing of slaves were business men who were worried about their short term investment in “labour”. Their loss was their driving motivator. The same thing could be said here. The short term costs of changing the electrical grid in Ontario will not be appreciated today or even tomorrow. But sometime in the future fixing our electrical production will be the best move for the province of Ontario.

How can I be so certain? Because no one else will pick up the ball. Let me show you what I mean. Up until the Harris Government, Ontario’s hydro system had been publicly owned. Ontario Hydro provided most of the power generation, regulated the grid and brought in power from outside of the province.  Under Liberal and Progressive Conservative Governments, Ontario Hydro decided that it would create large scale generation projects. Those projects largely used coal, nuclear and hydro options. They did dabble in wind and solar technologies; however, they never made up more than 1% of Ontario Hydro generation capacity.  Or put differently, for over 40 years, Ontario Hydro pushed large scale coal, nuclear and hydro options on the province. Consequently, it is likely to assume that Ontario Hydro’s successor organizations would not be big fans of projects that did not include coal, nuclear or hydro unless they were forced to. While, I am not a big fan of Dalton McGuinty, it is reasonable to assume that the government had to act if we were going to live within our environmental footprint.

Private companies have been no better.  For before Dalton McGuinty’s plan, most companies did not consider solar, wind or other environmentally friendly sources of electrical power. This was because the start-up costs for wind and solar are so high.  Nuclear, Coal and Gas powered electricity cost between 2 and 8 cents per kilowatt hour. Wind and solar power can cost significantly more than that. Depending on where you are in the world costs can be as high as 18 cents per kilowatt hour. So simply put no company before Dalton McGuinty would look at other sources of the energy production.

But consumers did. For during the election, McGuinty noted that he wanted to get rid of coal production in Ontario. After McGuinty came into office, he communicated a desire for more environmentally friendly electrical production. Only then did business follow. Bullfrog on September 28, 2005 announced that “as of today Ontarians have a renewable energy.” Consequently, only after government acted did business follow. So without the actions of Mr. McGuinty, Government “energy” players and the private market would not have acted. So for private players, short term economic concerns would have overplayed the long term needs of the province.

We know that there is a long term problem because the President of Shell Canada has told us all so. Lorraine Mitchelmore noted on the 100th anniversary of Shell Canada that “Canada’s emergence as a global energy superpower hinges on the country’s ability to develop a truly national approach to energy.” Furthermore, “a national energy strategy will support a balanced approach to strengthening the economy, improving the environment, and turning environmental stewardship into economic advantage.” So if the President of a major oil and gas player feels this, should we not all back her.

One can easily see that the few drivers of environmentally friendly energy have been going at it for quite some time without any help. The Toronto Renewable Energy Co-operative started the WindShare Co-operative. Using a Danish Model, it has been active since 2002, it has provided an example of profitable energy production done in an environmentally responsibility way. Yet, this not-for-profit’s example was not followed.

Some might argue that the market competition on its own works to bring forth new environmentally friendly products. However, this is just one example that shows that government action is required. It might come in the form of regulation, expropriation, taxation or prohibition. It might just be in the form of a speech, public education campaign or a marketing campaign. Either way, something has to be done. Only government has the force that comes with managing society. For private market actors will not move without legislation. Government actors will not move without direction and the not-for-profit sector does not have the capital requirements to make a difference. The market cannot provide incentives to change behaviour. The market only provides the lowest options given the existing technology and ways to make existing behaviours cheaper.

The market needs governments to lead and governments need to think about more than simple short term costs. Governments need to think about the future. They need to think about Global Warming and the health risks it will cause. Governments need to think about the quality of the air that their people breathe. Governments have to think about what their debt and economy will look like in 10, 20 or 50 years. Unlike owners who think about a short term time horizon, governments should think about our society long after they are gone. This is why it makes sense to subsidize solar and wind energy today, even if it does not pay dividends for 10, 20 or 50 years from today.

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