The Ontario government’s announcement on Tuesday that it is expanding time-of-use electricity rates to large industrial users is a positive move at the right time. Not only does it help to improve the efficiency of the electricity system, but it’s good for the environment as well.

With the new pricing for large industrial consumers, the Ontario government has a big opportunity to improve conservation by sending a clear message to these consumers that energy use during critical peak periods is costly to the environment and the economy. All electricity consumers in the province stand to benefit from the move.

Back in 2006, the Ontario government announced that reducing peak energy demand by creating a “culture of conservation” was critical. It set a goal to reduce peak electricity demand by 6,300 megawatts by 2025.

With smart meters and time-of-use rates, Ontarians are becoming more sensitive to the concept that electricity rates can vary at different times of the day. The announcement on Tuesday is the next logical step to enhance conservation. Rates for industrial users will reflect the reality that on some days — the hottest, smoggiest and most humid — generating enough electricity to meet peak demand is significantly more costly than during the rest of the year.

Businesses will see the true cost of power to meet demand during critical peak days. This creates strong conservation incentives. Businesses will respond to higher prices by changing processes and practices, improving facilities, replacing inefficient equipment, and most importantly from a critical peak perspective, choosing when to consume and when to conserve.

The Ontario government’s announcement that it is going to implement the new pricing model for large industries, ahead of all other business consumers, makes a lot of practical sense. The reality is that these large users have the physical infrastructure — such as metering — in place to begin today. A staged approach to price reform, beginning with larger users, will mean several major benefits for all consumers.

First, businesses would have a strong motivation to become more efficient in their operations, to take account of energy costs in business planning, and to do their part to ease the strain on Ontario’s electricity grid.

Second, it would reduce the need for new generating stations to meet demand on peak demand days. A conservative estimate suggests critical peak demand could be reduced by as much as 800 megawatts; electricity consumers would be on the hook for more than $1 billion if a new gas-fired plant was required to handle peak demand.

Third, losses and congestion on the transmission system increase dramatically as demand reaches peak levels, especially during heat waves. This means more electricity needs to be generated to get the same amount of power to each consumer, raising costs for everyone.

The biggest beneficiary is the environment. During peak periods Ontario relies most heavily on fossil-fuelled plants. And worse yet, to cover spiking power needs, the province sometimes needs to import expensive and dirty power from less efficient, higher polluting fossil-fuel plants in the U.S.

The government’s commitment to a green economy means that all customers have a role to play in adapting to this new reality. Mass marketing may help to promote voter acceptance, but there’s nothing like higher prices to get the attention of business customers. This doesn’t have to mean higher bills. Business customers that reduce demand during critical peak times will be rewarded — just as residential customers are rewarded for shifting some of their electricity use to off hours. Furthermore, business customers that choose not to conserve will pay more under the new pricing model.

The Ontario government took the right step toward its laudable conservation goal of reducing demand during critical peak times. It also helped accelerate Ontario’s transition to a green economy by implementing a pricing policy that better reflects the true cost of peak energy to business customers. Giving businesses a financial stake in conservation will deliver benefits to all Ontarians.

Adam White is President of the Association of Major Power Consumers in Ontario ( www.ampco.org). Rick Smith is Executive Director of Environmental Defence ( www.environmentaldefence.ca).