Conservation Pricing: Can it be Environmentally Effective and Economically Fair?

Posted on February 28, 2011 by admin

Stephanie Taylor and George Hoberg
March 1, 2011 (updated September 28, 2011)

Electricity pricing in BC is a concept that is little understood, yet frequently the subject of grumbling by ratepayers, especially when rates are going up. Recent proposals by BC Hydro to raise rates by 50% over the next five years have been criticized by media and energy experts.  In our last post on electricity pricing, we outlined current and alternative rate-setting mechanisms. We also introduced readers to the concept of conservation pricing. This post delves further into conservation pricing, exploring both its benefits and its drawbacks.

To recap, conservation pricing involves increasing the price of electricity to all or some ratepayers in order to give them an incentive to reduce their electricity consumption. Conservation pricing can be achieved in numerous ways, though increasing block and time-of-use (TOU) pricing are the most common. Increasing block pricing involves charging higher per kWh prices for additional consumption above a pre-determined level. With TOU pricing, ratepayers pay more depending on how much demand there is for electricity at that time. This technique often requires the installation of smart meters, in order to accurately track demand in real-time.

BC has already implemented increased block pricing (which it calls its ‘conservation rate’). BC Hydro has announced plans to install smart meters in all homes in the next few years, but has not yet proposed introducing time-of-use pricing. However, in order to reach BC’s stated goal of achieving 66 percent of BC Hydro’s electricity requirements through conservation by 2020, prices will probably need to be raised further.

[September 26 update: In response to suggestions by BC Hydro that time of use pricing is an effective conservation tool, Energy Minister Rich Coleman emphatically denied the government was considering it. (Globe and Mail)]

One of the complaints most frequently voiced by critics of conservation pricing in BC is that it unduly harms low-income customers. However, this criticism need not mean that conservation pricing is unworkable in BC. It is possible to address this concern while still maintaining the benefits of conservation pricing. Pricing can be used to encourage lower electricity consumption without harming low-income customers.

In economic terms, conservation pricing amounts to a tax on electricity consumption. As with consumption taxes in general, there are concerns that conservation pricing could be regressive (International Energy Agency, 2010, p. 68); that is, the proportion of income dedicated to paying the higher rate is greater for low-income consumers than for high-income consumers. Furthermore, evidence shows that those with higher incomes consume more electricity than low-income consumers (Pineau, 2008, p. 384), meaning that the poor would pay a greater proportion of their income to reduce usage of a good whose overconsumption is due primarily to higher income groups.

Governments usually mitigate the impact of consumption taxes on low-income groups through the use of rebates, as has been the case with the Goods and Service Tax and Provincial Sales Tax (and now the Harmonized Sales Tax) in BC. However, the best comparison to conservation pricing would be BC’s carbon tax. Both are consumption taxes designed to achieve conservation-minded goals by making certain environmentally-damaging behaviours more expensive, and thus less attractive. BC tackled the regressive nature of carbon taxation by mandating reductions to the lowest two income tax brackets as well as introducing a refundable Low Income Climate Action Tax Credit. In a recent report, the Canadian Centre for Policy Alternatives and Sierra Club argue that, of the measures introduced to assist low-income British Columbians, the Low Income Climate Action Tax Credit is “the most beneficial expenditure in terms of compensating the poorest households” (Lee, 2011, p. 19). That report shows that low-income BC residents will end up paying more in carbon taxes than they will get back in credits, but that is a flaw in design of the credit, not in the concept.

September 28 update: For a specific set of proposals to deal with the fairness aspect of electricity price increases in BC, see the report from the Canadian Centre for Policy Alternatives, Fighting Energy Poverty in the Transition to Zero-Emission Housing: A Framework for BC (summary op-ed by Marc Lee here).

While some critics of the carbon tax argue that revenues should be used for purposes other than tax reduction, the carbon tax is in fact a very good model for how to devise a workable and progressive conservation pricing system for electricity consumption. Regardless of how BC Hydro chooses to raise rates (increases to the block rate, TOU pricing, or an across-the-board rate increase, for example), refunding the increased costs of higher rates borne by low-income customers through income tax credits and/or cuts would be a feasible method of eliminating regressivity. In fact, the implementation of tax credits and tax reductions for low-income consumers of electricity and energy is supported by experts. Pierre-Olivier Pineau, who is perhaps Canada’s foremost expert on electricity pricing, explains that combining targeted assistance to low-income ratepayers with conservation pricing “would expose all consumers to the correct price signal, while making sure electricity remains affordable” (Pineau, 2009, p. 25). The International Energy Agency also promotes targeted measures as one solution to the regressive nature of conservation pricing (IEA, 2010, p. 68).

Despite what critics say, it is not inevitable that conservation pricing will result in a disproportionate financial burden to low-income customers. Dismissing carbon pricing out of hand without investigating ways in which it can be made fairer amounts to a dismissal of electricity overconsumption as a legitimate problem. Solutions to regressive taxation such as income tax reductions to low-income British Columbians have been successfully implemented in the past. There is no reason to believe that we could not use similar strategies to devise an environmentally effective and economically progressive conservation pricing system for electricity in BC.

Sources:

International Energy Agency. Energy Efficiency Governance. Paris: 2010.

Lee, Marc. Fair and Effective Carbon Pricing: Lessons from BC. The Canadian Centre for Policy Alternatives and the Sierra Club. Vancouver: 2011.

Pineau, Pierre-Olivier. “Electricity Subsidies in Low-Cost Jurisdictions: The Case of British Columbia.” Canadian Public Policy 34 (3) (2008): pp. 379-394.

Pineau, Pierre-Olivier. “Rethinking Electricity Pricing in Canada: Richer, Greener and Fairer.” Working Paper, l’École des Hautes Études Commerciales de Montréal, June 2009.

Posted in British Columbia Electricity | 1 Comment

How Electricity Pricing Works in British Columbia

Posted on February 17, 2011 by admin

Stephanie Taylor and George Hoberg
February 17, 2011

In the midst of a spending blitz, BC Hydro has applied to the BC Utilities Commission (BCUC) to increase residential electricity rates by an estimated 10% per year over the next three years. BC Hydro, which announced the rate changes on December 2, 2010 expects the increase to take effect in April 2011, assuming BCUC approval. The news release explains that the Crown Corporation is investing $6 billion over three years to provide essential upgrades to aging transmission and generation  facilities, add significant new transmission capacity, increase capacity at the Mica and Revelstoke dams, and  install smart meters in every household.

While all rate-setting proposals are made public on the BCUC’s web site, the fact remains that British Columbians know very little about how their electricity is priced, why it costs what it does, and where BC electricity prices stand relative to other Canadian jurisdictions. BC Hydro’s latest rate change proposal provides us with an opportunity to investigate these, and other, questions in the hopes of better understanding electricity pricing in BC.

This post provides an overview of electricity pricing in BC. Our next post will examine the merits of using rate changes to promote conservation.

The Basics: How electricity prices are determined in BC

There are two different types of approaches to pricing electricity: cost-based pricing, and market-based pricing. BC uses cost-based pricing, and because it relies mostly on large hydro-electric dams that were built decades ago, its electricity prices are very low compared to most other jurisdictions.

Electricity rates in BC are primarily influenced by stipulations within the “Heritage Contract,” which guarantees that BC customers continue to benefit from low-cost Heritage Resources, defined as the legacy of existing generation, transmission and distribution infrastructure, including the large dams built along the Peace and Columbia Rivers in the 1960s and 1970s. According to BC Hydro, the purpose of the Heritage Contract is to maintain low electricity rates for customers while maintaining a secure and reliable energy supply. The Heritage Contract also stipulates that rates are to be maintained at a level consistent with BC Hydro’s annual revenue requirements while still remaining affordable to ratepayers (BCUC, 2003).

The most common form of rate determination in BC is known as “historical average cost pricing”, which is the method used by BC Hydro to determine the price of the guaranteed quantity of electricity to be provided by its Heritage Resources (BCUC, 2003). Under this pricing scheme, rates equal the average cost of producing one unit of electricity over the lifetime of a given generating facility. The average cost is determined through calculation of the “levelized unit cost” (LUC), which divides the capital and operating costs of a facility by the total energy that is projected to be produced by the facility over its lifetime (Healey, 2010). This common metric allows average costs for different generating facilities to be compared.

The levelized unit cost of BC Hydro’s existing hydroelectric power – which accounts for approximately 90% of BC Hydro’s Heritage Resources – is extremely low at approximately 5.3 cents/kWh. This early investment in big hydro is why BC Hydro is able to maintain such low electricity rates. Among major Canadian cities, Vancouver’s residential electricity rates are third lowest in the country, at 7.79 cents/kWh, behind only Montreal and Winnipeg (Hydro-Quebec, 2010). There are actually three classes of prices depending on the type of user: residential, commercial, and industrial.  Commercial and industrial ratepayers pay a lower rate than residential customers, primarily because of the economies of scale ( lower transmission costs per unit) of supplying electricity to large commercial and industrial customers (Healey, 2010).

As demand for BC electricity grows, BC is adding new sources of supply. Given the remarkable economies of BC’s Heritage Resources, any new source of power will be more expensive than historical prices. As a result, increased supply puts upward pressure on prices.

Marginal Cost Pricing

The main alternative to historical average cost pricing is the marginal cost of new supply, or market-based pricing. Under this pricing scenario, the electricity price fluctuates with movements of the intersection of the supply and demand curves. The supply curve illustrates the marginal cost of new electricity supply (i.e., the cost of producing one additional unit of electricity) at various levels of production; conversely, the demand curve represents the benefit to customers that accrues from a one unit increase in production. At the intersection (equilibrium) point, the benefit to consumers and the cost of producing an additional unit of electricity are equal, which implies that benefits are maximized while costs are minimized.

Historical average cost pricing artificially maintains electricity rates below this equilibrium. While this provides a benefit to all classes of consumers through lower rates, it also promotes overconsumption of electricity (Healey, 2010).

BC Hydro engages in cross-border electricity trading, which also uses market pricing. Electricity trading, which is undertaken by Powerex, a BC Hydro subsidiary, is affected by factors such as water level variability, unforeseen power outages, and routine (i.e., seasonal and time-of-day) spikes in demand. Reflecting the basic laws of supply and demand, market prices will rise and fall as the balance between supply and demand changes. When BC has a surplus of electricity and its trading partners are facing a shortage, the price for BC Hydro exports will go up. In contrast, if demand for electricity in the region is low and abundant supply is available, the price will drop.  Market prices on the “spot market”, as it is called, are highly volatile, often changing on an hourly basis (Healey, 2010).

Much has been made recently of the contribution of independent power producers (IPPs) to electricity prices. Independent power producers are privately-owned, and often small, generators of electricity. BC Hydro periodically solicits proposals from IPPs, though this activity has increased in scope and visibility under the BC Liberal government. BC Hydro generally buys electricity from IPPs at a rate that exceeds the current spot market price, leading to concerns that BC Hydro is paying too much for this kind of power.  It is uncertain whether the prices given to IPPs will turn out to be too high over the long term. One important consideration is that the contracts with IPPs lock in a set price for electricity that may end up being cheaper than buying the same quantity of electricity on the highly volatile spot market (Healey, 2010).

Conservation pricing: A justification for higher rates?

Many environmentalists have advocated higher electricity rates in order to provide customers with an incentive to use less electricity. On October 1, 2008 BC Hydro brought in a stepped rate in order to promote conservation, charging residential customers 6.27 cents/kWh for the first 1,350 kWh they use over a two-month billing period, while charging 8.78 cents/kWh for any quantity of electricity above that initial amount.

In spite of the potential environmental benefits electricity conservation, there are genuine concerns about the relative impact that conservation pricing schemes could have on low-income households. In a subsequent blog post, we will investigate these concerns, as well as other practical implications involved with conservation pricing of electricity.

Sources:

BC Utilities Commission. In the Matter of British Columbia Hydro and Power Authority and an Inquiry into a Heritage Contract for British Columbia Hydro and Power Authority’s Existing Generation Resources and Regarding Stepped Rates and Transmission Access – Report and Recommendations. Vancouver: BCUC, 2003.

Healey, Stephen. “Peak to Peak: A Primer on Electricity Pricing in BC.” Paper presented at the Pacific Institute for Climate Solutions FutureGrid Forum, Vancouver, June 14 – 16, 2010.

Hydro-Quebec. 2010: Comparison of Electricity Prices in Major North American Cities. Montreal: Hydro-Quebec, 2010.

Note: We’d like to thank Max Stallkamp for his comments.

Posted in British Columbia Electricity | 4 Comments

The Export Question: Designing Policy for British Columbia Electricity Trade

Posted on February 10, 2011 by admin

February 10, 2011

The Pacific Institute for Climate Solutions released a White Paper today that I wrote with University of Victoria grad student Amy Sopinka.  The report analyzes the Government of British Columbia’s new strategy to become a net exporter in electricity trade.  This new initiative promises to promote economic development and contribute to greenhouse gas reductions in other jurisdictions. The report highlights significant uncertainties in the market for BC electricity exports, and identifies major gaps in the policy framework. In particular, the policy framework does not require that electricity projects are a net benefit to British Columbians, and the planning process is not adequate to address the environmental and social risks of the project.

To view the media release from PICS, go here.

To view the full paper, The Export Question: Designing Policy for British Columbia Electricity Trade, go here

Posted in Uncategorized | 1 Comment

Leveraging Forests for Climate Change Promises

Posted on December 28, 2010 by admin

Jennifer Allan
December 28, 2010

Forests can emit carbon dioxide when the land is cleared, especially through burning, or when trees are left to rot. On the flip side, forests can soak up carbon dioxide from the atmosphere. The International Panel on Climate Change (IPCC) estimates about 20% of global carbon dioxide emissions come from deforestation, which is roughly the same as transportation. The world has tried before to develop a global deforestation treaty, with very limited success. The new treatment of forests as carbon emitters and sinks, however, created an agreement in Cancun.

Reducing Emissions from Deforestation and Degradation (REDD) is a simple concept, until you start to work out the details. In essence, REDD provides payments to keep forests intact and healthy so they stop emitting carbon dioxide and start soaking it out of the atmosphere. Many activities will qualify, including forest conservation, sustainable management and replanting. Six countries (US, UK, Australia, Norway, Japan and France) announced US$3.5 billion to kick-start REDD+ activities. Over another billion has been added since. These funds will add to efforts already underway by the World Bank and the UN.  REDD is, perhaps, the most substantive part of the Cancun Climate Accord.

A year ago in Copenhagen, REDD was also considered ripe for agreement. However, the agreement didn’t come and parties spent another year wrestling over contentious topics, particularly funding. Over the summer, the REDD+ Partnership was created to oversee the funds. It became mired in controversy for its lack of inclusion and slow pace. Governments, notably Bolivia, Turkey and Saudi Arabia, started to backtrack on previous progress, introducing fundamental changes to REDD, including removing the word “emissions.” The previous promise of REDD retreated among fears, and some cautious optimism, that REDD would again fail in Cancun.

We have an agreement, signed by all states except Bolivia. The agreement tasks developing countries, who voluntarily participate, to develop national REDD plans that include environmental and social safeguards. These safeguards, although in an annex, specify natural biodiversity and local communities are to be protected. The agreement lays out three phases for activity. Phase one is a capacity building stage to help developing countries develop monitoring capacity, information about forest stocks and national plans. Phase two involves implementation and continued capacity building. Finally, results are measured against the baseline created in phase one and credits are earned. A key component is that REDD is results-based. All avoided emissions must be monitored, reported and verified.

There are important pieces missing. The two standouts are financing and monitoring. It may cost$17-33 billion to halve emissions from the forestry sector by 2030 according a review commissioned by the UK government. Some countries want a market system where developing countries can sell their REDD credits to developed countries. Other states, such as Bolivia and Brazil, want a fund-based system, where developed countries would provide financing for REDD activities as part of their overseas development assistance. The current agreement is silent which option is preferred, although a fund is established for the short term. The other important missing piece is monitoring. Currently, there is no standard way to monitor carbon emissions from forests, although there is guidance from the IPCC and private sector initiatives. Substantial technical work remains to make REDD credits based on actual, measured results.

How did we get from fear in September to an agreement (albeit an incomplete one)? By linking deforestation and climate change, new leverage points and incentives created political will in developed and developing countries. Developing countries can create a new source of income by conserving or rebuilding their forests. Developed states might be able to earn credits, but more importantly, earn leverage over each other. The U.S. has stated developing countries must shoulder some of the burden and reduce emissions. This reason is often used to justify American inaction. REDD provides the opportunity for developing countries to reduce their emissions.  With developing countries on board, the EU can claim the US no longer has reason to avoid reducing its emissions.

Countries that threw up roadblocks earlier, such as Saudi Arabia, might have also been appeased in the broader climate change accord. The Cancun Accord leaves the door open to carbon capture and storage becoming part of the Clean Development Mechanism, once leakage and other technical issues are resolved. Saudi Arabia argued for this technology’s inclusion because it allows oil production to continue while emissions reduce, meaning demand for Saudi oil can continue.

While the world failed to address deforestation in a global treaty before, we now have one in the guise of a climate agreement. Until funding and monitoring are addressed, the merits of the agreement cannot be fully assessed. The ability of the REDD to translate into meaningful reductions by developing countries may spell out the likelihood of a more substantive climate agreement. If REDD fails to lead to reductions in developing countries, old excuses for inaction remain. If REDD succeeds, then the world is hard pressed for diplomatic reasons to refuse a meaningful agreement. Linking these issues has linked their successes and failures. Success in global climate governance may hinge on the details of REDD.

Jennifer Allan is a PhD student in Political Science at the University of British Columbia. Her interests are the global environmental politics of forest governance.

Posted in Climate Action Policy, Uncategorized | Leave a comment

How to make real climate policy without destroying the Canadian federation: Insightful new CD Howe report on regional equity concerns of Canadian climate policies

Posted on December 14, 2010 by admin

George Hoberg and Stephanie Taylor
December 14, 2010

With the Cancun UN meetings now completed, attention is turning back to national governments and whether key players are willing to solidify or increase their commitments to greenhouse gas mitigation made in Copenhagen. At that December 2009 meeting, the Government of Canada continued its policy to wait for and follow United States actions. With US failure to enact climate legislation in 2010 and the Republicans taking over the House of Representatives, US policy is stymied. Canada continues its refusal to act meaningfully without US action.

There are many obstacles to action in Canada, but a potent combination of three stands out:

  • a highly decentralized political system granting significant power to provinces;
  • strong provincial resistance by fossil fuel dominated provinces, especially Alberta; and
  • a federal government that is both Conservative politically, and with respect to climate and energy policy, made of, by, and for Albertans.

As a result of this potent combination, regional equity concerns have been a fundamental obstacle to political progress.

This reality is tackled head on in a new report published by the CD Howe Institute and written by Jotham Peters, Chris Bataille, Nic Rivers, and Mark Jaccard. In the report, the authors address the existence of different conceptions of interregional equity, while acknowledging that “since people tend to intertwine their self-interests with their definitions of equity, it is no surprise – both internationally and within Canada – that the most vigorous and convinced proponents of each definition of equity are often those who do best under that definition.” (Page 2)

Three philosophies of cost distribution

The authors summarize three main definitions of equity, consistent with the different approaches to interregional equity in climate policy proposed by various provinces. The first, known as “polluter pays”, approaches equity from the perspective that those who cause environmental harm through their emissions should be made to pay. The authors note that this is similar to the “egalitarian” approach, whereby everyone has an equal right to pollute a certain amount, with those who emit more paying to do so.

The second approach – the “sovereignty” approach – emphasizes that punishing regions for their current emissions is unfair, due to the fact that the decisions to adopt GHG-intensive technologies were made long before it was determined that GHG emissions should be curbed. This, in turn, is similar to the “equal cost” approach, in which jurisdictions face roughly equal emissions reduction costs, regardless of the level of their GHG emissions.

Finally, the “ability to pay” approach distributes costs such that wealthier jurisdictions bear a larger cost burden than poorer jurisdictions which are less able to absorb the costs.

Distributing the impact of meeting Canada’s target according to the three philosophies

The report goes on to outline three cap-and-trade scenarios, all designed to meet Canada’s goal of reducing GHG emissions 17% below 2005 levels by 2020: intensity-based cap-and-trade, a federal auction of carbon permits with cuts to federal personal and corporate income taxes, and a federal auction of carbon permits with cuts to provincial personal and corporate income taxes. The three scenarios nicely illustrate the differences in interregional equity that can result from policies designed to meet identical goals.

The first scenario is the most advantageous to Alberta and Saskatchewan, with combined annual GDP growth between 2010 and 2020 of 2.10%, assuming perfect capital mobility. Meanwhile, the rest of Canada would see 1.86% in annual GDP growth. Intensity-based cap-and-trade would also result in a financial transfer of 1.0% of 2020 GDP into Alberta and Saskatchewan, and a transfer of 0.3% of GDP out of the rest of Canada. It is somewhat unclear which definition of equity this scenario best fits, given that it advantages the jurisdictions with the highest GHG emissions.

Of the three, the second scenario – permit auction with cuts to federal personal and corporate income taxes – is the least satisfactory from the perspective of Alberta and Saskatchewan. Under this scenario, the two prairie provinces would experience annual GDP growth of 1.87% between 2010 and 2020, compared to 2.05% in the rest of Canada. Alberta and Saskatchewan would also see 3.8% of 2020 GDP leave the region, while the rest of Canada would experience an inflow of 0.9% of 2020 GDP. This scenario could best be described as an example of the polluter pays approach.

The final scenario, involving a permit auction combined with provincial personal and corporate income tax cuts, aligns closely with the sovereignty (equal cost) definition of equity. Here, Both Alberta/Saskatchewan and the rest of Canada would experience equal annual GDP growth of 1.99% between 2010 and 2020. Due to the cuts in provincial income taxes, both regions would experience financial transfers of 0%.

The report appears in part to be a response to criticisms of a previous report put out by the Pembina Institute and David Suzuki Foundation (DSF) in October 2009, which was written by Jaccard’s energy policy consulting group, MK Jaccard and Associates (MKJA). In the Pembina/DSF report, MKJA modeled two scenarios: a 25-40% reduction in GHGs below 1990 levels by 2020 which reflects the recommendations of environmentalists, and a 20% reduction below 2006 levels by 2020, in line with the federal government’s GHG reduction target at the time. Despite showing that robust economic and employment growth were possible in Alberta and Saskatchewan under both scenarios, the Pembina/DSF report was attacked by Alberta Premier Ed Stelmach and Saskatchewan Energy Minister Bill Boyd as nothing more than a wealth transfer to other parts of the country (see our previous post on this).

Given how much criticism was directed at the Pembina/DSF report, it is worth examining whether the CD Howe Institute’s projections represent a move toward a sovereignty/equal pay approach, which is presumably Alberta and Saskatchewan’s preferred option. To be sure, the intensity-based cap-and-trade scenario is a marked improvement upon the Pembina/DSF forecasts vis-à-vis Alberta and Saskatchewan, though the fact that these two provinces are net beneficiaries of financial transfers means that this scenario can hardly be classified as “equal pay”. While Alberta and Saskatchewan may prefer this option, convincing the rest of the country to sign on would be difficult, to say the least. The permit auction with federal income tax reductions option is likely no more attractive to Alberta and Saskatchewan than the Pembina/DSF scenarios. Conversely, the permit auction with provincial income tax reductions option represents a true “equal pay” approach. Given that their primary concern appears to be to oppose anything that could possibly be construed as a wealth transfer to other parts of the country, it is unclear on what grounds this scenario could be opposed by Alberta and Saskatchewan.

Regional equity concerns are not an excuse for Canadian inaction

By explicitly addressing regional equity issues, the CD Howe report is a vital contribution to the climate debate in Canada. What should be obvious by now is that it is possible to craft a national climate change plan without unduly harming the economies of Alberta and Saskatchewan. Jaccard emphasized this point in a Globe and Mail piece meant to coincide with the release of the CD Howe report. In summing up the report, Jaccard noted that “the key message is to question the argument that Canada cannot price GHG emissions because the economic impacts would inevitably fall harshly on Alberta and Saskatchewan. This need not be so, but it is indeed a convenient excuse for inaction.”

The Cancun Agreements have provided some momentum to international climate negotiations. It is time for Canada to get its domestic house in order and become a serious player, and leader, in climate mitigation efforts.

Posted in Climate Action Policy | 2 Comments

One Land Manager, or Seven? The 2010 Reorganization of Natural Resource Management in BC

Posted on October 27, 2010 by admin

George Hoberg and Stephanie Taylor

October 27, 2010

On October 25, 2010, BC Premier Gordon Campbell announced a fundamental restructuring of the organization of the BC government with respect to natural resource management. The government created a new ministry, Natural Resource Operations, and moved many of the responsibilities of existing resource agencies – Energy, Agriculture, Forests, and Environment – to the new ministry. In announcing the changes, the government issued a press release listing the names of new organizations, their ministers and deputy ministers, and the new responsibilities of the ministries. But there was no public explanation or rationale provided for the change, so it is hard to evaluate the government’s thinking. The one quote in the press of a rationale from the Premier is that the change would “allow us to move forward in a comprehensive and integrated manner across the natural resource ministries.” In an internal email circulated among staff in several natural resource ministries, Doug Konkin, deputy minister and chief executive officer of the new Ministry of Natural Resource Operations, described the changes as “formaliz[ing] the “One Land Manager” concept” and better positioning BC to “attract global investment and turn proposed projects and investments into actual worksites and jobs.”

Criticisms

The changes have provoked criticism, including a public outburst by Bill Bennett, Campbell’s own Minister of Energy, that landed on the front page of the Vancouver Sun. Overlooking the well-established convention of cabinet solidarity, Bennett chastised the Premier for making fundamental changes to the organization of natural resources without consulting his caucus or cabinet. The decision was also criticized by a leading environmental group. West Coast Environmental Law expressed concerns about the reorganization creating undue emphasis on expeditious resource approvals at the expense of environmental protections:

The lawyers at West Coast Environmental Law are concerned that BC’s new Ministry of Natural Resource Operations will give industrial users ready access to the province’s natural resources without ensuring environmental protection. The environmental organization argued that the new Ministry was being created to help industry get quick government approvals and that this could well compromise environmental protection.

The Changes in Responsibilities

Figure 1: BC Government Natural Resource Management - Before and After

To display the shift in functions to the new Ministry of Natural Resource Operations (MNRO), we’ve constructed a flow chart that shows the allocation of responsibilities before and after Monday’s announcement, shown in Figure 1 (click on Figure to enlarge).  The main thrust of the change is to move operational responsibilities from sector-specific resource ministries to the new MNRO, but leaving the higher level policy development within the sector specific ministries. For example, forest authorizations, such as Forest Stewardship Plan and cutting permit approvals, has been moved to MNRO, but forest stewardship policy remains within the Ministry of Forests (now Forests, Mines and Lands but more on that shortly). Likewise, the Oil and Gas Commission, which approves oil and gas developments, has been moved to the new MNRO, but oil and gas policy remains in the Ministry of Energy.

[Update: For a copy of the OIC, go here. For a copy of Q&A from the government, go here.)

These changes are profound. They are likely to be particularly troubling to entities that have a strong organizational culture. The BC Forest Service, created in 1912, has been moved around and renamed a number of times in its history. But this is the first time we are aware of that core components of it have been divided between different ministries.

In addition to that separation of policy from operations, some policy responsibilities were shifted around. Mining was moved out of Energy and into Forests, and Crown land administration policy was moved from Agriculture to Forests. Forests gave range policy back to Agriculture. Oddly, part of the Integrated Land Management Bureau was moved to the new Ministry of Regional Economic and Skills Development.

The rationale for these changes is presumably to improve the coordination of natural resource operations to expedite approvals and facilitate resource-based economic development. This raises three questions:

  1. Is it likely to work to rationalize the approval process?
  2. Are there risks to other values as a result of the changes?
  3. Is organization design the problem, or is it capacity?

Lessons from Past experience with integration

This is not the first time that the BC government – in fact the Gordon Campbell BC Liberals – has attempted to reorganize government natural resource functions to promote greater integration and efficiency in approvals. When the Campbell government came to power in 2001, it created what they hoped would be a new “super-ministry” in the Ministry of Sustainable Natural Resource Management to improve the integration of natural resource policy and operations. While the original hope was that the new Ministry would facilitate natural resource administration, the end result was that it frustrated it. The problem was that the consolidation of functions was too limited: the Ministries of Forests and Environment still retained significant authority. So instead of reducing transactions costs, the net result was the there was more “red tape” for resource industries. The government dismantled the Ministry of Sustainable Resource Management in 2005, and redistributed its remnants back to the pre-existing resource agencies.

The most organizationally unstable function is arguably one of the most important: land use planning. When the NDP government launched comprehensive land use planning in the 1990s, they coordinated interagency activities through a cabinet office known as the Land Use Coordination Office. The Liberals came to power and created the Ministry of Sustainable Resource Management and housed land use planning functions there. When that ministry was disbanded, the government created the Integrated Land Management Bureau (ILMB) and housed it within the Ministry of Agriculture and Lands. In 2009, ILMB was moved over to the Ministry of Forests and Range. In this latest reorganization, ILMB as such has disappeared. The fate of some of its responsibilities is unclear, but the once-pivotal responsibility for land-use planning has been relegated the new Ministry of Regional Economic and Skills Development. It is hard to see how that move will improve coordination of natural resource management in the province.

The risks of separating policy from operations

Reorganizations are typically designed to address a particularly salient problem, but frequently create unintended consequences. Concentrating all natural resource operations in one ministry may facilitate project review and approvals, but separating operations from policy might create other problems. One risk is that organizational learning might become even more challenging. Policy reform should be informed by operational experience, but if the feedback from that operational experience needs to cross more organizational boundaries, it is less likely to be communicated effectively.

Another risk is that policy signals might not be received as well, and it might be more difficult for policy makers to monitor implementation. This risk is the basis for environmental group concern that environmental values might receive less attention in the reorganization.

Is organizational design the problem, or is it capacity?

This major reorganization is based on a premise that the previous structure was deeply flawed. Another view is that the fundamental problem is one of capacity – the financial and human resources to perform the governance functions effectively. Insufficient capacity is a core part of the critique of the decision leveled in Energy Minister Bennett’s criticism of Campbell’s decision:

The fundamental problem facing the natural resource ministries is they’re underfunded. We work the heck out of them [the employees] and we don’t have enough funds within these ministries to get the permits out the door, to develop the policy, to deal with the stakeholders, to do the work that actually leads to the majority of the revenue that comes in to government.

An analysis of changes in resource ministry budgets and personnel does show a significant decline over the past several years. Figure 2 show budget trends over the past decade for three major resource functions (Environment, Forests, and land use) (constant 2010 dollars). Budgets did increase in the late 2000s and peaked in 2008 but have declined precipitously since then. The three resource agencies combined saw their budgets drop by 27% between 2008 and 2010.

These recent reduction in budgetary and staff resource suggest that capacity is a major challenge for the resource agencies. Perhaps the reorganization will help the government cope with this challenge, but Minister Bennett, for one, is skeptical.

Conclusion

These organizational changes are dramatic; they appear to be significantly bigger than the reorganizations that occurred early in the Campbell government’s first term. That earlier experiment was acknowledged to be a failure. Whether this new effort to improve the organization of natural resource management in the province will be more successful remains to be seen. It would certainly be useful for the government to provide its officials as well as members of the public with a clearer rationale for the changes that shows how the lessons from past efforts at redesign and the risks to coordination and learning have been considered and addressed

Posted in BC Forest Policy | 12 Comments

What’s Behind the Woeful Implementation of Canada’s Species at Risk Act?

Posted on July 23, 2010 by admin

George Hoberg

July 23 2010 scb2010logoalberta

I had the opportunity several weeks ago to speak to the annual meeting of the Society for Conservation Biology in Edmonton at a symposium on “Bridging the Science-Policy Gap in Implementation of Critical Habitat under the ESA and SARA.” I was pleased that a group of conservation scientists reached out to a political scientist interested in the role of science in policy making and the impact of different political institutions on governance and policy.

From my perspective, the underlying problem in this case is the following:  Why don’t governments act to conserve species when science demonstrates significant risks to species viability? There are at least three different kinds of constraints on government action: 

1.       Inadequate science, or inadequate communication of science to policy makers

2.       Political resistance

3.       Institutional design

This post covers the second and especially the third of these three constraints. My bottom line is that inadequate species protection is not a failure of science, or of policy makers’ failure to pay attention to science. It is a failure of policy makers to take actions costly to influential constituents. This failure of political will is in part a characteristic of the policy problem, but can be aggravated by institutional design. The contribution of institutional design to the impact of political motivations can be illustrated by comparing the different laws for the protection of endangered species in Canada and the United States

The Science of Politics

 The first step in understanding the science-policy gap is an awareness of who makes policy decisions: in most cases, it is elected politicians or their direct delegates. One thing we can glean from the “science” of politics, such as it is, is the axiom that politicians are unlikely to take action unless the political benefits of action outweigh the political costs. Policy is made by politicians acting according to political motivations. Conservation biologists, like scientists in other domains, may find this an uncomfortable reality, but it is reality nonetheless. Actions to protect endangered species usually impose costs of some sort, frequently concentrated costs on specific actors whose economic behaviour jeopardizes the species. Unless a politician sees significant political benefits from acting, species protection is likely to be thwarted by resistance from negatively affected interests.

Comparing the ESA and SARA:  Design and Implementation

There are two very significant differences between the US and Canadian federal endangered species acts: the scope and the protective actions forced by the legislation.

Under the US Endangered Species Act, critical habitat is supposed to be designated when the listing decision for a species is made. The ESA provides exceptions under certain circumstances (if critical habitat designation is “‘not prudent’ and ‘not determinable’), but even in those cases there is a hard requirement that it be designated within a year. Agencies have frequently delayed acting, but when challenged, courts have ordered them to act. Once listed, the scope of protection is very broad, preventing “taking habitat” on federal, state, private land.

Since its enactment in 1972, 1375 species have been listed. Recovery plans are in place for 83% of those species, and critical habitat is designated for 43% of them.

Under Canada’s Species at Risk Act, the scope if much narrower and the most critical implementing actions are not covered by time-limited requirements. The listing of a species triggers requirement of the Minister to undertake recovery planning (ss.37-46) and recovery plan implementation (“action planning”) (ss.47-64). The first stage is a more general process. It is only in the “action planning” stage that specific protections for species are implemented. There are specific deadlines on the first “recovery planning” stage. SARA states that recovery plan must include critical habitat “to the extent possible, based on the best available information.”

But here is where the dramatic difference in scope emerges. Critical habitat designation only triggers protection on federal land. The effects of this limitation on scope are quite significant, because unlike the American West, Western Canada has very little federal land. In British Columbia, federal land constitutes only 1%, and it only somewhat higher in Alberta. In contrast, federal land ownership in Alaska is 70%, for Oregon 53%, for Washington 30%, and for California 45%.

Protection on provincial land or private land occurs only through provincial actions as part of the second “action planning” stage, or some other process. And here is where the difference in actions forced by the legislation comes in:  there are no deadlines on action planning. SARA does provide a “safety net” mechanism (Sec. 34) for the federal government to intervene if it determines that “the laws of the province do not effectively protect the species,” but this mechanism in the Act has yet to be used.

The implementation of SARA has been woeful. Agencies have deliberately avoided including critical habitat in recovery plans until the Federal Court has ruled in 2009 that it is illegal not to do so. Recovery planning and critical habitat designation have been very slow. Of the 176 species listed as threatened or endangered prior to SARA coming into full effect in 2003, 40% have recovery strategies, and only 10% have critical habitat identified (Mooers et al 2010). A presentation by Scott Findlay of the University of Ottawa reported more recent results. As of March 2009, for the 322 species currently listed, only 99 (31%) have final recovery strategies. Of those 99 species with final recovery strategies, only 6% had complete critical habitat designation, and an additional 13% has partial critical habitat designated (Findlay et al, “Recovery Strategies and Critical Habitat Identification under Canada’s Species at Risk Act,” under review).

But remember, these actions only directly affect protection on federal land. For the stage of the process that might affect provincial and private land, recovery action planning, there is only one action plan in place in the nation of Canada. That is for the Banff Spring Snail, which exists only in Banff National Park.

The only fully implemented plan under SARA to protect species at risk in Canada is for a snail in a National Park.

The US ESA has been in place much longer than SARA, but the difference in the level of implementation remains striking. The comparative record of the US and Canada suggests that institutional design contributes the divergence in implementation outcomes. In particular, the limited scope of the Canadian Act means that the federal government depends on provincial governments to act. The absence of a legislative deadline for the most important stage of implementation means that reluctant governments, federal or provincial, can get away with inaction. Unless forced by statutory requirements or strong political pressures, governments are unlikely to act to protect endangered species even when the scientific case is strong.

There is currently a Parliamentary Review under way of the Species at Risk Act. This review is an opportunity to strengthen the Act to address the weaknesses of the Act that contribute to this dismal record of implementation.

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The Other F-Word: The Government of British Columbia’s Volatile Relationship with Environmentalists

Posted on July 14, 2010 by admin

July 14, 2010

George Hoberg

Yesterday, the Globe and Mail reported that Bill Bennett, BC’s Minister of Energy, Mines, and Petroleum Resources referred to environmentalists campaigning to turn the Flathead Valley in the southeastern corner of the province into a National Park as “eco-facists” (sic). The minister (who recently replaced Blair Leckstrom who resigned over the HST) explained afterwards that he did not author the email. He stated that it was sent out by a new staffer who was not sufficiently familiar with the office’s review policies.

Even if the Minister was not the author of the email that went out under his name, the incident raises two interesting questions. The first is about the relationship between constituency politics and cabinet duties. Bennett’s portfolio of energy and mines would be directly involved in any decision about the fate of the Flathead. Do cabinet ministers normally engage in such blatant attack politics on issues so close to their portfolio? According to the Vancouver Sun, Bennett apologized for the use of the word fascist (although not, apparently, its misspelling), but not for the content or tone of the message. Here’s an extract from the message reported by the Sun:

“These ‘protectors’ of the earth will use whatever legal, political, dishonest means they can muster. They are like the colonizers of history. They love to add another chunk of their favourite colour to the map of the world. We either stand strong together against the loss of the Flathead Valley to the eco facists [sic], or we will lose the Flathead.”

Even deleting the misspelled f-word, that is pretty harsh rhetoric for someone who needs to have an effective working relationship with the environmental community, not only on the Flathead, but on a broad range of challenging and divisive energy and mining issues facing the province.

The second question raised is whether the email reflects a new rhetorical turn for the BC Government. The email incident got me thinking about some other signature moments in the history of the Government of BC’s rhetoric on environmentalists. In the mid-1990s, when environmentalists launched their campaign to protect the Great Bear

Rainforest, NDP Premier Glen Clark denounced them as “enemies of BC.” That characterization was enormously hurtful to many environmentalists and represented a significant setback in personal and political relations between the government and the environmental community. A decade later, when he announced the government’s plan to protect the Great Bear Rainforest in February 2006, BC Liberal Premier Gordon Campbell shared the stage with

Premier Campbell congratulating the Sierra Club's Lisa Matthaus for her contributions to the Great Bear Rainforest agreement in 2006

Premier Campbell congratulating the Sierra Club's Lisa Matthaus for her contributions to the Great Bear Rainforest agreement in 2006

leading environmentalists, and during his remarks, he made a deliberate point of referring to leaders of Greenpeace, ForestEthics, and the Sierra Club as his friends and he thanked them for their contributions. While that may have been a rare moment of consensus in a long history of confrontation, I nonetheless understood it to be recognition of the futility and corrosiveness of incendiary political rhetoric from the Government.

That is why I find Bennett’s email so troubling, whether or not it used the f-word and whether or not an inexperienced staffer typed it. It may be a signal of heightened combativeness on behalf of the Government. History has shown that is unproductive politically and environmentally.

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British Columbia’s New Clean Energy Act: A Preliminary Analysis

Posted on April 29, 2010 by admin
Premier Campbell and Brad Bennett, grandson of WAC Bennett

Premier Campbell with Brad Bennett, grandson of WAC Bennett

George Hoberg

 

The Government of British Columbia introduced its much anticipated Clean Energy Act today. The Act follows the government’s increasing assertions about it aspirations to become a “Clean Energy Powerhouse.” To lay the groundwork to pursue that mission, the government appointed a Green Energy Task Force (actually four related bodies) in the Fall of 2009. On April 19, the Government committed to moving the Site C Dam on the Peace River to the regulatory review and environmental assessment stage.

 

The two most important changes introduced in the Act are a substantial revision of the governance framework for energy policy and the articulation of new and revised objectives for BC energy policy. While these new objectives increase provincial commitments to conservation and clean energy, they also promote electricity exports and fuel-switching that could lead to significant new electricity generation projects . The most glaring gap in the new Act is its failure to explicitly create a regional planning process to address the cumulative effects of energy development.

 

New Governance Framework. The new governance framework involves two significant changes. First, the Act reunites BC Hydro with the British Columbia Transmission Corporation (BCTC). BCTC was separated from BC Hydro in the Campbell government’s 2002 Energy Plan as part of its effort to privatize new source generation. It was thought at the time that privately owned generating facilities needed access to transmission capacity that was not operated by the Crown utility. But that view has now changed. The effect is to increase the reach and capacity of BC Hydro. Critics of the Campbell government’s energy policies have denounced the creeping privatization of electricity in the province. The new Act does retain a big role for privately-owned independent power producers (IPPs), but reasserts the dominance of government ownership over the bulk of the electricity system.

 

The second significant change in governance is the substantial reduction in the regulatory jurisdiction of the British Columbia Utilities Commission (BCUC). Most importantly, the Act would remove the authority of the BCUC to approve BC Hydro’s long term plans (currently referred to at a Long Term Acquisition Plan). The Act would create a new planning process – an Integrated Resource Plan – that combines the existing functions of the Long Term Acquisition Plan with the objectives of the “Section 5 Transmission Inquiry.” The government had required the BCUC to conduct that inquiry, but then suspended it when the government decided to appoint the Green Energy Task Forces to recommend how to revise electricity governance. Instead of having the BCUC review and approve the plan, the plan is submitted to the Minister of Energy, Mines and Petroleum Resources, and then formally approved (or rejected) by the cabinet in the form of the Lieutenant Governor in Council (Sections 3 and 4 of the Act).

 

In addition to removing the BCUC from planning, the new Act would also remove the BCUC from the review and approval of major projects, including the proposed Site C dam, new export agreements, the Northwest Transmission Line, additions of new turbines to existing “heritage” dams, the 2008 Clean Power Call, and the new Smart Meter program. The BCUC would retain authority mainly over rate setting.

 

In July 2009, the BCUC took the controversial action of rejecting outright BC Hydro’s Long Term Acquisition Plan, including its proposal to reduce reliance on the Burrard Thermal natural gas plant that the government was trying to phase out. With the new Clean Energy Act, the BCUC won’t be acting as a referee any longer between BC Hydro and the government. This is a dramatic shift in the governance of electricity policy from regulation by an independent commission to direct government control.

 

New and Revised Objectives.  The Campbell government made substantial changes to energy policy with both its 2002 and 2007 Energy Plans, much of which was explicitly incorporated in legislation through the Utilities Commission Act. The new Clean Energy Act carries forward many of those objectives but also adds new objectives and strengthens some important existing objectives.

 

·         The most significant new objective is “to be a net exporter of electricity…with the intention of benefitting all British Columbians and reducing greenhouse gas emissions in regions in which British Columbia trades electricity.” Previously, the core objective had been self-sufficiency. This new export objective embodies BC’s aspiration to become a “Clean Energy Powerhouse,” and could lead to substantial new development of energy projects.

·         The new Act would also “encourage the switching of one kind of energy source or use to another that decreases  greenhouse gas emissions in British Columbia.” Fuel switching from gasoline to electricity in the transportation sector and from natural gas to electricity in the building sector could have substantial implications for BC’s future electricity demand.

·         The Act would strengthen the obligation to meet new electricity demand through conservation measures from 50% to 66%. In its most recent planning proposal BC Hydro wanted to rely on conservation for 72%, so this seems readily achievable.

·         The Act would increase the required percentage of electricity generated from clean or renewable sources from 90% to 93%

 

Glaring Omission. Perhaps the most glaring omission from the new Clean Energy Act is the absence of an explicit requirement for a regional planning process to address the cumulative effects of energy development. The environmental community has persistently criticized the BC government for its lack of effective planning for new energy developments. The province dealt reasonably effectively with forest land use issues through the Land and Resource Management Planning process, but those plans did not include energy for the most part. Recommendations to include energy in a similar planning process have been proposed by a broad coalition of environmental groups in a submission to the Green Energy Task Forces. The task force on “resource development” included very specific recommendations for a new process under its Outcome 3 “Achieve world-class environmental performance for clean energy

Projects”:

 

1. [omitted]

 

2. By September 30, 2010, and using existing data and information layers, develop a renewable energy zoning map for the Province that identifies where development of renewable energy and transmission is appropriate and inappropriate.

 

3. Complete the Section 5 inquiry as soon as possible, focusing on transmission planning and deferring all regional planning submissions to the regional planning process.

 

4. Using the outcomes of the provincial zoning map (recommendation 2) and Section 5 findings  (recommendation 3), undertake regional planning in areas that are appropriate for more intensive development, have potential for industry electrification, and have potential for low cost energy clusters.  An assessment of cumulative impacts of all projects within the planning area will also take place.

 

Recommendation number 3 seems to have been included in the new Integrated Resource Plan, but the other two recommendations have not been explicitly incorporated into the new Clean Energy Act . The section on planning does contain a reference to a requirement to consider, as part of its transmission planning, “an assessment of the potential for developing…grouped by geographic area, electricity generation from clean or renewable resources in British Columbia.” This provision does require the sort of regional supply planning envisioned the Section 5 Transmission Inquiry Terms of Reference. But it does not explicitly address the issue of cumulative effects from multiple energy projects that has been the prime concern of the environmental community and that was clearly recommended by the Green Energy Task Force on Resource Development.

 

The Act does make homage to cumulative effects by amending the Environmental Assessment Act to allow the consideration of “potential cumulative environmental effects.” This is not actually a significant change because the Environmental Assessment Office had already committed (p. 26) to considering cumulative effects. More importantly, tweaking the environmental assessment process does not get at the root of the problem of moving beyond project-level assessment to considering integrated regional planning.

 

As debate over the new Act begins, it will be important to hear the government’s response to the strong Green Energy Task Force recommendations on regional planning. Given that a shift to an export focus and fuel-switching will increase the pressure for new energy projects, it is imperative that we get the review and approval process right.

 

Other Notable Changes. If enacted the new Clean Energy Act would also do the following:

·         Create a new feed-in tariff

·         Create a First Nations Clean Energy Business Fund

·         Formally legislative a “Two Rivers Policy” which precludes any new major dams in the province after Site C.

 

 
Posted in British Columbia Electricity | 2 Comments

Update on BC electricity trade balance

Posted on March 16, 2010 by admin

George Hoberg

March 17, 2010

Updated statistics compiled by BC Stats on electricity trade are now available forM~ prv103103 POWER 02 2009, providing additional evidence that BC has moved into a situation of being a net importer of electricity.

In the continuing controversy over BC electricity policy, the question of whether the province is a net importer or exporter continues to play a surprisingly large role. In a recent comment on BC’s self-sufficiency policy, NDP energy critic John Horgan claimed that the government has created an artificial panic over the need for new power. He states: “Over the last eight years, B.C. has been a net exporter of electricity.” In response, Energy Minister Blair Lekstrom states “Many British Columbians are surprised to learn that BC Hydro is a net importer of electricity to keep our lights on. Despite what Horgan would have you believe, BC Hydro has imported more electricity than it has exported in eight of the last 10 years.” Given that data on trade flows, while complicated, are readily available, this persistent factual disagreement is perplexing.

We attempted to sort through some the methodological and conceptual issues involved in a post last year. The biggest difference underlying the apparently conflicting claims is whether one is examining just BC Hydro or the entire province – there are electricity producers in the province other than BC Hydro. But even that can’t account for Horgan’s mistaken interpretation of the situation.

In 2009, the province consumed 5.8% more electricity than it produced. This means that BC was a net importer of electricity for four out of the past six years. There are many important and challenging issues in BC electricity policy. We should save our intellectual and political energy for a reasoned discussion of them, and move beyond the false debate about whether BC is a net importer or exporter.

A table and chart are included below with a summary of the data. The trade data is reported at BC Stats. The data on BC generation and consumption were provided directly to me by BC Stats.

bc-electricity-data-update

bc-electricity-data-update-net

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