Today we released a new Climate Justice Project report, Clean Electricity, Conservation and Climate Justice in BC: Meeting our energy needs in a zero-carbon future, co-authored by John Calvert and myself. The report is central to the vision we have been developing of a zero-carbon BC, with a focus on the need to transition off of fossil fuels and the key role that BC Hydro can and should play in the transition. Our conclusion is upbeat and hopeful: we can do this — but we need a major shift away from current policies.
The principal challenge we identify is that BC Hydro is subsidizing the mining and oil and gas sectors — the dirtiest industries in BC from a climate and environmental perspective — by building new transmission infrastructure for their benefit, and selling electricity to these industrial customers at very low prices. The cost of new supply, however, is much higher — in the case of recent purchases, more than three times higher. Compounding the problem, BC Hydro is locked in to long-term contracts with private producers at above-market prices. The upshot is that households, small businesses and other commercial customers are facing rate hikes. The Clark government has papered over these looming rate hikes by limiting the rate increase prior to the 2013 election — but this is a problem that will not go away, and will only get worse if the BC government pursues its resource sector expansion plans.
Instead, we need to rethink those plans, pursue aggressive conservation and energy efficiency, and focus on the imperative of climate action. BC Hydro recently tabled a draft Integrated Resource Plan anchored in accommodating new demand from dirty industries, so it is a good time to let them know we need a change in direction.
It was a real pleasure to work with John Calvert on this project. John was the first person to point out the impending cost pressures on BC Hydro from private power purchases back in 2007 in a report CCPA published called Sticker Shock, which later turned into a book, Liquid Gold: Energy Privatization in BC. I learned a lot from John and his immense knowledge of electricity policy and BC Hydro. The insights in the report were also greatly shaped by a climate justice workshop on electricity supply and demand issues. And special thanks to Nadene Rehnby and Sarah Leavitt who did a lot of work behind the scenes to make the final report look so awesome.
An opinion piece based on the report was published in the Vancouver Sun and follows below (the online version is accompanied by a very unflattering photo of the Premier — we had nothing to do with that):
Clark government brews recipe for rate hikes: Subsidizing dirty industries with expensive clean electricity will raise cost of power for consumers
BY JOHN CALVERT AND MARC LEE, SPECIAL TO THE SUN
JUNE 19, 2012
Premier Christy Clark’s recent decision to cap the BC Hydro rate increases next year may have ratepayers breathing a sigh of relief. But it’s a short-term fix that will only delay addressing the major financial challenges now facing our Crown utility. Once the 2013 election is over, whoever forms British Columbia’s new government will inherit an enormous problem.
Higher prices for electricity are inevitable because of a decade of bad policy choices. While BC Hydro will get blamed, the key decisions have come from the provincial government. The need for new electricity supplies is often explained away as “keeping the lights on in Vancouver,” but the reality is that residential demand growth is projected to be flat, with increases in population offset by energy efficiency and conservation measures. Ditto for commercial buildings.
In fact, the demand for new power is coming from big, dirty industries. The province has pursued the growth of energy-intensive resource industries by offering them cheap electricity. But because new electricity is much more expensive than our existing supply, residential and commercial customers will end up paying more to subsidize heavy industry.
In its jobs strategy, the government outlines a vision for economic development based on the premise that boosting our exports of oil, natural gas and minerals will create jobs and wealth for British Columbians. In fact, these sectors are very capital intensive and create very few jobs. Even worse, their operations will make it impossible for B.C. to meet its legislated targets for greenhouse gas reductions.
Shale gas fracking and accompanying liquefied natural gas (LNG) plants require enormous amounts of new energy. Even if it builds the controversial Site C dam, BC Hydro will not have sufficient electricity to meet the demands of the natural gas industry, while new coal and mineral mines in the northwest will also require significant amounts of electricity to power their operations.
BC Hydro and its ratepayers should be alarmed about the financial implications of this strategy. Under the current rate structure, all major customer classes — residential, commercial and industrial — share the cost of high-priced new power. But the benefits will accrue almost entirely to resource projects.
In other words, residential ratepayers will end up subsidizing the government’s resource development agenda by paying more — a lot more — for their electricity in the future.
BC Hydro is already saddled with $40 billion in signed contracts to purchase private power. This is one major reason why it told the B.C. Utilities Commission in 2011 that it would need an increase of almost 100 per cent in revenues during the next decade. Directing BC Hydro to acquire even more power in the coming years to meet resource sector demands will only exacerbate this problem.
What are the options, then, for British Columbia? A first step is for the government to recognize the seriousness of climate change. Its economic policies must incorporate an understanding that the province must reduce, not increase its climate footprint. This means that a range of government policies that are targeted at expanding export-oriented resource development must be curtailed. Providing energy-intensive projects with subsidized electricity encourages these industries to develop in B.C. while providing little incentive to conserve.
New resource projects, minimally, should pay the marginal cost of the new electricity BC Hydro has to acquire to meet their needs. The government should stop subsidizing new transmission infrastructure, new roads and other services for resource projects and end its policy of requiring BC Hydro to continue to purchase large volumes of over-priced private power. The B.C. government also needs to revamp its generous tax and royalty regime which now focuses not on getting full value of resources for the province, but rather getting as many new projects started as quickly as possible in the short term.
B.C. also needs to implement many of the conservation options outlined in BC Hydro’s 2007 Conservation Potential Review. Instead of planning to develop more and more power, we need investments that will use our existing hydro power more prudently. We need tougher building codes for new construction, mandatory energy audits and other regulatory tools to push energy conservation. We also need a concerted effort to retrofit the existing stock of buildings, which consume about 40 per cent of the total energy we use. Investments in building retrofits, new public transit and other conservation measures are a much better — and more cost effective — approach to job creation.
Unlike other jurisdictions, B.C. generates over 85 per cent of its electricity from our historic renewable hydro facilities. We have an excellent base on which to build a low-carbon economy. But none of this will happen without a fundamental change to the government’s current resource-based economic development agenda.