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Rate hikes see NDP and Liberals join attacks on Bank of Canada

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The Bank of Canada was subjected to a round of cross-party criticism last week after it raised the benchmark interest rate to five percent, the highest since 2001, in an attempt to combat inflation.

The Bank is used to taking flak lately, but perhaps not to the current bipartisan consensus.

Criticizing the Bank is nothing new for the Conservative leader Pierre Poilievre, who has promised to fire Governor Tiff Macklem for failing to prevent inflation from rising beyond an annual rate of three percent, or even NDP leader Jagmeet Singh, who has attacked past interest-rate hikes.

Last week, however, even Prime Minister Justin Trudeau chimed in with pointed comments, if not outright criticism, regarding the rate hike.

“This is not the news that any Canadian wanted to receive,” said Trudeau last week at a NATO meeting in Lithuania, although he framed the situation in a global context. “I’ve had conversations with leaders here in Europe and around the world and the cost of living is a real challenge.” 

When addressing past interest-rate hikes, Trudeau has often pivoted to touting his government’s financial support for Canadians who are financially struggling, and Canada’s favourable federal debt-to-GDP ratio. 

Last week, B.C.’s NDP Premier David Eby went even further than Trudeau by criticizing the Bank’s rate hikes in very plain language. 

“We have not seen the full impact yet. People have not renewed their mortgages yet, and the businesses that are struggling under debt have not started going under yet, but they will,” said Eby. “Frankly, I don’t believe in solutions that come at the expense of the poorest people.” 

Karamveer Lalh, an Edmonton-based lawyer, wrote in defence of the Bank’s independence for The Hub last year and says his opinion remains unchanged. 

“Democratic socialists or social democrats, liberals, conservatives, they all have different ideas as to how to spend public money,” says Lalh. “But then the Bank is there to react to the fiscal changes that each of those governments make to make sure they don’t drive the economy into the ground, or make life completely unaffordable.”

Lalh says Trudeau’s comments were hypocritical after previously labelling Poilievre as irresponsible for his criticisms of the Bank last year. He says the comments and criticisms from Trudeau and Eby were more concerning than anything Poilievre said about the Bank. 

“Pierre Poilievre was talking about the Bank not doing its job properly, as per its rule defined by Parliament,” says Lalh, referencing the Bank’s mandate to keep inflation below 3 percent annually. “Trudeau and the NDP premiers, they’re talking about how they don’t think that the Bank of Canada should do its job.” 

In 2022, when both Singh and Poilievre were hammering the Bank, albeit for different reasons, Finance Minister Chrystia Freeland said that “institutional stability” was paramount while defending the Bank’s independence. Various commentators in many of Canada’s legacy media outlets attacked Poilievre for his criticisms of the Bank of Canada, labelling him as reckless and dangerous

Conservative strategist Fred DeLorey, and Erin O’Toole’s former campaign director, has criticized some aspects of Poilievre’s leadership but says Poilievre’s critiques of the Bank of Canada last year had merit. 

“(Poilievre) had the foresight to see that there were issues here,” says DeLorey.  “He was raising it and he took a lot of grief for it, which we’re now seeing was quite unfair.” 

In addition to economic damage due to inflation, hiked mortgage rates are beginning to hit Canadians in other ways. When interest rates were nearly non-existent during the pandemic, many Canadians purchased homes with variable, rather than fixed, mortgage rates, which have since risen to the point of being unaffordable for many new homeowners. 

Anthony Koch, who was Poilievre’s press secretary during his successful bid for party leadership, says partisans will only defend institutions when they aid their goals and that the Bank was above criticism for the Liberal government when interest rates aligned with the government’s heightened spending plans. 

“I’m not suggesting, in whole or in part, that they were operating in cahoots with one another,” says Koch. “What I’m saying though, is that when the policy pursued by the Bank of Canada was in line with the objectives and the policy objectives of the government of Justin Trudeau, it was all sweet and dandy.” 

DeLorey says criticisms of the Bank of Canada were a product of the current inflationary period, and will likely subside when rates return to pre-pandemic levels, but does not believe the Bank should be above criticism. 

“We live in a democracy where we should be allowed to criticize these things,” says DeLorey. “They’re not holy grails that we can’t touch, and if these guys are making incredibly important decisions that impact people’s lives, it is totally fair game to be able to criticize them.” 

Is nuclear energy worth the eye-popping up-front price tag?

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Although nuclear power only accounts for 16 percent of Canada’s current energy generation, Ontario is going all-in.

The plan, to construct multiple new nuclear reactors, including one that will be the largest in the world, was met with a mixture of praise and skepticism when it was revealed earlier this month. Proponents welcomed cheaper electricity and lower carbon emissions and critics pounced on nuclear power’s reputation for poor cost-effectiveness. 

The price tags may be a hard sell for politicians, with costs pushing past $10 billion for large reactors. But nuclear power’s supporters say that once the massive initial investment costs are overcome, it is both cheap to produce and consume in the long-run.

The real costs of nuclear energy are often misunderstood, says Nicholas Palaschuk, a senior research associate of innovation and technology at the Conference Board of Canada. 

“When compared to other forms of clean or low-carbon energy, large scale nuclear and small modular reactors alike certainly tend to have higher upfront capital costs,” says Palaschuk. “A new CANDU (Canada Deuterium Uranium) reactor in Canada typically costs somewhere in the range of $10 to 15 billion CAD.” 

The cost-difference pales in comparison to the issue of capacity, though, according to Andrew Evans, a research assistant at the Center on Global Energy Policy and former Ford government staffer, writing in an upcoming piece at The Hub.

“Critics may say that even at that price, nuclear power costs more than renewable sources like wind and solar, which is true, especially as costs have fallen dramatically in solar in recent years. But the issue is that Ontario lacks sufficient generation potential in those sources to power future electricity demands in meaningful ways,” writes Evans.

Part of the Ontario government’s plans to expand nuclear power include the construction of several SMRs (small modular reactors), which generated up to 300 megawatts of electricity. 

Critics of nuclear power like Susan O’Donnell, a spokesperson for the Coalition for Responsible Energy Development and professor at the University of New Brunswick, have cited the lack of cost-effectiveness of SMRs. 

“They haven’t been built yet, and one of the reasons that we’re here today is because they are such a bad investment that private sector money isn’t rolling into them,” O’Donnell said. “They’re going to need billions of dollars in public funds.”

The final costs of the SMRs, or the larger nuclear projects planned by the Ontario government, have not been made available, and must first be approved by the federal government.

In terms of the levelized costs of electricity (LCOE), which is the minimum price that electricity must be sold at to cover lifetime costs, nuclear power is often cheaper outside of North America. 

In 2017, the Canada West Foundation published a report comparing the LCOE of nuclear power in four countries, finding that nuclear power had a lower LCOE than wind or solar in Korea, France, and the United Kingdom, with only nuclear power in the United States being the more expensive option. 

Palaschuk says LCOE is a useful statistic from an investor’s point of view but does not tell the whole story. 

“It’s not a fulsome metric for comparing dispatchable generation with intermittent renewables from a policy perspective,” says Palaschuk. “What isn’t factored into LCOE calculations is a consideration of the intermittent nature of renewable technologies like wind.” 

Chris Keefer, the president of Canadians for Nuclear Energy, says Canada is fortunate to derive roughly 60 percent of its energy from hydropower, with nuclear bringing up about 15 percent, but that fully electrifying the economy will require massive upscaling of clean energy projects, including nuclear. 

“In terms of scaling, our largest source of power generation in Canada, hydro, can’t do that,” says Keefer. “In terms of wind and solar, these are shallow de-carbonizers. They do not replace fossil fuels, because they require a one-to-one backup for the times in which the weather doesn’t cooperate.” 

Palaschuk says building new hydropower generators incurs costs due to land use change, impacts on Indigenous communities, and ecological degradation from building new dams. 

“Historically, renewables have received much more in the way of government subsidies which has helped bring down costs,” says Palaschuk. “Alternatively, SMRs offer significant upside in the way of decarbonizing remote and off-grid communities in Canada while unlocking the potential of critical mineral supply chains.” 

The construction of the W.A.C. Bennett hydroelectric dam along the Peace River in northern B.C. is regarded as a landmark infrastructure project, but its construction resulted in the displacement of many Indigenous residents of the area due to the diverted water. 

In a previous article for the Hub, Jesse McCormick of the First Nations Major Projects Coalition has touted the possibility of SMRs in rural B.C. that are partially or wholly owned and operated by Indigenous communities as an economic and environmental benefit. 

An article in the academic journal Applied Energy estimated that transitioning to a carbon-free economy without a significant nuclear power presence would require up to 50 percent more costs in capital investment. 

Palaschuk says nuclear reactors have operational lifetimes of 40 to 60 years, which helps amortize the high up-front capital costs. He says raising sufficient capital remains one of the greatest barriers to growth for cleantech companies in Canada. 

“This makes cost-effective low-carbon energy solutions paramount to accelerating the transition by making it more attractive to investors, industries, and consumers to adopt sustainable practices,” says Palaschuk.