There is yet another important element to consider. Businesses also exist in a social and environmental context. They have neighbours, their workers have lives outside of work, and, so on.
For example, if a company making blenders dumps poisonous sludge into a river and this destroys a very profitable fishing industry, the increased wages and profits created by the factory may be completely negated by the lost wages and profits from the fishery that is destroyed. This is what economists call an "
". If a business is forced by the government to deal with potential externalities (eg: cleaning the toxic sludge up instead of just dumping it in the river), this again adds costs, which lowers productivity.
The latest example of an attempt to deal with externalities is the decision by the Liberals to put a price on carbon in order to get the market to consider the consequences of climate change in its investment decisions. In the short run, the importance of externalities can be hidden if the government simply refuses to think about them. (This appears to be the brilliant economic development strategy supported by the Conservatives.) But over the long haul society either suffers real consequences (fishermen lose their jobs, the cost of fish increases), and/or regulations are eventually introduced.
This leads to the following formula. (It might be that there are yet other elements to add, but that would be another article.)
(income) - [(externalities) + (energy) + (machines) + (labour)] = productivity
Readers need to understand the tremendous opportunity implied by the last equation. If Guelph can find a way to increase productivity by cutting the non-labour productivity costs (ie: machines, energy, and, externalities), this will give businesses the freedom to raise wages for Guelph workers without cutting the number of people it employs. And if Guelph citizens are making more money, they will spend it locally and increase the "spin off" benefits for everyone else who lives here. Moreover, if Guelph has a coordinated plan to encourage increased efficiency throughout the city, businesses that can see the advantages to such a strategy will want to build new facilities here.
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Locally Sourced is Better
A second point that needs to be understood is that spending money on energy tends to be a way that wealth leaks out of Guelph. To understand this point, consider what happens when you buy vegetables from a large corporation---say Walmart---versus what happens when shop directly from a local farmer. A certain amount of the money you spend at Walmart will stay in your community in the form of local wages, but if you buy Californian lettuce, most of the money goes back to the farm there and the truck that shipped it to Ontario. Moreover, all the profit ends up going to Arkansas (ie: the Walmart headquarters.) In contrast, if you buy cabbage at the market from the farmer who grew it,
a lot more of the money goes into the local economy. Even inputs that come from out of town (eg: the fertilizer and gasoline) came through a local distributor, who gets to pocket some money before it disappears. This means that when you buy anything locally it tends to have a bigger impact on the well-being of the community than if it is purchased out-of-town.
I couldn't find any analysis or data that specifically dealt with energy, but economists have done some work on the macro-economic effect of buying local on the economy. Consider the following two sets of pie-charts that compare the relative economic benefits of locally-owned retail stores and restaurants that come from
a report prepared by the American Independent Business Alliance.
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Used under the Fair Use copyright provision.
Click on image for a bigger version |
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Used under the Fair Use copyright provision.
Click on image for a bigger version. |
As you can see, where you shop has a big impact on the economic well-being of your community. Exactly the same processes are at work whether you are buying potatoes, a hamburger, or, energy for your home or business. If you buy electricity from a local guy with solar panels, the money he makes might very well be spent at the business you own. Similarly, if a local business saves so much money on making itself more efficient that it can give its employees a dollar/hour raise---that money may also end up in your pocket.
At this point the obvious question is "Where
does our energy currently come from?" Ontario uses almost no coal. And our electricity is mostly created in-province using nuclear and hydro-electric plants. So when we are talking about money-leakage based on energy, we are mostly referring to natural gas and petroleum. As you can see from the chart below, a significant fraction of our natural gas comes from Western Canada (WCSB means "
Western Canada Sedimentary Basin".) ("Bcfd" means "Billion cubic feet/day", which should give you some idea of the amount of energy---and money---we are talking about.)
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Sources of natural gas in Ontario.
Navigant 2015 report commissioned by province of Ontario.
Used under the Fair Use copyright provision.
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As you can also see, the percentage of natural gas we are purchasing from Western Canada is in significant decline because of competition with the USA. Why this is happening is beyond the scope of this article, but suffice it to say the money that goes out of Ontario is certainly not bouncing around in Guelph helping you pay off your mortgage.
Unfortunately, I couldn't find a similar groovy graphic for oil in Ontario, but here's a quote from an article from the
National Observer:
Ontario sources the majority of its oil domestically, and all its imported oil comes from the United States. Ontario brought in an average of 50,000 cubic metres of oil per day of domestic oil between January 2012 and July 2017, compared to an average of 5,000 cubic metres per day of imported crude, mostly from North Dakota, Indiana and Texas. (from "Guess Where Quebec Gets Its Oil", by Carl Meyer, Nov 13, 2018)
Obviously Western Canada is a better source than Texas, but still the money is leaking from our city.
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What About Carbon Taxes?
Money will also increasingly "leak" out of Guelph as a result of externalities too. The federal government has doubled-down on its commitment to put a price on carbon, even as the Conservatives have decided to make sabotaging the future health of the planet their core economic development plank. Even if we only take climate change seriously once the ice caps have melted and climate change denier's bodies are swinging from lamp posts, we will eventually have to switch to a no-carbon economy. And no matter what happens, any city that has built it's economy around using energy more efficiently is going to do better than one who built their "game plan" around "
Après moi, le déluge!" (or "after me, the flood").
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Why Get the City Involved?
If you look at a municipality---like Guelph---and try to think about it like a business the first question to ask is "what does it produce?"
I'd suggest that the primary product of a municipality is "coordination". City staff and Council decide a myriad of different issues for both businesses and citizens: which roads to fix this year, how many bus routes we need, when and how often garbage gets picked up, whether we build recreation centres or libraries, how many police, etc. If ordinary people or even large businesses tried to figure these things out for themselves, the city would be an exercise in complete chaos.
To understand this point, look at the following photo. This shows two parts of Rio de Janeiro in Brazil. The upper half with the high-rises and the trees is the part that has gone through the same sort of zoning process that Guelph routinely uses to build housing. (Although unlike Guelph, there seems to not be as much pressure from NIMBYs to prevent high density housing.) In the bottom half there is a "
favela", or "shanty-town". The difference is that a favela is "self-organizing" without any municipal government planning. The difference is stark reminder of how important the role of organizing can be in human life. People routinely complain about "government bureaucracy", but the fact of the matter is that life with clearly defined rules and chains of command is much better than the total free-for-all that exists in a favela. (I know that I have grossly over-simplified a complex subject, but that isn't what this article is about.)
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See the difference between planned and unplanned parts of a city?
Image by Alicia Nijdam, c/o Wikicommons |
A community energy plan is nothing more than an attempt to expand the mandate of the city to go beyond the current limits of coordination, and move into another sphere---energy. And the reason it would do so is for exactly the same reason it currently plans things like road construction, zoning, public transit, garbage pick-up, etc: because by doing so it can create new efficiencies that will benefit everyone.
This is also a way that a Community Energy Plan can help the people of Guelph.
If coordination is the product that cities sell, then by adding in energy efficiency to the mix they are making the city more attractive to businesses that are looking for a place to expand. To understand this point, consider the case of the Toyota plant that was built in Woodstock Ontario (where I spent some of my teenage years.) Toyota was offered significant financial incentives to locate in the Southern USA but instead it chose to move to Ontario. The reason why is because Ontario offered a greater level of coordination than places like Alabama and Mississippi.
And by "coordination", I mean two things: a good public education system, and, single-payer
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Paul Krugman writing
about Woodstock Ontario???
Prolineserver, c/o Wikicommons |
healthcare. In the Southern US the public education system is in free-fall and anyone who can puts their children into a private school. Similarly, there is no single-payer healthcare system, and health coverage costs a lot more for everything---plus the employer is supposed to foot the bill, not the government. Toyota wasn't interested in putting functionally illiterate workers in charge of machines that cost millions of dollars. Nor were they willing to pay the highest hospital bills in the world when those workers got sick. (Paul Krugman wrote
an op-ed about this for the
New York Times.) If Toyota was willing to come to Woodstock because of the good schools and public healthcare, the argument is that companies would similarly come to Guelph if it can help them save money on energy costs.
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Well, time to put out the begging bowl. As you might imagine, writing articles about things like the Community Energy Initiative take a lot of work. I'm not an expert, but I have to dig deep and try to make myself into one every time I foolishly decide to take on a new subject. I don't just "jump into" this stuff, I have to start out by finding local experts, interviewing them, working my recordings into notes, and then using those notes to find information in other sources to quote in my final blog. (Did I mention that I do all this while also working at the full-time job?)
This is fundamentally different from what a professional reporter does. Their job is to entertain instead of inform, which means that their editors choose stories based on their shock or "cutesy" value. They are also under extreme financial constraints, so they usually have to run around and get quick sound bites and hammer out several short stories a day. What's the result? An ill-informed electorate, many of whom seem to live in a state of permanent outrage against people that have never done them any harm at all. How much would you pay for a news outlet that actually informs people about the world around them? How about one that isn't behind a pay wall, so you can not only pay a modest fee to keep it up and running, but which is also delivered free to anyone who wants to read it?
Well, that's what "The Guelph Back-Grounder" is, and you can be part of the solution by either making a regular contribution through Patreon or by tossing something in the Tip Jar once in a while. Other people have already done it (thanks Patricia for being so Awesome!), why haven't you?
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So How Much Money are We Talking About?
And what exactly are the projected energy savings that come from an Community Energy Plan? If you go back to
the original Community Energy 2007 report written for the city by
Garforth International, IIc , you will see the following figures for Guelph (note, they do not count inter-city transportation---just what happens here):
- homes and buildings use 30% of all energy, and 50% of all electricity
- in 2004 6,030 gigawatts of energy were used, or, 52.45 megawatts per person
- transport fuels in the city represent 30% of total energy and 45% of greenhouse gas emissions
- in 2005 total water use was 19.2 billion liters, or 52.579 million liters per day
- water use per household/day averages at 230-250 liters---the rest is used by industry
Let's get an "order of magnitude" number here. The cost of energy fluctuates wildly on the spot market, and large consumers get different prices than individual home owners. Moreover, there is a huge difference between the cost of a kilowatt hour of natural gas, gasoline, electricity. ("Kilowatt hour" is a measure of all types of energy, even though people generally only use it to describe electricity.) Just to give you an idea of the comparisons,
one cubic metre of natural gas has 8.8 kilowatt hours (kwh) of energy. I looked up the
current price for natural gas in Guelph, which is about $0.21/cubic meter. If we divide that by 8.8, we should get the price for natural gas per kwh of something like 2 cents. The amount of energy in a liter of gasoline is 9.1 kilowatt hours. A quick check on line says that the price of gasoline in Guelph is something like $1.02 per liter. Divide them out and the price per kilowatt hour of gasoline is 11 cents. Looking at my latest hydro bill, I'm paying 6.5 cents per kilowatt hour.
Let's put this on a bullet chart:
- natural gas: 8.8 kwh per cubic meter, 21 cents/cubic meter, or, 2 cents per kwh
- gasoline: 9.1 kwh per liter, $1.02 per liter, or, 11 cents per kwh
- electricity: 6.5 cents per kwh
I think that the above makes sense. Resistance electric heating (baseboard heaters) is more expensive than natural gas and electric vehicles run cheaper than gasoline powered.
I'm not about to try to calculate how much Guelph spends on energy a year because that would require more research than I'm prepared to do on a story, and also because I'd lose most of my readers anyway. But let's just break down how much 6,030 gigawatts of energy would cost using each of those numbers above. I can calculate that by multiplying the cost by 6.03 billion ("kilo" means "thousand" and "giga" means "billion"---so the "kilo" in "kwh" cancels out three decimal points):
- natural gas: at $.02 kwh equals $0.121 billion or $121 million
- gasoline: at $0.11 kwh equals $0.66 billion or $663 million
- electricity: at $0.065 kwh equal $0.39 billion or $392 million
At this point I need to remind readers again that the prices I am using above are not what are actually paid. There are volume discounts and wild fluctuations in the spot market. But having said that, it's important to have some sort of number in front of us so we can understand if the amount of money is bigger than a toaster or smaller than a moose. Having said that, there's a considerable range of cost here, from a minimum of $121 million/year for natural gas versus $663 million/year for gasoline.
The Garforth International report goes on to say cities that actively pursue city-wide energy efficiency programs often achieve 50% savings (from page 14 of the executive summary.) That means that the potential for freed-up money in Guelph could fit into a range of $60.5 million/year to $332 million/year. How does that compare to the Guelph economy-as-a-whole? Well, I couldn't easily find a Gross Domestic Product number for Guelph, but
Statistics Canada does have a Gross Domestic Product per capita number for Guelph: $48,410. (Only because Guelph has the 10th highest number in Canada---
which is really amazing. We appear to be doing something right.) In 2006 the city's population was 115,000, so presumably the GDP was $5.57 billion.
So how does a saving of between $60.5 and $332 million fit into an city economy of $5.57 billion? Just dividing out for a percentage, we get a range of 1% to 6%. That might not seem like a lot, but it is a significant increase in economic activity. (Just consider how much freaking-out would happen if the mortgage rate went up that amount!) And, it is important to realize that this is in addition to the other effects that I mentioned above: the decreased leakage of wealth out of the city (both to buying energy and carbon pricing) and the increased attraction for outside investors to move facilities to Guelph so they could take advantage of city-wide energy saving programs.
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That's enough for now. (I originally wanted to do a short introduction to the subject. But as you can see, like every other "deep dig" I write, it has ballooned.) As always, comments are welcome and please share on social media.
