Ontario Premier Dalton McGuinty has run afoul of two fallacies which plague governments with his new Green Energy Act.
The Act, which does not have a defined pricetag, would supposedly create 50,000 new jobs, putting people to work building windmills, solar power plants and bio-fuel plants.
The Green Energy Act, he claims, will lead Ontario out of its recession and into a glorious future of clean energy.
Now, everyone would love to end the recession and enjoy clean, abundant and affordable energy. But there are some hard realities that suggest Premier McGuinty's plan isn't the smartest way to do it.
Let's review the reasons why governments cannot create jobs, and why labelling them "green" doesn't change the basic dynamics.
Let's start with the fallacy that governments can create jobs. This fallacy was exploded all the way back in 1845 by a French politician and political economist named Frédéric Bastiat. Bastiat pointed out that the only way governments can create jobs is by first obliterating other jobs.
Sometimes, they obliterate other jobs by diverting taxpayer money away from the economic uses the taxpayer would have pursued if they had kept their taxes.
Other times, they obliterate jobs by imposing regulations that kill off one industry in favour of another. In still other situations, they impose mandates, such as using recycled paper to create an artificial market for recycled paper which reduce jobs in fresh-paper production.
In the green energy case, they are doing all of the above: Taxpayer dollars are being used to subsidize the renewable energy sector; damaging regulations are being implemented on the traditional fossil fuel sector, and mandates for the use of renewable energy are being issued, creating a false market in wind power at the expense of fossil fuel and nuclear power. Governments also invariably siphon off a good part of the money for "administration," creating civil service jobs that pay comparatively higher wages than the private sector for similar activity.
Inevitably, government efforts to create jobs cost the economy jobs and, adding insult to injury, divert limited resources to inefficient uses, causing economic underperformance.
Now, let's look at the second fallacy: Call it "green" and, somehow, the fundamental laws of economics are suspended and we can all enjoy a free lunch and a utopian future of affordable, abundant and clean energy.
Of course, the only way to arrive at this fallacy is by inflating the expected value of green energy activities over the expected value from a non-green alternative.
In the premier's Green Energy Act, the expected value would result from a reduction of greenhouse gases related to energy production.
There's only one problem: The amount of greenhouse gases that Canada could eliminate, even if the entire country simply shut down, is not sufficient to retard global warming in any significant way.
Canada's fossil-fuel greenhouse gas emissions account for about two per cent of world emissions. Ontario's emissions are only seven-tenths of one per cent of the world total. China, which is building a coal power plant every week, emits more than 10 times all of Canada's greenhouse gases, and shows no signs of curbing its appetite any time soon.
Ontario's Green Energy Act will offer virtually no climate change protection or delay in warming, and no benefit to offset the costs of raising Canada's energy prices, raising the cost of goods and services, and rendering Canadian exports less competitive in world markets.
The premier, along with others such as U.S. President Barack Obama, has internalized the twin fallacies of job creation and a free lunch. He needs to undergo a reality check before he squanders limited resources and worsens the economic prospects for North America.
Taking actions to raise the cost of energy using a fallacious job-creation approach and fallacious benefit claims will only exacerbate Ontario's suffering in the ongoing world economic downturn.
Kenneth P. Green is a resident scholar at AEI.