Ontario’s new Green Energy Act is one of a raft of policies the government has developed to build out the province’s green economy. The idea is to encourage new markets in renewable fuels, and to generate jobs. On the surface, there is much to applaud. But put the effort in context, and tough questions emerge.
Compare: In April, California passed the world’s first low-carbon fuel standard. The government sets a base limit for the carbon content of fuels burned in the state. It’s up to industry to figure out the most competitive way to meet the standard.
Ontario takes a rather different approach. For one thing, the Green Energy Act features feed-in tariffs for renewable fuels. In other words, the government is setting the prices guaranteed to a spectrum of renewable energy suppliers. By picking winners in this way, the government is distorting the playing field—and potentially hampering innovation.
Another key element of the program is the Emerging Technologies Fund. It aims to match, dollar for dollar, investments venture capitalists make in renewable technologies in Ontario—to a total of $250 million in public funds allocated over the next five years.
There are obvious problems with this. First, venture capital in this country is in decline—sharply so this year. It’s difficult to match dollars that simply don’t exist. And while venture capital is no doubt an essential part of innovation economies, let’s not forget that most VC-backed investments fail. More to the point, the history of government venture programs (think labour-sponsored funds) does not exactly inspire confidence.
In a recession, with budget deficits forecast far into the future, is this gambling with a quarter of a billion dollars in public money on unproven technologies the best way to build a green economy?
We think not. Instead of playing price-fixer with the market and VC with the public purse, the Ontario government should focus on this: setting real environmental standards, lowering tax and regulatory barriers to all forms of investment—and then getting out of the way.