The Smart Grid

There is a new page today on the Smart Grid, describing how we are on the wrong path today, and with suggestions as to how our grid should evolve.

Sustainability Commentary is Available

A working draft on this subject is now available under the Sustainability tab. There you will find more information on the full commentary to which a link is provided for those interested in more details. In summary:

• The sustainability of our species has always been, and will continue to be, dependent upon access to and proper use of abundant, reliable and affordable non-human energy. Human ingenuity has to be capable of recognizing this and acting to accomplish it in the optimal way for all humans on the planet. This is one area that must not be jeopardized in the developed world and must be provided for in the rest of the world as fast as possible. It must be seen as a society-centric initiative that effectively recognizes and uses the economic and environmental spheres of activities, properly assessing relative risks and consequences. Governments, based on an attentive and well-informed citizenry, have a major role to play in accomplishing this.
• The second priority is education in its broadest sense, starting with adults in developed nations through balanced, comprehensive views on important issues from professionals in academia, industry, government, non-government organizations and the media, without which the general public will not understand and support the types of actions that are necessary to support sustainability as we would all wish it. In the longer term, improvements are necessary in our education systems.

Another Questionable Rationale for Carbon Taxes

On July 18, 2014, the Globe and Mail ran another pro-carbon tax article “Australia’s carbon reversal sets new tone…”. As in many before, this one misses the mark in explaining this important issue.

First, it is important to note that the objective that drives the need for consideration of a carbon tax in the article is, “… to reduce emissions…” If this is the case total emissions are the measure to focus on, not emissions per capita as implied earlier in the article. Trinidad and Tobago has one of the highest emissions per capita in the world. China, India and the U.S. have the highest total emissions, which is what the stated objective is about. If Canada were to reduce its production emissions by 50 per cent, it would represent a reduction in global emissions of less than 1 per cent. Taken to this level it is difficult not to expect a negative economic impact, including job losses. Obviously, less ambitious targets would have even less impact.

Second, the article makes no attempt to make the important differentiation between a carbon tax on production (the easier but ineffective approach as European experts such as Dieter Helm will report) versus consumption (the more complex but more effective approach). Most people are unaware of this and should be informed of it. The latter avoids the problem of “carbon leakage”, and thus can be effectively implemented unilaterally.

Consumption accounting takes into account the net of exported emissions (e.g. in coal exported) and imported emissions (e.g. manufactured goods). By this measure, the top countries in emissions responsibility are the U.S., China, Japan, India, Russia, Germany, the U.K., Italy and France. These represent about 56 per cent of the total. Those wanting more information can see it at Consumption-based accounting of CO₂ emissions. Canada shows up on a per capita basis, not a useful measure, as discussed above.

The article cites other initiatives, leading with Europe’s cap and trade scheme, which has simply failed. Again look to European experts on this subject. Other countries have versions of carbon taxes, and according to the Organization for Economic Co-operation and Development (OECD) as cited in the article. Admittedly the OECD seems to favour carbon taxes, especially as opposed to direct subsidization schemes such as preferred high rates paid to some (e.g. feed-in-tariffs as in Ontario for wind and solar PV electricity generation), and makes this further comment:

“Countries are pricing carbon in a multitude of ways, not always the most effective,” said OECD Secretary-General Angel Gurría. “There has been a huge amount of taxing and regulating around carbon, with prices established too high or too low, and the outcome has been far from optimal. This is a chaotic landscape that sends no clear signal, and must be addressed.”

First of all it is important that such taxes be somewhat tailored to the jurisdiction. One size does not fit all, and in this respect we have to be wary of clarion calls for the equivalent of the “charge of the light brigade”. That said, some approaches are more sensible than many others, and if the objective is to reduce emissions, there are better and less expensive ways of doing this than carbon taxes. This is further developed in articles under the “Energy Policy” tab (and the coming article under “Sustainability”).

We should recognize that this issue is much more complex than is being generally reported, and we should understand the considerations in a more rational and detailed way. An informed citizenry is important to the sustainability of democracy, along with the well-being that democracies enjoy, and other countries aspire to.

In summary, all the factors at play with respect to the B.C. carbon tax have not been examined in this Globe and Mail article. It does not put us on the right path, let alone in the right park.

The B.C. Carbon Tax

This is a response to “The shocking truth about B.C.’s carbon tax” in the July 9, 2014, edition of the Globe and Mail. The dramatic “shocking truth” phrase is not appropriate characterization as the newspaper article would have you believe. A Mark Twain quote used in the article “Never let the facts get in the way of a good story” also applies to the article itself.

The article claims that the tax is a “…real economic and environmental success” and not a job killer. It is touted as a “world-leading example of how to tackle our greatest challenge of our time.” The following facts are cited in support:

• Fuel use has dropped by 16 per cent compared to the rest of Canada rising 3 per cent.
• The province’s GDP has slightly outperformed the rest of Canada’s since 2008. Being relatively resource based might be a factor. Also, an increase in net imports elsewhere would depress their GDPs.
• B.C. has the lowest personal income tax rate in Canada with recent cuts intending to offset the carbon tax. A letter to the editor the following day points out that based on all taxes collected by the province, it is amongst the highest in North America.

All of these have to be more carefully examined before drawing any meaningful comparisons.

It can be argued that B.C. is fortunate in some respects.

• First, it obtains over 90 per cent of its electricity from hydro resources, a rare and fortunate case globally, and has a slightly positive balance of trade in electricity with the U.S. and other provinces, with each way representing roughly a very high 17% of the total electricity production.
• In terms of overall emissions it ranks the fifth in the provinces, but is notably exceeded by Alberta and Saskatchewan, which have equal and much lower populations respectively. The other two with greater emissions are Ontario and Quebec with much larger populations.
• It has other abundant natural resources. Exports account for about 38 per cent of its GDP, which includes coal representing 14 per cent of total goods exports, the largest in the mining sector. The second largest export sector is wood products and paper representing about 31 per cent of exports. Oil and gas account for 7 per cent.

B.C. imports about the same amount in monetary terms.

As the special committee of experts formed by the European Commission to assess its energy plans has pointed out, a tax on production is ill-advised as it leads to carbon leakage (see point 2 at this reference). In B.C.’s case its imports likely contain products with carbon content in their manufacture, possibly using fuels exported by B.C., which are exempt from the carbon tax as the fuels were consumed outside the province. Notably, the carbon content in the coal and natural gas exported is about 105 Mt of CO2e, which is about 170 per cent of the total province’s emissions of 62 Mt in 2012. In another country or province with significant dependence on manufacturing, this also leads to “export” of jobs in this sector.

In his book The Carbon Crunch, the chairman of the committee of experts mentioned above, Dieter Helm, discusses the carbon tax approach and prefers a tax on consumption in order to have a real impact on carbon emissions globally, versus the relatively ineffective production tax. This is the responsible approach, but of course it has the disadvantage of being much more complex.

In summary, what is presented here does not prove the opposite case, but there is enough to suggest a closer examination is required than provided in the article. As in energy policy in general, a “one size not fits all” approach is not appropriate. High level analysis does not tell the real story, and cause and effect relationships are illusive. The article is an example of failure to properly “drill down” and to look at the necessarily broad set of considerations.

So, do not rely on reports that attempt to address such important subjects too simply or superficially. In my view, professionals in government, academia, industry and the media have a responsibility to better inform the public with more complete assessments of major issues that we face today. This is not an easy task but a vital one, believe it or not, for the maintenance of our democracy.

Other posts on carbon tax can be seen by clicking on the “carbon tax” category in the right column.

Impact of Wind and Solar on Ontario Electricity Bills

Executive Summary

Wind and solar have added substantially to the costs of generating electricity in Ontario, well beyond the narrowly defined costs of the generation plants alone. The additional costs are unique to wind and solar and should be attributed to them as opposed to being absorbed elsewhere, for example in the costs of the generation plants that have to support their highly variable generation in the short term of minutes or less and their unreliable nature in the longer terms of hours and days.

The substantial extra costs unique to wind and solar are due to:

• Duplicate generation requirements because of the non-dispatchable nature of wind and solar.
• Longer than realistic lifetime projections for wind turbines in particular.
• Higher than realistic load factors, (also referred to as capacity factors), especially in later years.
• Extensive grid additions, not otherwise required, to serve the highly dispersed energy source of wind and solar, often remote from load centres.

The result is a total cost of about 3-4 times that of the wind and solar plants alone. This illustrates how the total costs of these plants can have a much more significant impact on electricity prices than a superficial analysis shows and can explain the very high increases in electricity prices already experienced and projected.

During the period 2014-2024 the total costs for wind and solar are about $31 billion in real 2012 dollar terms over and above that required to meet demand from reliable, dispatchable generation technologies. Any environmental benefits from wind and solar are highly questionable, removing the main rationale for their inclusion in Ontario’s electricity supply mix.

To assist in the funding of this, prices charged for the electricity used portion of residential bills have increased 44% per cent by 2014, and will increase to 85 per cent by 2024, compared to the period in 2010 before the implementation of smart meters and time of use charges. The residential user burden of this is calculated to be $17 billion in real 2012 dollar terms.

Further, it is suggested that the Ontario’s 2013 Long Term Energy Plan (LTEP) understates the electricity generation costs for the period 2014-2024. As a result, the average monthly residential 2024 electricity bill will be at least $218, in nominal dollar terms, versus the projected $191 by the Ontario Government and a report by Environmental Defence Canada.

There is a notable cost reduction in total projected generation costs between the 2010 and 2013 versions of the LTEP. For the period 2014-2024 inclusive this is approximately $44 billion in real 2012 dollars out of a total of $263 billion for the total electricity service in the 2010 LTEP. This alone should raise questions. The factors driving this reduction are:

• Wind plant costs shown in the LTEP are unrealistically low by about $8 billion.
• The assumption of an average 8 per cent decrease in residential demand over the period 2014-2024 in determining costs, representing about $12 billion, which is not a prudent planning assumption.
• Other questionable decreases in total electricity system costs between the 2010 and 2013, the details of which will not be further dealt with here.

It is important to note that the Ontario Ministry of the Environment and the Ontario Medical Association report that most of Ontario’s smog comes from massive sources in the United States Midwest, and the Fraser Institute reports that Ontario’s coal plants contributed less than one-tenth of one percent of Ontario’s smog conditions. Further it should be noted that considerable pollution is produced by cars and trucks on our highways and other energy uses outside of electricity generation. Placing the blame for this, and burden of offsetting it, on Ontario’s relatively low emissions electricity system is not warranted, nor wise.

Download the complete report “The High Cost of Wind and Solar on Ontario Residential Electricity Bills“, and “Appendix A – Other Consequences of Wind and Solar“.

 

Errata:

Page 26: The title of Table 8 should read 2014-2024.

Page 27: Omitted title should be “Total Costs of Natural Gas Generation”.

Page 30: The third paragraph, line 5 should read “…so where this occurs 10% of each MWh of coal generation…”