Posted: 11/29/2018

In the new year, Manitobans will begin to pay Prime Minister Justin Trudeau’s carbon tax, one imposed because the province and federal government could not agree on a greenhouse gas reduction strategy. At $20 per tonne of carbon, the tax will be too small to make a material difference in carbon emissions (it needs to be more than 10 times greater for that), but it will be large enough to be annoying.

Until the election of Doug Ford as premier, Ontario (and Quebec) had escaped the obligation to pay Trudeau’s tax by setting up a cap-and-trade system that included California as a partner. Ontario businesses could purchase carbon credits from others who had already reduced their emissions. The Trudeau government was fine with that arrangement, but not Ford. He pulled the plug on Kathleen Wynne’s system soon after taking office.

Here is the curious thing. Manitoba has already been doing exactly what Ontario, Quebec and California were doing, without receiving credit for it.

Manitoba Hydro has built substantial surplus-generating capacity, a surplus that will grow markedly when Keeyask goes online in 2021. Manitoba Hydro argues we will eventually need that power as domestic demand grows over time. Others disagree, arguing conservation could easily have done the job or that Hydro’s view does not adequately take into account the competition its power will receive from other renewables.

That is a debate for another day. The key point is we will have surplus power to sell over the medium term. Manitoba ratepayers (you and me) and/or the Manitoba government (again, you and me) are on the hook for the cost of constructing our electricity infrastructure (dams, transmission lines, etc.) and, most importantly, servicing the large accumulated debt set to rival that of the provincial government. And ratepayers (you and me) are held captive by the Manitoba Hydro monopoly.

That growing debt is why Manitoba Hydro seeks rate increases of just short of eight per cent per year going forward, increases the Public Utilities Board has trimmed by roughly half. Even the lower increases far outpace the rate of inflation.

These rising rates are needed to cover the costs of debt servicing (including the cost of dams, roads, transmission lines) and operating costs (engineers, line workers and the PR flaks who will denounce what is written here within minutes of publication).

So, you and I pay the full freight of Manitoba Hydro costs — nearly 10 cents per kilowatt hour for ordinary Manitobans, less for industry and commercial interests.

But with a generation capacity far in excess of what we currently need, what do we do with the surplus? We could simply leave the surplus capacity unused and make nothing. Or we could export that power at prices well below what Manitoba ratepayers pay, but above the cost of spinning the turbines, roughly a penny per kilowatt hour.

Quite sensibly, Hydro sells the surplus at prices above the marginal operating costs. Since 2010, Hydro has averaged about four cents per kilowatt hour selling into the United States, well below what we captive ratepayers pay, but more than enough to cover the marginal operating costs. But those export revenues do not come close to the price needed to cover debt-servicing costs. You and I pay for that.

Here is the important bit. That exported power displaces energy generated by fossil fuels, mainly natural gas, elsewhere. Clean Manitoba power is reducing carbon emissions. And American utilities get our power at costs far lower than if they had to build their own generation capacity. Because Manitobans pay full freight costs for our Hydro infrastructure, we effectively subsidize reductions in the use of fossil fuels elsewhere.

This subsidy should appear as a line item on every Manitoban’s Hydro bill. A bright green line. It’s not technically a carbon tax. Let’s call it a carbon-reduction "levy." A levy that should offset at least a portion of Trudeau’s carbon tax.

Premier Brian Pallister has a valid point — Manitobans do not get nearly enough credit for our green, renewable energy. This system, in which we pay others to reduce their carbon emissions, was just fine for Trudeau when Wynne and the Ontario Liberals were in office.

So, why can’t it work for Manitobans?

Scott Forbes is an ecologist at the University of Winnipeg and a member of the Manitoba Energy Council.

Online comment by wfp-222569:

Great article, Dr. Forbes. Again. It's encouraging to note your affiliation with the Manitoba Energy Council. According to its website, the Council is the successor to the Bipole III Coalition which folded recently after eight years of valiant effort trying to warn us about what has now become abundantly clear--that Hydro's business plan is not adequately taking into account rapid change in the industry.

Online comment by Dennis Woodford:

Thank you Dr. Forbes. Very insightful. Another factor. As electric vehicles become more popular, then less gasoline and diesel is imported into the province. When an electric car is charging, it absorbs energy at about 10 cents/kwh today that goes to Manitoba Hydro. Otherwise, Hydro would have to export that energy at 3 cents or less on the spot market helping the Americans reduce their carbon emissions as you explain.

In addition with electric vehicles, the province imports less refined gasoline and diesel, also saving in the use of oil being burnt into the air here in Manitoba.