Unadvertised Consequences

Some policy choices that are supposed to be for the benefit of the environment have little benefit. Sometimes they also have a different goal.

Aggressive policies in Europe to reduce greenhouse gas emissions (GHGs) made it expensive for most energy-intensive businesses to operate. The result was that they became uncompetitive, and many had to shut down. The goods production moved elsewhere—most often to China—where for the seven years ending in 2011, they built two new coal-fired plants per week to serve the new industries.

Coal is the most climate-unfriendly way of producing electricity, so on a global basis the net result of the well-intentioned European initiative was an increase in GHGs.

Nova Scotia has its own smaller scale versions of the same story.

The percentage of electricity generated by coal in Nova Scotia is the third highest in Canada. New natural gas-fired electricity plants produce roughly half as much GHGs as coal-fired plants, so substituting them could contribute to a rapid improvement.

Production from today’s dwindling offshore gas fields is tied up in long term contracts. New production, if any, from the Shell and BP explorations is at least a decade away. New gas might be produced much more quickly by fracking onshore prospects, but that possibility has been precluded by energy minister Younger’s ban on the practice.

A less familiar example involves biomass, in particular the $208 million wood-burning plant that produces both steam for the Port Hawkesbury Paper (PHP) mill and electricity. As originally proposed by Newpage the mill would own the plant and sell the electricity to Nova Scotia Power (NSP). This would help meet renewable energy targets. 

When Newpage got into financial trouble, NSP took over the project, but revealed that expensive electricity from the plant might not be needed to meet renewable energy targets. 

In response, the government produced regulations requiring that a portion of the renewable electricity goals must be met by firm supply (i.e. supply that runs all the time, meaning that wind, solar, or tidal do not count). 

The purpose of the UARB process is to ensure that NSP is using least cost options. Essentially the government of the day manipulated that process to ensure that the biomass project would run all the time. For much of the year this adds to the cost of electricity for everyone else. At the same time PHP receives a substantial, though difficult to quantify, subsidy for the electricity it uses.

In the cold months natural gas can be very expensive and the electricity from biomass becomes competitive with gas, though not with coal. But for 8-10 months of the year electricity from natural gas would be cheaper, usually costing only half as much as biomass.

But at least the climate benefits, doesn’t it? Well, probably not. Many environmentalists are questioning the climate benefits of electricity generated by burning wood. The theory is that the trees will eventually be replaced, recapturing the carbon that has been sent into the atmosphere. But “eventually” can be 60-80 years during which the carbon is up in the air contributing to global warming. And regrowth of trees will often be less substantial than the original because of soil deterioration after clear-cuts.

So for most of the year, running the biomass plant produces expensive electricity without helping the environment. Government advises that the policy is being reviewed.

A similar manipulation by government insisted that the Muskrat Falls proposal be compared only with then available renewable alternatives for the amounts of energy it supplied, rather than being compared to what we actually need. Minister Younger supported the final proposal in spite of opposition by the advocates for customers.

Likewise, the Liberal government has changed the cost of Efficiency Nova Scotia from being visible and charged as spent. Instead the cost will be hidden within power rates and postponed, with interest to the benefit of NSP. 

More recently, the UARB has been considering how NSP should recover $96.2 million of excess fuel costs that were incurred last winter. The regulations provide for the UARB to decide how these will be recovered in subsequent years. At the urging of government NSP proposed that the excess costs be spread over four years beginning in 2016, resulting in an additional $24.1 million interest costs to customers. Although NSP has retreated somewhat from that proposal, which was opposed by customer advocates, the minister continues to support deferral, arguing that “customers need a break.” 

No doubt they do but requiring them to pay interest to NSP while postponing the inevitable is not exactly a gift.

Due to these manipulative postponements power bills will be lower at the beginning of 2015. When Younger claims that this is a victory for his campaign to help ratepayers, everyone should understand that it is nonsense.

As the next election approaches the postponed expenses will begin to appear in power rates, which will resume their upward march. NSP profits should likewise increase as a result of this government’s choices. Will the Liberals have the gall to again pretend that they will fight for ratepayers against NSP’s monopoly?

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