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STUCK IN THE MIDDLE WITH ME

For anyone who self-identifies as a radical centrist, these are trying times.  The political discourse on both social and economic issues has never been more polarized.  There can never be any nuance to any discussion of longstanding issues, no acknowledgement of the truth that, for many and even most of those issues, their endurance is testament to the fact that both sides have a point, and that resolution of these issues must be found in solutions that reflect the need to at least acknowledge if not accommodate the reasonable demands and expectations of both perspectives.  That is why it is important to note and salute political actions that reflect a balanced and centrist approach to any issue, and we are fortunate in Canada to have a rare opportunity to do just that.

The federal Liberal government is not one that has been thought of as being particularly centrist.  As a matter of style, NDP leader Jagmeet Singh’s colourful turbans come off as the personally appropriate equivalent to Justin Trudeau’s fashion forward sock choices.  And on social issues, the federal Liberals leave little rhetorical space on the progressive spectrum for those on the political left in Canada on touchstone issues like Indigenous rights, gender equality and cannabis legalization.  For social conservatives (and strident Conservatives), there appears to be no party of the centre.

That case, however, has never been as easy to make in the context of economic issues.  The rhetoric of the federal Liberals, both in the 2015 election and in government has been unequivocally pro-trade, and never more so than in the recent context of the forced renegotiation of the North-American Free Trade Agreement.  As true centrists, the Liberals’ commitment to free trade has always been conditioned upon the tabling if not insistence upon progressive notions of fair trade and human rights commitments, but the primacy of the concept of global free trade ahead of absolutism on these issues has always been clear.

The application of this commitment to centrism has, however, been less tested and thus less certain as it applied to environmental policy.  The bargain offered on the campaign trail by the Liberals was perhaps vague but undeniably centrist.  To address the legitimate local concerns raised by affected communities, Canadian provinces and enterprises bringing forward proposals to further develop and move product from the oil Sands would be asked to submit to a more rigorous and multi-lateral approval process to obtain what the Liberals deemed the required “social license”. However, once that process had been honoured and a decision upon the merits of the proposal were ruled upon, the development would proceed.  At the same time, the government would address the national and global issue of man-made climate change by imposing a carbon tax on a national basis to shrink the carbon footprint of Canadian businesses and consumers.

It was a policy position that many interpreted as a soft no; one that would empower environmentalists and opportunists to forever constrain a party committed to retaining the goodwill of all Progressives by withholding unanimity from any social license.  And in the early going, the federal government’s obvious discomfort in inserting itself into the growing economic and constitutional spat between the governments of BC and Alberta certainly seemed to reinforce that cynicism.  However, the boldness of the move to acquire the interest of Kinder Morgan in the Trans-Mountain pipeline is decisive and bold.  And most importantly, it is principled in a truly centrist fashion.  The overall policy offered by the Trudeau government addresses the economic need to provide immediate opportunities to Canadians while at the same time introducing an economic incentive to Canadian consumers and businesses to reduce their carbon footprint.  Those that wish to see the oil sands’ oil stay in the ground need only convince electorates in Canada and elsewhere to raise carbon taxes or otherwise voluntarily reduce consumption; any resulting reduction in global demand will hit higher cost oil sands production and shipment before almost any other source of fossil fuels.

The pipeline acquisition officially ends any honeymoon enjoyed by the federal Liberals with the radical wing of the Canadian and global progressive movement, freeing it from any inclination to even appear to be reflexively left-leaning.  And Canada now enjoys something currently seen in only a few democracies around the world: a truly centrist government.

CHILD’S PLAY: ONTARIO ENERGY COSTS

Politics in general, and electoral politics in particular, have sadly never been a venue for frank explanations or sensible solutions for important public policy challenges.  The provincial election now underway in Ontario is certainly no exception to that rule, and no issue better captures the exasperating truth of this observation than the issue of electricity costs in Ontario.

That is not to say that the three major parties are ignoring the issue.  The incumbent Liberals have already chopped 8% from the bills paid by ratepayers across the province, with another 17% to follow shortly.  And rural ratepayers are to receive a subsidy to offset their higher power delivery charges that will knock a further 15-25% off their total energy bill.

The poll leading PCs want to up the ante by shaving an even 37% off the bills paid by all Ontarians, and will roll back salaries and severance benefits from the executives of the recently privatized  Hydro One.  The surging NDP has its own comparable offering: 30% off all bills, a further 15% cut for rural customers to offset higher delivery charges, the end of time-of –use rates differentials and a promise to negotiate with the federal government to eliminate the 5% GST from hydro bills, AND the buy-back of the 51% sold off by the province in the privatization of Ontario Hydro.

From the look of these platforms, one would have to conclude that it is pretty easy to cut hydro rates; it looks like a 35% rate reduction is just table stakes for this election.  However, on closer examination, it seems that these rate cuts are only easy because they are not what they claim to be.

Ontario has a problem with its hydro rates because of overcapacity.  Over the last 15 years, high cost electricity has come on line with the execution of contracts negotiated with private generators of solar and wind energy.  At the time that these green energy initiatives were entered into, they were justified in part as part of a plan to decommission carbon-generating gas plants and as part of an industrial strategy to establish Ontario as a leader in the manufacture of panels and turbines required to support green power generation.

Unfortunately, that strategy was flawed on both fronts.  Both at that time and at the present, green energy requires the maintenance of traditional generating capacity equal to peak demand, because there must be light and power when the sun don’t shine and the wind don’t blow.  And both of the traditional generation modes used extensively in Ontario (nukes 61%, hydro 24%) are high fixed, low marginal cost capacity.  So Ontario ended up with its existing full generating capacity that was buttressed by duplicative high cost green energy.

Even that problem was not so bad until the full impact of the 2008 global recession hit.  Economic activity fell precipitously as did the demand for power just as the bulk of these high tariff take-or-pay green energy contracts came on line.  Suddenly Ontario was an exporter of high cost power for which the market would pay only a fraction of the production cost.  Ouch.

So there is the problem.  Let’s look at the solutions that the politicians are offering.  Cuts to the cost of generation can only arise by one or both of two means.  One is entirely cosmetic.  Shifting the cost of power generation from rate payers to tax payers is truly meaningless.  Every ratepayer is also a taxpayer (with the exception of the homeless, who are neither), and given that electricity consumption is reasonably correlated to income, the burden of hydro costs are probably allocated progressively in either a utility or tax bill.  This strategy is nothing more than a shell game, pure and simple.

The other is to shift the cost generationally, incurring long term debt to fund the excess costs of today. If this is to be the strategy, the best and most transparent way to raise that debt is by issuing more government debt, where the creditworthiness of the province’s tax base, howsoever tarnished by excessive borrowing, will still result in lower interest costs than an issuance by the utility itself.  The worst and least transparent way to do it is to set up a special purpose vehicle under Ontario Power Generation to issue the debt, thereby adding even more structuring costs to the already higher issuance costs that OPG itself would attract.  Alas, the Wynne government went with the latter.   As a result, Provincial Auditor Bonnie Lysyk has noted that the rate relief program will incur $4 billion in additional interest costs to create a structure that can only be justified on the tenuous argument that it permits the government to exclude the debt from its own books.  Given the choice between a shell game and kick-the-can, the government chose the latter and then promptly kicked the can under a car.

The only part of this whole thing that has any remotely rational basis is the subsidization of delivery costs for rural users.  One can certainly quibble about the public policy justification for subsidizing more remote Ontario communities, but to the extent that there is a consensus on this policy, it is an effective mechanism to collectivize the cost and spread the pain.

The reality is that Ontario finds itself with electricity rates that are certainly high by Canadian standards, but still modest relative to those of many US jurisdictions.  There is no magic solution to reduce these costs in the short term.  It is time to stop the children’s games and have an adult conversation about how much of the cost can and should be deferred and how to finance that deferral most economically.

AN ICONIC TRAGEDY

The horrific bus crash that took the lives of 16 players, coaches and team personnel from a Saskatchewan Junior Hockey League team has sparked a national outpouring of grief that is nothing short of a cultural phenomenon.  Since the April 6th crash, Canadian media has been filled with stories that have acquainted readers, listeners and viewers with every detail about the Humboldt Broncos team and town and the names, lives, billets and hometowns of each and every one of the deceased and several of the injured.  The public has responded with a wide variety of tributes, from the touchingly symbolic (leaving hockey sticks outside our doors at night) to the breathtakingly tangible (just under $12 million raised to date through a record-breaking GoFundMe campaign to benefit victims and their families).  And it all seems entirely appropriate.  Sixteen people, thirteen of whom were between the ages of 16 and 21, lost their lives; another thirteen have been grievously, and is some cases, permanently injured.  It is by any measure, a massive tragedy.

Yet there is something extraordinary at work here.  The nation, and perhaps parts of the world, have been galvanized in the face of this tragedy in a way that is unprecedented.  These sixteen motor vehicle fatalities will, after all, be less than 3/4 of 1% of the motor vehicle deaths that will occur in Canada in 2018 if this is a typical year.  Even adjusted for the age of the bulk of the victims, it will still likely only account for just over 3% of motor vehicle deaths among Canadians between the ages of 16 and 24.

Even as a single tragic event, the scope and breadth of the public grief is unprecedented.  It is even greater than that which followed the Lac Magantic train crash and explosion that killed 47 people, including an identical number of victims between the ages of 16 and 21, on July 6, 2013.  It is also a far greater chorus of grief than that which greeted the September 18, 2013 collision in Ottawa of an OC Transpo bus and a train.  While the latter involved only six fatalities, the prospect of a bus colliding with a train in the middle of a city is a far more personal horror story for Canada’s largely urban population than an accident involving a coach bus at a rural intersection.

But perhaps it is exactly that distinction that is at work here.  A train rolling down a grade and exploding in a town or a bus colliding with a train at a level crossing are horrible tragedies that can happen anywhere.  A coach bus full of young hockey players from a small town heading across the Prairies to a playoff game in an unusually cold Canadian spring hit by a transport truck carrying a load of peat moss killing 16 and injuring 13 others: that is an iconic Canadian tragedy.  Gordon Lightfoot could (and might) write a song about it; Gordon Pinsent could (and might) play the wizened and wise old coach in the movie.  It is not just a tragedy; it is viewed both within Canada and abroad through a sentimental and nostalgic lens as a quintessential Canadian tragedy.

The Humboldt Broncos have shown yet again that, despite fifty years of unceasing urbanization, massive diverse immigration and American cultural imperialism, Canadian iconography endures in the hearts of its citizens and the world.