The short-circuit in Ontario’s manufacturing sector
Ross McKitrickGeneral Sustainability Energy Government Manufacturing electricity green manufacturing Ontario
High electricity prices are responsible for 75,000 manufacturing job losses.
Soaring electricity costs have devastated Ontario’s manufacturing sector.
In the 1990s and into the 2000s, Ontario was a low-electricity-cost jurisdiction. This competitive advantage helped attract business and foster economic growth in the province.
But in recent years, due largely to the inefficiencies of the Green Energy Act (2009), Ontario electricity prices have soared. And that’s hurt industrial competitiveness, especially in the manufacturing sector where electricity is a major cost.
Between 2005 and 2015, Ontario’s manufacturing output fell by 18% and manufacturing employment fell by 28%. And manufacturing jobs in the province fell from 805,170 to 688,735.
A recent Fraser Institute study estimates that the province’s high electricity prices are responsible for roughly 64% of the job losses – a staggering 75,000 manufacturing positions.
Government officials are quick to tout job creation in renewable energy (wind, solar, etc.). But even when those job-creation estimates are taken at face value, Ontario has lost at least 1.8 permanent manufacturing jobs for every new job created under the province’s green energy initiatives since 2008. And this is a conservative estimate, since many of the green energy jobs were temporary.
Ontario’s manufacturing sector accounts for almost 40% of Canada’s exports, so its decline is a matter of national concern.
Why has manufacturing fled the province in recent years?
Ontario now has the highest electricity costs in Canada and some of the highest in North America. In 2016, large industrial consumers (with a power demand of five megawatts and monthly consumption of 3,060 megawatt hours) in Toronto and Ottawa paid almost three times more than consumers in Montreal and Calgary, and almost twice as much as consumers in Vancouver. Even some select large industrial consumers (Class A) in Ontario, granted rate reductions, still paid higher rates compared to large electricity users in Quebec, Alberta and British Columbia.
Ontario electricity costs are also among the fastest growing. Between 2010 and 2016, electricity costs for small industrial consumers (with a power demand of one megawatt and monthly consumption of 400 megawatt hours) increased by 50% in Ottawa and 48% in Toronto, compared to 15% (on average) in the rest of Canada. Increases for large Ontario industrial consumers were also far above those in other provinces.
The paper manufacturing and iron and steel sectors – the two most electricity-intensive sectors in Ontario prior to the big price increases – shrank the most (32% for paper, 25% for iron and steel).
Moreover, while manufacturing in all provinces fell during the 2008 recession, only Ontario failed to recover to pre-recession levels.
In fact, compared to multiple American and Canadian jurisdictions, Ontario has seen the most substantial decline in manufacturing over the past decade. Between 2005 and 2016, while some nearby US states such as Michigan boosted their manufacturing sector’s share of gross domestic product, Ontario’s declined by five percentage points. Similarly, between 2005 and 2015, the manufacturing share of employment in Ontario fell by six percentage points compared to only 1.7 points in the United States.
The relative success of competing jurisdictions proves that global factors such as world demand, exchange rates and technological change can’t explain Ontario’s poor manufacturing performance. Clearly, Ontario electricity prices, placing an increasing financial burden on Ontario’s manufacturing sector, are to blame.
Rising Ontario electricity costs are directly tied to provincial government policies, including the aggressive promotion of renewable energy sources, poorly structured long-term contracts and the phasing out of coal.
The dramatic job losses in Ontario’s manufacturing sector, and the stagnant employment and economic growth rates in the province, should serve as a warning to policy-makers across Canada.
The Ontario government must pursue meaningful reforms aimed at significantly lowering electricity costs in the province.
Ross McKitrick and Elmira Aliakbari are authors of Rising Electricity Costs and Declining Employment in Ontario’s Manufacturing Sector, published by the Fraser Institute. Distributed by Troy Media © 2017