The importance of public support

Energy helps fulfill the most basic and critical needs in our daily lives, from keeping our homes heated and cooled, to cooking our food, to getting us where we need to go. Energy is also a vital input for economic productivity, an enabler of critical infrastructure systems and a strong determinant of economic competitiveness. While most people do not think much about energy most of the time, an understanding of the functions that energy performs in modern life and our economy will be critical to building public support for electrification and managing the energy transition. So will ensuring energy remains reliable, affordable and resilient in the years to come.

Decarbonization policies have triggered backlash and discontent in other jurisdictions when they ignore the needs, preferences and vulnerabilities of customers. Electrification and energy transition policies that threaten system reliability, cause blackouts, limit customer choices, or drive-up prices can lead to public backlash or be exploited politically, putting in jeopardy long-term rational strategy and policy. The energy transition involves significant technical, economic, political and social change, spread out over decades. It is therefore critical to engage with households and businesses to build an understanding and buy-in about the benefits, costs and implications of the energy transition. It will be important to maintain transparency and to include the interests of people and communities in policymaking. Governments can play a key role in helping to prepare people for the transformative changes to come in the years ahead.

In doing this, it is important to understand that peoples’ preferences, perceptions and interests are shaped by different aspects of their identities that are not always aligned. Specifically, people engage with energy services and policy as consumers, as citizens and as community members. As a customer, someone may be most interested in having affordable and reliable service and some choice to meet their needs. As a citizen that same person may be committed to Ontario and Canada taking decisive action on climate change, including favouring policies that would make some energy choices more expensive. Finally, as the member of a community, that person may engage with others to develop energy solutions and ownership – or oppose energy projects they see as disruptive to their way of life, cost, ease of participation, or comfort. The diversity of imperatives – ranging from affordability to consumer choice to infrastructure siting to sustainability – underline the need to meaningfully engage with and support Ontarians to be included and respected in the process of energy transition. The Panel heard that the public wants and needs to understand why clean energy economy targets are being pursued, what policies are being implemented to achieve them, how they can have a voice in decisions, how policies will impact their lives, and how much they will cost. This transparency and inclusion will help to ensure that the province has ongoing public support to pursue its vision for a clean energy economy.

Importantly, as the process of electrification and energy transition shifts from citizen advocacy for climate action towards active implementation, Ontarians will increasingly be called on as consumers and community members. As consumers, their choices regarding energy sources, consumption habits and how they access energy wield substantial influence in shaping the trajectory of the energy transition. Just as important are their roles as active community members, providing or withholding support for the development of new and sustainable infrastructure in their communities. It is crucial for the energy sector and governments to understand this shift in engagement with the public. To enable a successful energy transition, policy and decision-making must adopt an integrated approach that considers and prioritizes the multiple and evolving roles of the public.

Over the last several decades, Ontario has learned difficult lessons about energy policy decisions. The province has seen several high-profile energy policy reversals and jarring changes sometimes involving large price increases. Customers have, at times, felt unprotected by government and regulators, and communities have felt excluded from and inadequately consulted on important planning and infrastructure decisions, such as siting and energy resource choices. In some cases, the result was a dramatic erosion of the public’s faith in the government of the day’s ability to make prudent energy policy decisions. In other cases, it led to significant project delays or outright cancellation of projects due to community opposition.

As discussed in Section 4, prior to the 1970s there was no legal or political system recognized by the Canadian government that required governments, energy developers, or corporations to consult with Indigenous communities on energy projects or energy planning. Across Canada, rivers and land were flooded by hydro dams and development projects were advanced without notice, adversely impacting or outright destroying traditional hunting and fishing areas, travel routes, and burial and sacred sites. Failing to meaningfully engage and consult with Indigenous communities across Ontario has and can contribute to significant negative impacts on local economies and affect the safety, security and success of Indigenous communities.

Such failures of communication, consultation, engagement and relationship-building threaten to undermine achievement of the necessary pace and scale of the energy transition and can have lasting socio-economic consequences on communities across Ontario, particularly those customers and communities who disproportionately experience inequality. Inclusive and accessible engagement is required to ensure that groups who have been historically excluded from energy decision making, are thoughtfully collaborated with throughout the transition.

Stakeholders and Indigenous partners identified five key principles for communication and engagement that will underpin the success of long-term energy policies:

  1. Transparent communication and public education about the true costs of energy and transition, opportunities and challenges related to electrification and energy transition (including safety considerations for emerging technologies and education regarding cleaner appliance alternatives), and the direct and indirect costs and risks of climate change (including the costs of inaction).
  2. Customer participation is necessary to create a needed sense of responsibility and ownership over the success of the energy transition and allows for optionality that reflects consumers’ needs.
  3. Consistent, meaningful and accessible engagement in province-wide energy planning is important from the beginning through to the end of any energy planning process; accessible engagement processes consider reliable internet access and distance as part of any virtual and/or in person engagement process.
  4. Community-level engagement and empowerment to make clean energy and culturally appropriate local/community energy planning decisions reflective of local circumstances.
  5. Meaningful participation in siting processes for energy infrastructure, including new generation, transmission, and distribution infrastructure.

Both stakeholders and Indigenous partners emphasized that early and transparent collaboration and engagement with Indigenous communities, supported by adequate and appropriate capacity funding, will help to support meaningful Indigenous participation and long-term relationships. As the energy transition proceeds, more engagement and consultation with Indigenous partners will be required, in ways that fulfill and go beyond government’s duty to consult and accommodate. The Panel heard from respondents across groups and organizations that this is foundational to advancing reconciliation and ensure the benefits of transition are fairly distributed to everyone across Ontario. It is also necessary to allow project development to keep the pace required to meet the needs of electrification and the energy transition.

Effective communication and engagement alone will not guarantee full customer, citizen or community member satisfaction throughout the energy transition, but they are a solid first step in ensuring that Ontarians feel included, heard and respected in energy decision-making processes. The next steps entail delivering policy action that meaningfully addresses the core concerns of Ontarians as energy customers, community members and citizens.

Recommendation 26: The government, Independent Electricity System Operator (IESO) and Ontario Energy Board (OEB) should play a key role in engaging with the public and Indigenous partners to ensure transparent access to high-quality information and meaningful opportunities to participate in decision-making in order to build greater support and involvement in the energy transition. As part of other processes or on their own this work should include but not be limited to:

  1. Helping customers, citizens and community members to see themselves in the transition to a clean energy economy and to understand the operational realities of large-scale changes to the energy system for their daily lives (e.g. shifting to different energy sources and ways of consuming energy, the need for new energy infrastructure in their communities, etc.)
  2. Preparing the public for the transformations ahead by providing transparent, ongoing, and comprehensive information about the genuine choices, costs, opportunities and challenges associated with electrification and the energy transition
  3. Strengthening mechanisms for community input and involvement in energy planning and decision-making for new infrastructure. This includes prioritizing public consultations and transparently incorporating community feedback into decision-making processes
  4. Education initiatives that address the benefits, risks and costs associated with new and emerging technologies, climate action versus inaction, and empowering customers to make well-informed decisions
  5. Fostering community-level engagement and empowering local communities to make informed energy planning decisions in support of new energy projects and technologies that best suit their local energy needs

Maintaining affordability

Affordability has long been a contentious and defining issue in Ontario’s energy sector. Recent inflationary pressures and cost-of-living increases have further sharpened the focus on energy affordability. Stakeholders and Indigenous partners told the Panel that affordability of the energy system will be one of the most important priorities for customers through the energy transition. That said, over time there are opportunities for customers to save costs as they switch energy use to electricity for electric vehicle charging and home heating. While such a customer’s total electricity bill would almost certainly go up, their combined household energy costs, which had been spread across electricity, natural gas and gasoline bills, may go down.

The costs associated with energy transition will be significant at the bulk electricity and distribution system levels. Investments in transmission, distribution and behind-the-meter technologies, fuel-switching technologies, industrial decarbonization and energy efficiency measures will all be necessary to meet increased electricity demand and build a clean energy economy. Additional investments in resiliency will be necessitated by the increased frequency and intensity of heat waves, storms and other extreme weather events that threaten the physical integrity of the energy system. As such, consumers may see an increase in their energy bills in the short term. If the costs of these critical investments are not properly paced and mitigated, they could have harmful impacts on the ability of many Ontario households and businesses to afford their energy needs. However, modelling by the Canadian Climate Institute suggests a promising future trajectory may be possible. As electrification and the energy transition progress, the total of household energy bills could decrease in the long term. Greater efficiency, renewable energy integration and advancements in technology are anticipated to drive down costs over time. Transparency and public awareness remain paramount in order to ensure customers understand their options and a successful, community-driven transition.

The Panel heard that Ontarians will not give government a ‘blank cheque’ to finance the energy transition. Innovative Research Group, a Canadian public opinion research and consultation firm, has surveyed Canadians to better understand their perspectives on energy transition. As of May 2023, almost 9 in 10 Canadians (86 per cent) believe that climate change is occurring, and nearly 7 in 10 are concerned about it. But a quarter of Canadians oppose efforts to reduce greenhouse gas emissions if they result in higher energy prices. About half of Canadians (48 per cent) are willing to pay more to fund energy transition, but that number declines as proposed costs rise. The clear picture is that public support for energy transition is strongly linked to costs, both real and perceived. Keeping costs low and any increases predictable will be crucial to maintaining public support for electrification and energy transition policies.

Energy affordability is especially critical to low-income and rural households. According to the Financial Accountability Office, Ontario households in the lowest income quintile spend a much higher proportion – nearly triple – of their pre-tax income on home energy than households in the highest income quintile. Households in rural areas of Ontario have much higher home energy costs than their urban counterparts, largely due to less access to natural gas, which to this point has been the most cost-effective energy source for home heating, and the high cost of distributing electricity and fuels in rural areas. Some of these cost discrepancies are mitigated by provincial electricity subsidies, but energy affordability is still an issue that disproportionately affects the most vulnerable households in the province. To maintain affordability, the province should focus support on those who need it most. This could free up resources to help reduce barriers for all customers to invest effectively in the solutions that help manage their own energy bills and support the energy transition system-wide.

Importantly, energy affordability is about more than just the number on the bill. The Panel heard concerns about the affordability of energy system changes associated with transportation, building envelope and heat fuel-switching. Vulnerable households could be excluded from enjoying the full benefits of the shift to a clean energy economy if they are not able to make the upfront investments needed to leverage technologies that reduce their costs and support decarbonization. As the federal carbon price rises, energy affordability can only be maintained if vulnerable households are able to switch to cleaner energy sources the policy is meant to incent.

This risk is more pronounced for remote and rural communities. In particular, the Panel heard that fuel-switching in transportation (from gasoline to electricity) could have unintended economic consequences for remote, rural and Indigenous Communities. For example, many Indigenous communities rely on gas-powered boats, snowmobiles, and all-terrain vehicles to hunt, fish and practice culture and treaty rights. Moreover, retail gas stations, either wholly owned by or operating within an Indigenous community, are often an integral part of the community’s economy. Large-scale transportation fuel switching could threaten the economic health of communities that already face huge barriers to participation. Distributional impacts related to fuel switching must be identified and addressed as part of the support provided to vulnerable households and communities, rather than viewed merely through the lens of on-bill prices.

Other household circumstances also result in fundamental differences with regards to willingness and ability to pay. Increased costs of living, from mortgage rates to rent, present significant barriers for all households. Renters are an example of customers who may bear the costs of electrification while having little to no control over their household energy decisions. Homeowners dealing with increasing mortgage payments may struggle to support investments to enable electrification from an affordability perspective. Meanwhile, older homeowners, even if they are mortgage-free and have the means, may have a lower desire to invest in a shift to cleaner energy sources if payback periods are long. This is where short-term incentives can play a key role. Thus, it is important to consider how different people’s housing status influences their ability and willingness to make household level energy investments. Policy strategies should ensure that all customers can participate in and benefit from the energy transition regardless of their housing circumstances.

Government will need to explore policy mechanisms to foster adoption of fuel switching technologies and help Ontarians, especially low-income households, make the necessary investments. Any government support should be thoroughly assessed for cost-effectiveness.

Recommendation 27: The provincial government should explore mechanisms to support broad adoption of fuel switching, decarbonization and supportive technologies such as electric vehicles, storage and heat pumps to support its clean energy economy objectives, foster change at the needed pace and scale, and to ensure that all customers can benefit effectively from the energy transition. This should include active engagement and communication so that customers understand the opportunities, benefits, challenges and risks of decarbonization technologies and can make informed choices. Importantly, the government should also consider mechanisms to help customers manage up-front costs.

  • Any mechanisms adopted by the government should be rigorously analyzed for cost-effectiveness and must transparently consider both costs and benefits to individual customers and to the overall system, for example peak electricity demand impacts.
  • The government should co-ordinate with the federal government to seek alignment on these objectives, to understand where federal programs can support provincial targets and where collaboration can maximize value.
  • The Energy Transition Advisory Council should monitor progress on cost-effective and beneficial fuel-switching, identify obstacles and make recommendations.

Energy affordability is also critical for Ontario businesses. Energy in all its forms is a crucial business input for all kinds of small, medium and large businesses across the province, though its importance as a factor in total cost differs dramatically across industries. According to the Canadian Survey on Business Conditions (Q3 2023), rising cost of inputs, including energy costs, are the second most commonly expected obstacle to successful operations for Ontario businesses of all sizes, ranking just behind inflation. According to the Canadian Federation of Independent Business, energy costs continue to rank as a top cost constraint for Ontario small businesses. Unaffordable energy pricing thus threatens business competitiveness by increasing operating expenses, decreasing profitability and potentially increasing prices of goods and services.

Lack of affordable energy can also threaten opportunities for further investment and growth. For large industrial consumers in particular, long-term certainty on electricity supply and pricing can be a key component in investment decision-making, including as a hedge against other fuel prices, which can be much more volatile in response to global economic and security developments. Importantly, natural gas may continue to be an important source of affordable energy for industrial heat processes, including for trade exposed industries. Businesses need to know that they will have access to the energy they need – at an affordable price – before they can commit to investing in the province. As noted in the previous section of this report, uncertainties ultimately reduce the province’s growth potential by undermining business confidence. Energy affordability is thus crucial to maintaining Ontario’s business competitiveness.

Rate mitigation programs

Ontario residential and small business customers benefit from a number of rate mitigation programs designed to lower the on-bill cost of electricity. Programs for residential customers include the Ontario Electricity Rebate, which is applied to all ratepayers, and other programs that are targeted to low-income customers or to customers in specific geographic regions that face higher electricity costs. These programs are funded through the tax base and are expected to cost approximately $6.5 billion in 2023-24.

The Panel heard that available income-tested programs – such as the Ontario Electricity Support Program – can be complex and burdensome for many individuals to access. The Ontario Electricity Support Program (OESP) provides a direct on-bill credit ranging from $35 to $113 per month – depending on household size and income -- for eligible low-income households. The accessibility of income-tested programs could be improved by extending access to renters who do not receive an electricity bill in their name or by simplifying program intake or making it automatic. Government and the Ontario Energy Board (OEB) are conducting reviews of OESP and the related Low-Income Energy Assistance Program, which provides emergency reliefs for eligible households who are in arrears on their bills.

The Panel also heard that programs that are not income-tested could potentially become unsustainable as needed investments are made to support a clean energy economy. The Ontario Electricity Rebate (OER) was specifically identified as requiring re-focusing. The OER provides an on-bill rebate to Ontario households, small businesses, farms and long-term care homes, and averaged 19 percent of pre-tax electricity bills in 2021. The rebate percentage is adjusted each year to limit the increase in residential electricity bills to two percent. The OER accounts for roughly one-third of total energy and electricity subsidy support.

Most of the OER’s subsidies go to households, including high- and medium-income households who likely are not struggling to pay their electricity bills. While those households may appreciate having their electricity bill lowered, those same households will eventually pay those costs either through their taxes or through future electricity bill charges. Indeed, on average, households with higher incomes receive much larger subsidies. According to the Ontario Energy Association’s 2020 report Help those Who Need Help, “On average, the higher the income, the larger the electricity consumption. Home size is also correlated with income – wealthier households generally live in larger homes. Therefore, the net effect of current Ontario subsidy programs is to provide larger subsidies to higher income households, and huge subsidies to very wealthy households.” The report shows that in 2020, a household with an 800 square foot apartment could expect $203 in annual tax-funded electricity subsidy. A single detached house with 1800 square feet could expect $415, while a mansion of 10,000 square feet would receive $1,750 in electricity subsidies.

In short, based on the current rate mitigation program design, a disproportionately large share of the OER is going to high-income households who likely do not need the help on their electricity bills. Because the OER is paid for through the tax base, its current organization and delivery represents a transfer of public dollars to households with higher-than-average incomes. The Panel believes that refocusing the OER could enable the province to deliver more help to the low-income households who need it most, and thus better and more equitably mitigate the potential cost increases associated with the energy transition.

Given the potential costs associated with necessary energy transition investments, the Panel believes that rate mitigation programs will continue to be an important tool for maintaining energy affordability. However, the Panel concludes that these programs should be made more accessible and better targeted towards those who need support the most.

Recommendation 28: Existing electricity rate mitigation and affordability programs should be redesigned to better target support to those who need it most, and to streamline program application and enrollment processes for increased accessibility.

Any new or redesigned programs should be developed with full participation and collaboration of representatives from remote and rural communities, both Indigenous and non-Indigenous, as well as vulnerable urban households and communities that the programs are meant to serve.

Reliability, resilience and environment

As discussed earlier, the electricity sector is a critical enabler for daily household functions, business activity and essential infrastructure systems like telecommunications and healthcare. When power outages occur, in addition to the direct costs associated with restoring power and repairing damage, there can be indirect social and economic costs that oftentimes dwarf direct costs to utilities. A widespread and long-duration outage can have interconnected effects on crucial systems of food security, water safety, health, transportation, telecommunications and economic activity. As a result, the reliability and resilience of the electric grid has long been a core concern of energy consumers and a primary focus for utilities and system operators. The Panel heard this repeatedly throughout its engagements.

The importance of electricity grid resilience and reliability will increase as more Ontarians electrify end-uses by investing in electric vehicles or switching to electric heat pumps. This increased reliance on electricity will result in increased sensitivity to outages and service interruptions. At the same time, the accelerating and intensifying effects of climate change are drawing more attention to the resilience and reliability of electric grids. Climate change is already having significant impacts on the province of Ontario, and those impacts are likely to intensify in the years and decades to come. Increases in average temperatures already locked in by past greenhouse gas emissions are expected to cause increases in the frequency and intensity of extreme weather events such as extreme precipitation and extreme heat, and an exacerbation of conditions that catalyze drought, wildfires, thunderstorms, floods, tornados and ice storms. These weather effects pose a threat to the physical integrity of electricity infrastructure, which threatens to undermine the reliability and resilience of the grid.

A good deal of collaboration and knowledge sharing is already underway in the sector, from climate change vulnerability assessments undertaken by utilities to resource sharing and mutual aid agreements, and more comprehensive company and industry-wide work to integrate climate impacts into business planning. Initiated by the Ministry of Energy, the OEB is undertaking work on Distribution Reliability, Resilience and Cost Effectiveness. There is a need for continuous learning and refinement of approaches and policies as knowledge of the localized impacts of climate change on the energy system evolves. It will also be important to ensure collaboration with municipalities and other organizations at the local level, and this could be supported through Comprehensive Local Energy Planning, discussed in Section 5.

As discussed in Section 4, Indigenous communities, and particularly northern and remote communities, experience disproportionate impacts of climate change, with adverse impacts through damage to critical infrastructure, evacuations and further displacement from traditional territories, impacts to hunting and harvesting rights and other socio-economic inequities. Building resilience across Ontario, and particularly in Indigenous, northern, and remote communities, will be essential to a successful transition.

Recommendation 29: The government, IESO and OEB should support capacity building for utilities and communities to conduct assessments of climate change impacts to energy infrastructure and to support effective climate resilience efforts and adaptation planning/ implementation. Any costs borne from investments in adaptation should not unfairly impact on low-income consumers, consumers in specific geographic regions that face higher electricity costs, consumers that rely on medical device(s) requiring a lot of electricity or other vulnerable consumers.

The movement towards a clean energy economy will have a positive impact on Ontario’s public and environmental health. Studies for both the United States and Canada show that the transition to a clean energy economy will have particularly significant benefits for local air pollution. Ontario has already reduced this risk by eliminating coal-fired generators, but as more decarbonization occurs, we should see greater benefits to public health. Research undertaken by Navius for the Canadian Association of Physicians for the Environment estimates avoided health costs across Canada of $30 to 100 billion by 2050. Estimates for the U.S. show reductions of 50,000 premature deaths per year and $608 billion in the health care costs as a result of eliminating energy-related emissions. It will be important to consider these benefits in decision-making and communicate them clearly to the public.

Prioritizing customer choice

Empowering customers with choices is integral. The Panel heard that Ontario’s pursuit of energy transition should focus on empowering customers rather than limiting their ability to make choices. Stakeholders emphasized that customers should be allowed to choose, for example, to offset emissions from their energy use, to use low-carbon and renewable fuel options and to take advantage of the benefits presented by distributed energy resources. Providing customers with a range of options for energy sources and services encourages participation in the energy transition, by empowering them to decide how they will decarbonize their energy consumption, rather than imposing decisions, technologies or methods on them. Well-regulated competitive markets can significantly advance customer choice and should be combined with convenient and accessible information about options, including up-front and operating costs.