The recent publication of The state of energy in Quebec 2023, produced by the Chair in Energy Sector Management at HEC Montréal, received a remarkable media reception. The information that attracted the most attention is the very high level of energy consumption highlighted by indicators such as energy consumption per capita and per dollar of production of the Quebec economy. For example, in 2020, per capita energy consumption in Quebec exceeded that of the planet by a factor of 3.5; it is enormous. Even among industrialized countries, Quebec ranks in the top ranks. This very high consumption has been figuratively associated with obesity and even drunkenness. The authors show the main activities responsible for this consumption, namely transport in all its forms, commercial and residential buildings and large-scale industry, of which the production of aluminum provides the most obvious illustration.
Although the authors present information on the activities that are part of the daily landscape of Quebecers, this information does not shed light on the root causes of this abundant consumption. Even when Quebec is compared to northern regions such as Norway, Sweden and Finland, which have similar environmental conditions, it still stands out at the very top of the scale. The explanation for these differences is based on economic considerations, particularly on the prices of energy sources. The objective of this text is to shed additional light that will also make it possible to assess the difficulties that already arise in the context of the energy transition aimed at reducing greenhouse gas (GHG) emissions.
Québec’s energy consumption mainly relies on three energy sources: first, there is electricity and petroleum products, which provide a contribution of the same order, followed by natural gas, which contributes less. The price of crude oil is determined by the world market and, with a few exceptions, prices are the same in different countries. Differences in prices paid by users are mainly the result of taxes levied by governments. Taxes in Quebec are of the same order as those of the other provinces, but higher than those of the United States; on the other hand, they are much lower than those of European countries. The price of natural gas consumed in Quebec is determined by the integrated Canada-US market and is much lower than that of other continents following the shale gas revolution that has occurred since 2008.
It is really through the low level of electricity prices that Quebec stands out, not only from regions on other continents, but also from its own neighbours. For example, in 2019, the average prices in ¢/kWh paid by residential consumers were 7.3 in Quebec, 12.0 in Ontario, 17.5 in Norway, 30.5 in New York and 33.4 in Boston. The low price in Quebec is based on its exceptional endowment of hydroelectric resources, their public ownership and the tariff framework for their development.
Norway also generates its electricity from publicly owned hydroelectric resources. However, the wholesale price is the same as that paid by other participants in a much larger market including, among others, Sweden, Finland and Denmark. In Quebec, pricing is based on the average cost and hydroelectric sites have been developed in ascending order of cost; as a result, low-cost sites cross-subsidize high-cost sites, and the price paid by users is less than the cost of new resources developed to meet growing demand. This tariff framework results from the famous social contract established during nationalization in 1962 and the majority of Quebec voters still firmly support it.
In the context of the developing energy transition, the low price of electricity based on renewable energies, especially hydroelectric, has both advantages and disadvantages. On the positive side, it leads to the substitution of fossil fuels, sources of GHGs; this is the orientation currently pursued by the government. On the negative side, this low price does not favor the improvement of energy efficiency by users, since it reduces the profitability of the investments that they could make for this purpose.
It will be necessary to resort to other instruments of intervention, such as subsidies and regulation, even if they generate substantial costs. The state of Quebecers’ electrical consumption has been associated with obesity and even drunkenness, but it is worth remembering that temperance campaigns give poor results for such conditions.