Thank you, Mr. Chairman.
I also come to you as president of Econometric Research Limited, which is an outfit that specializes in impact analysis, the type of methodology that I'll talk to you about.
We all know that many Canadian communities are known for their dependence on a single, dominant industry and that this activity is often resource-based--mining, forestry, and even sometimes tourism. These communities have typically found it hard when their dominant activity scales down or the price of its products declines: unemployment rises; population declines; families move elsewhere to seek employment; asset prices evaporate; home prices, all of a sudden, are completely depressed; and there are many socio-economic dysfunctions from crimes, family violence, and other things that happen.
These communities really found it very hard, particularly in the seventies and eighties. They had to meet severe challenges that came with some structural breaks in the system from two free trade agreements, from the GST, and from the technological advances that came with the ICTs. They have had to restructure in very difficult circumstances and with very limited resources and capacities.
Today they face even worse situations as the international financial crisis now has migrated to the real economy, and they are basically absorbing incredible costs in terms of a reduction in world trade. These typically are export oriented, lack of access to credit, restricted resource prices, and limited opportunities.
Typically, many communities ignore and dismiss the need for economic renewal when the prices of these resources or economic conditions are good. When the layoffs and difficulties and population losses become the experience, there is increased interest on the part of government--policy-makers, public servants, municipal forces--and the communities in economic renewal and diversification. But this is typically the time when it's extremely difficult to kickstart the economy. Interest increases, but the capacities are at their lowest level, and it's extremely hard to do something about this.
This is why I think integrated energy systems, the kinds you are discussing here, could be seen within this context as some growth poles, where they can create employment opportunities, diversify the economy, garner natural comparative advantages--some areas have more sun or maybe have more wind--and they can slash import bills because most of the energy they typically use does not come from their own perimeters, and they can lay down some strong foundations for upstream or downstream activities.
The challenge here is to identify these opportunities and to see if there exist methodologies, techniques, moulds that will allow you to quantify what these opportunities are, where they are, what impacts they will have, how many jobs they will create, what level of jobs, and the success possibilities these may have. This is part and parcel of what economic impact analysis is all about.
Typically, economists have looked at this in a number of ways, and economic impact analysis is one of many social accounting frameworks that deal with this, but it is different, and in many respects it has its own niche. And it is the niche, I would argue with you this afternoon, that is probably most aligned with the kind of interest you are talking about, where you look at communities and see to what extent you may be able to shore up these communities, create alternative economic activities, and capture some of the natural wealth that may be available to them.
The types of economic analysis have always been at the macro level--this is a general level--but these are probably too aggregate, too broad, too general. They may not be really the appropriate one for the communities.
All of those have really used microeconomic analysis, too small, too partial, too truncated, so that they're not able to situate the energy sector within the total framework of the economy. It's quite dangerous, and I've seen it many times, when people talk about one sector, the energy sector or any other sector, in isolation, independent of the overall economic interactions this sector may have. This community is part of a constellation of communities.
The focus here should really be on a broader interactive system where the energy is seen within the broader economic structure, even the social and environmental structures. It's not separate accounting, but one that can integrate many other accounts. It would also be able to come down to the community level; it does not stand at this general GDP impact or total employment impact. It could look at the income of the community, the prices of homes in the community, the social dysfunctions in the community, and employment opportunities.
It is basically dependent on an accounting framework that Canada has done very well with, called input-output, where the tables are produced with some lag. Hopefully, we can really argue for speeding up the process and maybe going to lower levels, usually at the provincial level. But they can provide a working system that we have used a number of times to fashion and create regional-local activities that capture the interactions among the sectors and communities.
It begins by basically and fundamentally looking at three aspects. One, that independent of the primary importance of activities.... Certainly a pristine environment is good for its own self and protecting the environment is good in itself, but ignoring analysis, especially impact analysis, does not go into valuing these important primary effects. It really says that whenever you use scarce economic resources, there are repercussions and consequences, and that these consequences can be identified and quantified. And they're typically much larger than the initial impact.
If you really look only at the direct, initial consequences, you get a poor, truncated, limited picture. The overall picture that could come from the direct, indirect, and induced--and I'll try to explain this quickly--is typically much larger than the initial effect. If you were to look at that sector alone, not looking at the derivative, secondary ripple effects, you will be limiting your perspective and not capturing the full values that could be created. The impact analysis gives you this ability to go beyond the direct impacts to the total impacts.
Imagine we'll work with you through a production of wind energy. You would need machinery, and machinery needs steel. Steel may not come from the community; it might come from my country in Hamilton, and it may really need energy from other places. It may need plastics from Alberta. It has to really capture all the derivative impacts. Then each time at every level you're producing wages and incomes; people will use them on their favourite beer, maybe in moderation. In that respect, you have to capture all these things. In the final analysis, you would also like to know the contraction of this that remains within the community, and then this is much larger than the initial effects.
The second thing is that when economists come to impact analysis, unfortunately they have come as close as alchemists, trying to create something out of nothing. There is something called the multiplier, and there is nothing more dangerous than the multiplier in the hands of economists and public servants. Everything is multiplied and magnified.
What is necessary and important here is that these multipliers are far fewer than they usually are, but they're still very poor ones. What I would argue with you, what we have really done...and we've just completed a study for the OPA, the Ontario Power Authority, for the conservation office on energy efficiency, and you'll find the net impact. If you use wind energy and don't use fossil fuels, then you have the positive impact of the wind energy, but you have a negative impact of scaling down the use of fossil fuels. The net effect is what really counts.
What's interesting is that with conservation, when you save, these savings don't disappear, don't evaporate. We call them avoided costs, but they can be reinvested in the economy. If the consumers realize them, they may really spend them on general consumption. If businesses were to realize these savings, they could be increased investment.
What is crucial here is to look not at the gross impacts but at the net impacts. What is also quite necessary and important, and seems to be a direct impact of the system, is that you have to look at all these aspects at the same time.
Suppose you want to build a new energy system. There are capital expenditures. There'd be new, incremental capital that did not exist before. You have to look at this opportunity cost, such that if you don't invest here, could you invest it someplace else in the community or in other places? You have to look at operational and maintenance costs. You have to look at the avoided costs. And you have to also look at what we call “induced investments”. The fact that you create some energy base may, itself, be a lure for others to capitalize on this available supply downstream and upstream.
Thank you.