I watched the recent leaders debate with some dismay. The format issues and usual rhetoric aside, one topic stood out for me – climate change and energy.
The leaders did the expected by saying why their plan was best and the others were inadequate or worse. The discussion seemed to focus on who had the most ambitious aggressive policies and targets, almost like cost no longer mattered… after all, it’s a climate emergency. The obvious questions were never asked: What will it cost? Is it affordable? Who ends up paying?
I very much doubt that the experts who validated the parties’ plans have done a full costing either. If they have, then let’s see their analysis, assumptions made, and in particular the details behind the electrical system expansion clearly needed. It shouldn’t be up to voters to try to figure it all out. Cost still matters.
I have written a few articles in the past on this important topic, including estimating just the capital cost needed to build out an expanded electrical system. Here is my updated high-level projection on what these costs may be to achieve a 45 per cent CO₂ emissions reduction by 2030. I picked this target as the mid-point between the Conservative Party’s 30 per cent and the Green Party’s 60 per cent targets.
For full disclosure, my estimate makes these key assumptions:
- Fossil fuels’ share of the energy mix is halved, with energy demand per person falling by a third, representing a four-fold improvement over the previous five-year result.
- Population and economic growth levels remain the same.
- The power system expands by 50 per cent, most of it coming from wind and solar power with battery backup for grid stability. Note that lead times involved for new big nuclear and hydro stations restricts their impact by 2030, and Small Modular Reactors (SMRs) are a decade or more out.
- Minimal carbon capture.
- New infrastructure costs fall 10 per cent (real costs, unsubsidised).
- CO₂ emission declines measured from 2019 levels, which are the same as they were in 2005 (i.e. 2020 emissions declines from the COVID recession will be mostly added back by year end).
My estimated cost comes to roughly $750 billion, which is about $60,000 per family. If end-user costs to switch to electric vehicles (EVs) plus home/business/government efficiency upgrades plus new equipment plus lost government revenues are included, add another $200 to $400 billion. Note that I have excluded addressing the existing very large infrastructure deficit in Canada’s current energy system and the certain job losses from the shuttering of roughly one-quarter of our fossil fuel industry. Those job losses are unlikely to be offset by new energy jobs created, despite claims to the contrary. Note that energy accounts for about 75 per cent of all emissions, so the costs to eliminate the other 25 per cent are not considered but are likely quite large as well.
This cost is consistent with other large-scale decarbonization estimates. One from Wood Mackenzie, a top global energy consulting firm, estimated the capital cost to transition the US power system to 100 per cent green renewables may reach roughly $4.5 trillion US (infrastructure scale being roughly eight times the Canadian scenario here). Even the International Energy Agency’s 2050 Net Zero global roadmap published recently (and highly criticized by many as being unrealistic) pegs global energy system capital costs at around $60 trillion US. I have not found one focused on Canada.
The bulk of the electrical system costs will be borne by the provinces/territories because, as in health care, energy is their responsibility. It is therefore important to understand what the large provincial power system operators are actually planning for. In Ontario, the IESO 10-year plan expects an eight to 13 per cent total electrical demand increase by 2030. In Quebec, Quebec Hydro is planning for growth of nine per cent, and BC has future capital spending planned likely to decline some. Clearly, they are not planning for massive electrical power demand increases stemming from large scale decarbonization that are needed to meet the 2030 targets. Even for EVs, power demand rises to no more than 1.4 per cent of total demand in any of the IESO’s scenarios.
The implications of this level of spending, which will be debt-financed, are unclear, but the risks are extremely high given current Global and Canadian debt levels . Total Canadian gross debt (all governments, business and consumer debt) has grown over 20 per cent since the pandemic began and is now approaching 450 per cent of GDP, one of the highest globally. With inflation already rising, another massive increase in spending would only accelerate it. Combined with other large spending priorities, including for underfunded health care and aging infrastructure, large interest rate hikes are likely around the corner. This could trigger a collapse of the equity, debt and real-estate bubbles. What would follow wouldn’t be pretty.
All the opposition leaders correctly pointed out that zero progress has been made in reducing emissions under the Trudeau Government in six years, despite the promises, leaving little time to hit any targets. However, only Conservative leader Erin O’Toole actually stated that a balance between reducing emissions and supporting the economy and the recovery is the responsible path forward. In my view, he is correct.
In an ironic twist of fate, if voters choose irrational targets over responsible balance, net zero could turn out to be what the average Canadian family is left with come month’s end.
Dave Wilkin is a Professional Engineer, with a master’s degree in Electrical Engineering from the University of Toronto. His career spans 45 years in IT, banking, energy and consulting. He lives in Huntsville, Ontario.
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