Tag Archive | layers of cost

Green power is cheap

Electricity in Ontario comes predominantly from nuclear, coal, and hydro (in that order). For historical reasons people refer to it as “hydro”. Well, I just recently got my bill, which is actually for wind and low-impact hydro – via Bullfrog Power. The bill is for $102, which is for a two-person household for two months (with little A/C use and no lights left on all day). Sounds like a lot? Well, how much more do you think I’m paying to get certified low-impact hydro and wind versus nuclear and coal?

The answer might surprise you: all of $18 extra, out of the total bill of $102. Less than $5 per person per month.

Fully half of the bill is for delivery, regulatory charges, and a debt retirement charge. The regular Ontario hydro rate is currently 5.7 cents per kilowatt-hour (kWh), while getting electricity through Bullfrog Power costs 8.7 cents per kWh. Which makes a 34% premium for the power itself, or 17% of the total.

The way this “offsetting” works is that you still pay your local utility, which provides power from the general grid, checks your meter, and bills you accordingly, including the 3 cent per kWh premium. (Or in some cases you pay the premium directly.) On the other end, electricity generating sources sell their power at the fixed Ontario price (5.7 cents) to the grid, getting their additional compensation from Bullfrog. There can be issues with such schemes in general, but Bullfrog looks to be running a professional and well-audited operation.

Unlike generic carbon offsetting, however, this is very concrete: you pay for the certified low-impact generation of just the electricity you use, with little or no hand-waving. In Ontario demand for Bullfrog Power is being met with the creation of new wind farms.

What about businesses that use electricity? In my case above, a 34% premium on one level became a 17% premium on the next level. But in the context of products or services, you have to add in the cost of materials and the cost of labor. Considering that electricity is a relatively small proportion of the cost of most products and services, that 17% premium would be a vanishingly small portion of the end result. I think plenty of people would be happy to pay an extra 1% to ensure that a business was powered by clean electricity. Plus, if that percentage is perceived to be large, there are likely energy savings that can be made to mitigate or eliminate the hit.

Layers of added value and the cost of ingredients

If organic ingredients are 50% more expensive, then an organic bagel should cost 50% more, right? A moment’s thought should convince you otherwise. The moment you take the components out of the field, off the tree, into the slaughterhouse, the expenditure on “organic” or whatever other method was used to grow the food stops.* After that, you start “adding value” to it: first to get the thing cleaned and packaged, then to process it into a foodstuff. Foodstuffs are combined to produce food, or in the case of more processed food, just ingredients for a later step. This all has to be shipped carefully, be stored, take up shelf space, and be sold. The steps may very well vary, but what remains is that there is a lot of human and machine labor and resources used up for steps beyond the actual growing of food.

With every layer of processing, the cost of ingredients becomes a smaller and smaller proportion of the total cost of food. One instance which I find striking is that of organic products that are sweetened with organic sugar. The “organic evaporated cane juice” I see on ingredient labels is never fair trade. It being so would hardly increase the overall cost.

With this line of reasoning, restaurants should be the first to go organic, local, fair trade, everything. Ingredients there simply do not make up that large a fraction of the eater’s cost. The cost of ingredients in a meal might double, say from $3 to $6, and that would convert a conventional meal of $12 to a local, organic (, etc.) meal of $15. With that sort of marginal difference and with the number of people who would prefer the latter meal, economics suggests there should be more such restaurants than the two or three that exist around here.

*The exception is the cost of additional steps necessary to ensure lack of cross-contamination in processing, including having to run smaller batches.