Is this “good-bye” Ontario?

US states are enticing Ontario companies with incentives to move south. PHOTO: THINKSTOCK

In December, Leland Industries brought to life the concerns of many small and mid-sized manufacturers in Ontario that are feeling squeezed by sky-high energy costs and new carbon policies that are rendering them uncompetitive.

The fastener manufacturer, founded in 1984 and based in the Scarborough area of Toronto, is moving its operations to the US and blaming Ontario’s escalating energy costs.

“We have big plans for expansion ahead,” says Byron Nelson, the company’s founder and CEO in a release. “But no longer here in Ontario.”

Leland Industries employs more than 200 people at its plants in Scarborough and Waterloo, Ont.

It’s among many small and mid-sized companies looking to grow, but also considering investment outside of the province. Ontario’s time-of-use pricing system has increased peak time energy costs by 81% since 2010. US states have been quick to act by deploying juicy incentives to entice Canadian companies to invest and add manufacturing capacity south of the border.

“Industrial electricity bills have soared over the past year, and with Ontario’s new cap-and-trade system, electricity and natural gas costs are likely to jump by at least another 20%,” says Jocelyn Bamford, founder of the Coalition of Concerned Manufacturers. It advocates for small and mid-sized manufacturers concerned about the impact of rising energy costs on their businesses and the economy. So far, the coalition has attracted more than 300 members to its Facebook page.

Bamford cites an anonymous manufacturer who told the coalition of a November hydro bill of $162,212.66. The manufacturer used just $13,060.10 worth of electricity, but its global adjustment fee was a whopping $107,698. The fee is the amount tacked onto energy bills to cover above-market rates paid to green energy companies.

“The province is removing HST on electricity bills, but that won’t offset the energy and transportation cost increases in store for smaller manufacturers, many of whom are tied to contracts that prevent them from passing costs along in the form of higher prices to their customers,” adds Bamford, who is also the vice-president of Automatic Coating Ltd. The supplier of powder coating, pipe coating and grit shot blasting for both industrial and consumer products, also in Scarborough, has 75 employees.

In October, Bamford told the Toronto Sun Automatic Coating’s energy bills grew from $34,000 in April 2016 to $42,000 in May. The extra costs weren’t from increased energy use, but the government’s add-ons.

“Manufacturers have become more competitive and able to reduce emissions at the same time because they’ve invested in new technologies,” says Bamford.

Investment inactivity

Indeed, Ontario manufacturers have reduced greenhouse gas emissions 15% since 1990, according to a study by Canadian Manufacturers & Exporters.

“Higher energy costs leave us less money for investment. And, if manufacturers can’t invest in Ontario, it’s not good for the economy or for jobs in this province. Ultimately, it’s not good for the environment either.”

Bamford emphasizes the urgency of the situation.

“Companies like Leland are making investment decisions now. Ontario stands to lose good, high-paying jobs if something is not done to mitigate the negative impacts that cap and trade will have on smaller manufacturers across the province.”

Ontario’s cap and trade tax came into effect Jan. 1, and will tax companies based on their emissions, forcing them to buy carbon credits if they want to continue production in the province. A Stikeman Elliott report estimates the policy will add $136,000 to small manufacturers’ costs this year. By 2030, the cost to large participants will top $2 million, a significant increase that’s the result of the government expecting carbon credit prices to increase by 428%, (from $18 to $95 per ton). Problem is, many SMEs won’t be able to take advantage of the program’s benefits because they don’t generate enough carbon dioxide to be included in the cap and trade marketplace.

And many medium-sized manufacturers aren’t eligible for Ontario’s new hydro rebate because they consume more than 250,000 kilowatt-hours of power annually, and exceed demand of 50 kilowatts. Ontario’s Industrial Conservation Initiative is also a no-go for SMEs because the incentive is only available to large electricity users with a peak monthly demand of more than one megawatt.

That leaves small and mid-sized manufacturers between a rock and a hard place. Without action, the province’s manufacturing sector will continue to lose production capacity to more attractive US jurisdictions. The coalition is hopeful its lobbying will start to alleviate the pain. It’s calling on the Ontario government to make all cost increases resulting from its cap and trade program visible to consumers and industry. It’s also recommending that the Liberal government’s forthcoming budget introduces a tax credit that would offset the impact of higher energy costs and encourage manufacturers to invest in new technologies.