By Kenneth P. Green
and Ian Herzog
The Fraser Institute
Energy is more than the fuel of our economic growth. In fact, energy fuels just about all of modern life’s comforts. But energy costs have risen substantially over the last decade, potentially placing a burden on many Canadian households.
According to a new study, roughly eight percent of Canadian households spent at least 10 percent of total expenditures on home energy use in 2013. That’s almost one-tenth of Canadian households putting 10 cents of every dollar towards electricity, natural gas and other forms of energy used in the household. This situation has come to be known as energy poverty, when basic energy needs such as heating, lighting and running appliances become a substantial expense and burden.
And unfortunately, energy poverty is regressive, hitting lower-income households harder. In 2013, almost 16 percent of households earning $27,000 or less, and almost 17 percent of households earning between $27,000 and $47,700, were in energy poverty.
What’s worse is that the situation is deteriorating. Five out of the seven regions measured in the study had higher percentages of energy poverty in 2013 than they did in 2010.
So what fuels energy poverty?
One of the factors is higher energy prices, which many Canadian families know have risen considerably over the last decade. Growing electricity prices, which typically make up about two-thirds of energy spending in Canadian homes, are of particular concern.
Across Canada, from January 2005 to January 2015, electricity prices grew by 38 percent, exceeding growth in other consumer prices by 20 percentage points. Given the level of government involvement in electricity generation and distribution across Canada, policymakers should note these trends.
Canadians also pay more tax on their electricity bills than Americans. For example, the average amount of tax applied across 12 Canadian cities in 2013 was 1.22 cents per kilowatt-hour (kWh), a common billing unit for energy. In the United States, on the other hand, the average city saw 0.86 cents of tax per kWh, with some cities not paying any tax on electricity bills.
Provincial and federal governments should also note how policies can affect prices. Perhaps the most striking example of government policies leading to higher electricity prices comes from Ontario, the province with the third highest percentage of households in energy poverty. Ontario’s electricity prices grew by more than 50 percent between the winters of 2005 and 2015.
In particular, electricity prices for Ontarians started taking off in 2009 when the province embarked on its Green Energy Act (GEA), which subsidizes renewable electricity (wind, solar, etc.) by providing producers long-term prices at above-market rates.
In addition to the large growth in electricity prices, the GEA has forced Ontario to export power at a loss and pay approximately double for wind power and more than triple for solar power than is typical in the United States. To make matters worse, the high energy costs burdening Ontario households came with limited environmental benefits, which could have been achieved in a much more cost-effective manner.
The failures and consequences of Ontario’s experience with renewables should serve as a lesson for policymakers across Canada. Indeed, the large number of Canadian households in energy poverty, and the needs of low-income households in particular, should always be a concern when energy policies are devised. Policies that raise prices could exacerbate the problems of families which already see energy as a substantial expense.
Fraser Institute analysts Kenneth P. Green, Taylor Jackson and Ian Herzog are coauthors of Energy Costs and Canadian Households.