Changing Canadian Electricity Markets and the Future Role of Government

The roles of two arguments from neoclassical economics for government intervention in the electricity industry, based on the existence of natural monopoly and public goods, have been diminishing, while the need to deal with negative environmental externalities has been given increasing attention. In recent debates over appropriate policy responses, these rationales have frequently been treated in a confusing manner and one encounters policy proposals that focus on one of the arguments while ignoring the others. The evolution of these rationales is described and its implications for policy formation are considered. The paper concludes with an illustration of how this analysis suggests a certain range of policy solutions, combined with substantial room for distinct choices within that range