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Ontario’s Green Energy Act Limits Economic Growth Through Rising Energy Costs

Policies that raise energy costs limit economic growth

Ross McKitrick — Fraser Institute — May 15, 2014

TORONTO—Limiting the availability and raising the cost of energy can hurt Canada’s overall economy and weaken future growth, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

The study, Energy Abundance and Economic Growth, examines the long-term relationship between economic growth, energy availability and energy consumption with evidence from Canada and around the world.

“Energy use and economic output grow together over time, and the evidence shows that if you limit energy use you damage future economic growth prospects,” said Ross McKitrick, study co-author, Fraser Institute senior fellow, and economics professor at the University of Guelph.

Since 1980, notes the study, Canada’s energy use grew by about 50 per cent while Canada’s Gross Domestic Product (GDP) doubled. During that same period, global energy use almost doubled while global economic output increased six-fold. Evidence from around the world indicates that energy use triggers growth and is not simply a by-product of growth.

So what does this mean for policy-makers?

Because the best available evidence suggests that promoting energy abundance helps sustain strong economic growth, policies that deliberately increase energy costs will likely have negative economic consequences now and in the future.

“It’s obvious—energy drives economic growth. Yet policy-makers across Canada continue to treat energy consumption as a bad thing, and act as though cutting energy use is an end in itself. They need to understand the long-term costs of this thinking,” McKitrick said.

For example, policies that increase energy costs or limit its availability (i.e. renewable energy mandates or the required use of biofuels such as ethanol or biodiesel) diminish competitiveness, reduce rates of return on investment, and reduce economic growth. Moreover, conservation mandates and strict appliance standards (i.e. water heaters, refrigerators) often have no conceivable environmental benefit but are justified simply because they cut energy use.

“The Ontario government, for instance, claims that the Green Energy Act, which increases energy costs, thereby making it less abundant, is part of the province’s economic growth strategy. The evidence points in the opposite direction—the Act will limit future economic growth,” McKitrick said.

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