Policy lurch in Ontario is money down the drain
Looks like we can soon chalk up another $30 million to the bill for first-past-the-post.
This week’s report by the the Narwhal highlighted the latest round of lawsuits facing the Ford government over its abrupt, ideologically-driven cancellation of Ontario’s cap and trade program.
Drastic policy lurch as one government is replaced by its opposite—and the uncertainty and instability it creates—is endemic to winner-take-all voting.
The actions brought by SMV Energy Solutions and Koch industries―asking for tens of millions in compensation for assets that became stranded when the cap and trade program was cancelled―are just the latest in an ever-expanding boondoggle.
The costs were already staggering before this latest addition. Since Doug Ford’s election to a majority in 2018 with 41% of the vote, Ontario’s PC government has cancelled 758 wind and solar projects, including White Pines Wind Farm, where the windmills literally had to be dismantled and hauled away. The cost of the cancelled contracts? $231 million.
The Koch lawsuit is based on Chapter 11 in NAFTA, which defends a company’s right to a stable business environment, something our system is notoriously poor at providing.
An unstable policy climate ought to give any energy company cold feet.
Why would a company―whether their business is windmills, solar panels or pipelines― make multi-million dollar investments when today’s environmental regulations and policy framework could change abruptly, practically overnight?
With another election on the horizon in Ontario, the wholesale dismantling of policy under a drastically new regime could be just around the corner.
Policy instability is exactly what Teck Resources complained about when they pulled the plug on a mining project in 2020. The company blamed regulatory uncertainty for the abrupt withdrawal of their application for the Frontier oil sands project:
The promise of Canada’s potential will not be realized until governments can reach agreement around how climate policy considerations will be addressed in the context of future responsible energy sector development. Without clarity on this critical question, the situation that has faced Frontier will be faced by future projects and it will be very difficult to attract future investment, either domestic or foreign.
The chief investment officer of Calgary-based Auspice Capital Advisors lamented: “The political climate and lack of cohesive agreement on how to address energy policy and climate (are) scaring investors away from Canada.”
With winner-take-all voting, a small shift in the popular vote can mean a huge swing in power.
For businesses whose products or services are supported or opposed by parties of different ideologies, this means the rug could be pulled out from under them because a few voters in a few swing ridings wanted to “throw the bums out.”
Research backs this up. Nooruddin’s study of economic volatility and electoral systems in 100 countries found that coalition governments produced less economic volatility due to more stable economic policy. He notes:
When a single party controls all the levers of the legislative process, it is better able to enact policies closer to its ideal point. The resulting policy might in fact be the preferred outcome for economic agents too (for instance, if the government in question favors a business-friendly policy regime), but the government can not guarantee that future governments will not reverse course should the opposition win. In this case, even if economic agents respond by investing in the country, they will remain wary of future policy change, and therefore forgo more irreversible investments.
Nooruddin also found that businesses judged countries run by coalitions to be more stable:
In a World Bank survey of firms across the world, I find that firms located in countries governed by parliamentary coalitions are less likely to perceive policy uncertainty to be a major obstacle to their businesses, and more likely to consider opening a new establishment in the near future.
The evidence is clear: the policy lurch of winner-take-all voting systems creates instability. Companies hoping to invest in Canada’s―and Ontario’s―energy future are left wishing they had a crystal ball
Countries with proportional representation have a track record of greater stability for business and more effectively tackling climate change. Governments based on cooperation between parties, and policies supported by a real majority of voters, mean policies built to last.
It’s time that our political leaders address the fundamental inability of our system to provide long-term policy stability. Ignoring this reality drives away investment and costs us all money.