Falling Use, Rising Price: A Modern Lament

This morning's Thunder Bay paper featured a municipal councilor lamenting that the new provincial cap-and-trade policy will add at least $375,000 to the City of Thunder Bay's energy bill.  According to the councilor: “It’s very frustrating because we reduce consumption substantially and then bingo, it’s gone.”  As the story notes, the city’s finance department in November projected the legislation will lead to a $200,000 increase to natural gas, $150,000 for diesel fuel and $25,000 to gasoline based on estimates of 3.3 cents per cubic metre of natural gas, 4.7 cents per litre for diesel and 4.3 cents per litre for gasoline.


Of course, this is not the only case of policies designed to conserve and reduce consumption of environmentally damaging activities resulting in both decreased consumption and higher costs.  Indeed, municipal ratepayers have been complaining about this practice for years when it comes to municipal water and sewer charges.  For example, most cities in Ontario have seen declining water use and rising rates.  Thunder Bay has been no exception.  And then of course there is electricity in Ontario which has seen rising rates and falling use and indeed has resulted in considerable political damage now for the provincial government.  The accompanying figures illustrate what has happened to electricity prices and usage in Ontario.


 


 

Of course, protecting and saving the environment is going to come at a cost and that is going to involve decreased usage and higher rates borne by the user.  All the feel good political marketing in the world is coming up against the realization that these charges in the end amount to a new form of consumption taxation and that this type of taxation is hardest on lower income individuals.  The recent exchange between a single mother and Prime Minister Trudeau highlights the situation many people are facing.  Obviously, more effort has to be made to mitigate the costs of such policies on lower income individuals.

Ultimately, a municipal government lamenting that provincial-cap-and-trade has raised their costs should be treated with caution during budget season especially given they have also engaged in similar types of practices when it comes to things like sewer and water.  One is tempted to assume that the increase in costs to the city of Thunder Bay as a result of cap-and-trade represents an opportunity to increase municipal tax rates while blaming another level of government.  This is of course a traditional practice in Canadian fiscal federalism at both the provincial and municipal tiers of government.  Unfortunately, while there are three levels of government passing on costs, there is ultimately only one taxpayer.