Why killing of EcoEnergy Retrofit program is foolish

Hamilton%2C%20Tyler45X64.jpgPosted by Tyler Hamilton
The federal government’s Standing Committee on Natural Resources heard testimony last week from industry experts about the Conservative government’s abrupt cancellation of the popular EcoEnergy Retrofit program, which I blogged about in recent weeks. Needless to say, a lot in the industry are — to put it bluntly — pissed off. This includes students who trained to become energy auditors and now find themselves without work. It includes energy audit and retrofit companies, solar and geothermal installers, and HVAC companies that ramped up because of the program and are now going through the difficult task of laying off staff and downsizing. It also includes homeowners who intended to take advantage of the program but are now reconsidering their next move.
Ken Elsey, president and chief executive officer of the Canadian Energy Efficiency Alliance, was among those who gave testimony last week to the parliamentary committee. Elsey had some interesting things to say, so I figured I would post his comments here. But before I got on, let me highlight a few figures Elsey cites.
The government’s commitment of $750 million to the program represents only 15 per cent of the total retrofit expenditures made by Canadians. In other words, Canadians spent more than $4 billion in total;
Canadians will save $340 million a year every year going forward based on retrofits done under the program, and that’s money that can be reinvested in the economy every year;
The $5 billion in total spending — i.e. $750 million from gov incentives and more than $4 billion from homeowners — generated $250 million in GST (goods and services tax) revenue for the government.
Here’s what Elsey had to say:
ELSEY: In the most recent report published by the International Energy Agency, in 2009, they noted that Canada’s primary energy and electricity consumption per unit of GDP is the highest amongst IEA countries. However, they’re quite optimistic in their tone when they go on to say that Canada is committed to working to increase energy efficiency. In efficient-home194X226.jpgAugust 2008, individual Canadian provinces and territories committed to achieving a 20% increase in energy efficiency by 2020, largely through the improvement of building codes, broader regulations of energy using appliances and green policies for new government funded facilities. And, most importantly, noted in the IEA report was the reference to home energy audits and retrofit assistance.
In addition to this, the federal and provincial governments are collaborating in ways to achieve combined energy efficiency objectives. Provincial and territorial governments are using the federal energy efficiency tools to complement their own energy efficiency programs and policies. It must, therefore, be realized that the cancellation of the federal ecoenergy program is a serious blow to the provincial and territorial’s goals to achieve this 20% increase in energy efficiency by 2020. It’s a failure to maintain the recommendations of the IEA to increase investments in energy efficiency and to create more favourable grounds for private energy efficiency investment.
The ecoenergy program did this by encouraging Canadians to invest in their own homes. The ecoenergy program was successful in its own right. While the program has expended $300,543,296 to February 1, 2010, it will likely grow to over $750 million in its conclusion in March 2011. We estimate that this figure will represent only 15% of the total expenditures made by Canadians. Canadians themselves will have invested over $4 billion as a result of this program. Those figures are based solely on the federal numbers. With most provinces having a matching program, the total spend will likely exceed this significantly.
While the average rebate for an ecoenergy home is only $1,274, we’ve also concluded that most Canadians have not taken full advantage of the energy savings identified through their audits. So we see the future work being done as consumers recognize the potential as energy costs continue to escalate. However, the energy savings achieved to February 1 of this year are very impressive. While we believe estimates may be a little on the high side, they show 11.22 petajoules of energy having been saved. Maybe everybody’s not familiar with petajoule, so let me kind of convert that. I do understand there is an issue between natural gas and electricity, but to understand the scope of the opportunity, let’s just deal with electricity.
One petajoule in electricity terms equals 277,780,000 kilowatt hours of energy. That means that the 11.22 petajoules equals 3,116,000,000 kilowatt hours of energy.
The total weighted average cost of electricity in Canada—and we’ve done this study extensively—is 10.9¢ per kilowatt hour. This includes all costs, everything from delivery charges, transportation fees, debt retirement charges, and taxes.
So, therefore, before the annual total savings to Canadians, based on the NRCan’s results to date, show that Canadians will save $339,719,384 per year every year going forward. All of this is likely to be reinvested in our economy or lowering household debt. The GHG savings are also significant. While there are some regional variances, NRCan has shown a total cumulative GHG savings of 743,416 tonnes per year. This is, really, a very impressive target, and it’s in line with their goal of 743,750 tonnes for the 2009-2010 year.
While these achievements of the program are impressive, they may be a little conservative, the reasons being that of the 800,142 audits completed, only 236,000, in fact, represent second audits, which would, in fact, qualify the homeowner for the rebate. There are some 564,137 audits that are likely to move to second audit. While conversion rates now average only 41.8%, that is the homeowner requesting a second audit following the work in order to qualify for the rebate, our discussions with auditors, indicate that that is will rapid escalate as the deadline approaches. Many of the auditors we’ve talked to suggest that the conversion rate will exceed 80%. While this will have serious cost implications to the program, it also means that energy savings will be greater than forecasted.
From an economic perspective, if we’re to look at the business case for ecoENERGY, it’s one that’s easy to justify. First, from the federal government’s perspective, if our assumptions are correct and the program generates close to $5 billion in total spending, that spend represents $250 million in GST revenue alone.
While the $5 billion cannot be directly translated into jobs, Annex 1 of the 2009 budget suggests that there is a relationship between GDP and jobs. Assuming only 5,000 jobs are created or maintained as a result of the program, with an average salary of $40,000 and a 15% federal tax rate, the contribution credit to the program is about $30 million. Thus, the current spend of forecasted, $750 million, is offset by revenue of almost $3 million.

In addition to Elsey, NDP natural resources critic Nathan Cullen had some interesting remarks:
CULLEN: This is what frustrates people about dealing with government in the sense that it’s on again, off again. Mr. Elsey talked about folks going into training programs, college programs, getting themselves ready for this. The uncertainty that the government has created puts a doubt into the minds of both those in the industry and on the home building side. People hear about this through their neighbours. They hear about it through different campaigns, from yourselves, from Mr. Brunet’s group. Then they hear it’s all off. It’s on the evening news that it has been cancelled. This is the frustration…
Cullen continues by pointing out the success of the program and then the bizarre cancellation.
CULLEN: The government creates a program. People like it, with 50,000 applications at the high point per month. The government is able to leverage, in tough economic times, $10 for every $1. They put a buck in and ten bucks get put in by individuals. It reduces pollution and it saves Canadians $330 million-odd in energy bills. The government, in its celebration of such a successful program, cancels it.
Cullen goes on to attack the government for its Home Renovation Tax Credit, which let homeowners get back up to $1,350 in tax credits when spending up to $10,000 on home renovations. His criticism was that the tax credit let (rich) people spend the money on almost anything, including that marble countertop they were likely going to purchase anyway. It would have been more effective, he said, if the money given back to Canadians under that tax credit was put toward energy-efficiency retrofits that had a quick but lasting payback for the individual and society at large.
Gotta say, he has a point.

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