Grants on electricity: immoral in Quebec?

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Grants on electricity: immoral in Quebec?




by Christophe » 12/01/10, 17:10

Subsidizing electricity: an immoral decision
January 12, 2010 | 05

Youri Chassin
Economist at CIRANO

The Quebec government spends $ 2,3 billion a year on subsidies to electricity consumers. This amount corresponds to the rent due to the difference in Quebec's residential and commercial rates from the Canadian average (1). The rule for this subsidy is simple: since the tariffs are lower than the market price, the more electricity we use, the more we receive a high subsidy.

Yet everyone agrees that there are better options available for distributing $ 2,3 billion. This subsidy not only hampers Quebec's prosperity, but it is also inequitable and anti-ecological, which goes against the very values ​​that must drive state intervention. Already unjustifiable in normal times, this is a downright unacceptable situation in times of budget deficit. This is why subsidized electricity rates must stop.

An inequitable grant

Imagine for a moment that there is no sales tax in Quebec, but rather a purchase subsidy proportional to the prices. Everything is subsidized and everyone feels like they are taking advantage of the windfall. However, those who consume the most will also benefit the most from this subsidy. And the subsidy will be much higher when buying a Porsche than a Honda or a Toyota.

This measure clearly appears to be inequitable. And the same goes for subsidized electricity rates. The subsidy is lower for the family living in a small apartment than for the family that electrically heats a mansion, a country house and an outdoor swimming pool.

Subsidizing electricity rates is not a fair measure. On the other hand, stopping subsidizing electricity rates will imply a higher bill for all families in Quebec. Several voices were raised to emphasize that the rate increases are regressive; in other words, that in proportion to their income, the additional effort of the less fortunate is greater. This must be taken into account and ensure that the most disadvantaged are not negatively affected by the end of the subsidized tariffs.

Several avenues are possible. Above all, there are already a multitude of tax programs and measures that compensate the less fortunate for increases in the cost of living. Social assistance, financial aid for studies, HLM tenants, beneficiaries of the Rent Supplement or Housing Allowance will have their income adjusted automatically. Other measures, such as the work premium or refundable tax credits, represent practical means of ensuring that the poorest are adequately compensated.

A polluting subsidy

The electricity produced in Quebec is less polluting than elsewhere because it comes almost entirely from renewable energy sources with low greenhouse gas (GHG) emissions. However, it is not possible to morally justify the tariffs subsidized by the greener nature of hydroelectricity.

On the one hand, using greener electricity is not a reason to waste it. By subsidizing its use, Quebec encourages consumers to use more electricity than they should. Methods such as raising awareness of energy efficiency and adopting more demanding building standards always cost something, either in government spending or in increasing the price of housing. These are costly methods that are used to correct the excesses caused by subsidized electricity rates. Above all, we can promote energy efficiency while ceasing to subsidize excessive consumption. It would even be much more effective!

On the other hand, the long-term consequences of unsubsidized electricity tariffs are very positive for the environment. As the waste decreases, Hydro-Québec would find itself in an ideal situation to export more clean electricity to our Canadian and American neighbors where polluting coal plants abound! If the room for maneuver is large enough, long-term supply contracts could even allow the closure of obsolete, polluting and costly power plants in certain American states.

An impoverishing subsidy

How ironic it is to subsidize yourself in order to get poorer! In my opinion, however, it is the concrete result of current policy that sets electricity rates according to production costs rather than market prices.

Subsidies don't fall from the sky. They are paid by the taxes of Quebec taxpayers or financed by the debt that generations to come will pay. However, taxes and tariffs do not have the same economic impact. Tax taxes a process that creates wealth, while tariffs put the cost of a service on the user. In addition, the taxpayer has no choice but to pay his taxes without moving and leaving Quebec, while the user pays can choose to reduce his consumption without reducing the wealth produced. By subsidizing tariffs, Quebec has so far chosen to impoverish itself. It is time to collectively make the choice to get rich.

If green technologies present a promising future, the enrichment of Quebec also goes through its entrepreneurs who found SMEs in this sector. But will energy efficient technologies be adopted? They will always be less profitable where the tariffs are subsidized. Quebec must not take the risk that these technologies appear and thrive elsewhere, create jobs of the future only among our neighbors, and lead to cutting-edge research which will benefit our competitors. For Quebec's future prosperity, it is today that we must make responsible decisions.

Act according to our values

There is no moral justification for subsidizing electricity rates. Of course, from an economic point of view, this subsidy is harmful. But above all, it is shocking to note that this public policy is unfair to the poorest and that it is harmful to the environment. With each advantage that can be found at subsidized rates, it is possible to oppose a more effective and less costly measure to achieve a better result. Simply put, subsidized electricity rates are ineffective, inefficient and immoral.

In a period of budget deficit, this waste of public funds is indecent. It is time to end it, to help our economy create more wealth, to improve our environmental balance and to target additional aid to those who really need it. For example, for $ 800 million, it would be possible to pay $ 500 a year to half of Quebec families. Assuming such compensation, the abandonment of subsidized tariffs would allow recurring revenues of at least $ 1,5 billion to be recovered by 2013-2014.

The Quebec government's pre-budget consultations seek budget solutions that "protect our values". This is precisely what this analysis shows us: subsidized electricity tariffs are contrary to our values ​​of equity and sustainable development. Abandoning this harmful policy improves Quebec's financial situation, of course, but above all allows Quebecers to act according to their values.

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(1) Report of the Working Group on the pricing of public services (Montmarquette Report), March 2008, p.105


http://argent.canoe.ca/lca/affaires/que ... 55148.html
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Alain G
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by Alain G » 12/01/10, 20:42

A bit extremist as a report!

It has been discussed and rediscussed many times, the subsidies of which he speaks for the most part are that of aluminum smelters which brings in ten times more in the economy with more than decent wages.

Naturally there is too much subsidy and especially too much commission, cutting a little in the bureaucracy would not do any harm at all.

Worst of all is the ministry of finance which is administered in duplicate and has too many taxes of all kinds which inflates double the personnel required in addition to being duplicated compared to Ontario which has a harmonized provincial and federal tax .
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