Saturday, April 2, 2011

Loan Guarantees and Subsidies

In my opinion, Stephen Harper has done the right thing proposing to grant a loan guarantee to Newfoundland so that it can develop the Lower Churchill hydroelectric project and an undersea transmission line to sell that electricity to the USA. From a political point of view though, he's walking into a minefield that pits Newfoundland (7 seats) against Quebec (75 seats).

Rex Murphy in the article links above talks about the need to redress what Newfoundlanders feel is a gross inequity that has emerged as a result of a poor deal negotiated in 1969, but only scratches the surface of a far different and more national issue. What place does the federal government have in promoting the development of certain energy sources?

The federal government has offered direct subsidies to so-called 'environmentally friendly' options through programs such as the late ecoEnergy program. It has also promoted the nuclear industry both domestically and abroad through the use of loan guarantees and by paying for the cost of maintaining AECL. But does it go too far?

One might be tempted to argue that the federal government should have no role at all in promoting any energy source, whether that be hydroelectric, nuclear or wind. As a provincial area of responsibility, the government should butt out completely. But since the electric grid does not end at a provincial boundary, and since electricity cannot be conveniently bottled, shipped and sold to buyers south of the border, it would be unfair and short-sighted to deny the federal government any role whatsoever. The question then is how much of a role should it have; should it be a referee, intervening only when provinces have grievances between themselves? Should it be a banker, providing loans to support the development of large projects such as nuclear power plants or hydroelectric projects or transmission lines?

Personally, I have no problem with the federal government acting as a referee and a banker so long as the banker anticipates receiving his money back, which in this case, they do. A loan guarantee is far less intrusive and costly than a subsidy, and will enable the development of larger projects that have higher risks but reap greater rewards. But where do we draw the line?


Jeff said...

This is a good move. Do we really care what Jean Charest or Gilles Duceppe think about this?

bertie said...

We don,t draw the line anywhere if it is good for Canada.

Eric said...

Jeff; Charest is doing exactly what one would expect from someone who has a vested interest in seeing a project fail. If the Lower Churchill was developed without these transmission lines they would have to deal with Quebec, and Quebec would ensure that any deal they strike heavily favours itself. Its not fair to Newfoundland, but Charest doesn't represent them.

Bertie; How do you know if something is 'good' for Canada? Developing the Lower Churchill doesn't really present any benefits for people west of Ontario.

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