Month: May 2011

In defense of feed-in tariffs…just not this one.

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With the release of Ontario PC Leader Tim Hudak’s platform today, it’s clear where much of the focus of the campaign to be Ontario’s next Premier will be – on Ontarians’ electricity bills. Hudak announced no fewer than six major policy changes to Ontario’s electricity system:

  • An end to Ontario’s Feed-in Tariff (FiT) program;
  • An end to mandatory time of use pricing;
  • Closing down the Ontario Power Authority;
  • A return to centralized supply decisions, with a focus on gas and nuclear, with, “an open and fair process for alternative energy sources like solar, wind, and biomass;
  • Removing the provincial share of the HST from electricity bills;
  • Ending the debt retirement charge on electricity bills.

That’s a lot to cover in one post, so I won’t try.  Let’s stick with the FiT.

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Environmentalists and energy prices 2.0

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One thing I can’t make head nor tail of is how people who are concerned about the environmental impacts of fossil fuel consumption also seek to combat high or volatile oil and gas prices. I got on this idea today after reading a post by Brad Johnson (@climatebrad) originally at his site, The Wonk Room, and later cross-posted to Grist.org. I share a lot of the same concerns as Brad with respect to the environmental impacts of fossil fuel consumption. As a result, I think it’s reasonable to ask whether supply-side effects of high oil prices are good or bad news for the environment.  On the consumption side though, either higher or more volatile oil prices will decrease consumption of oil products over the long term, which I can’t see having an environmental down side. All else equal, make prices less volatile with the same underlying trend or reduce oil prices and consumption will go up. I doubt you can find an economist anywhere who will argue with this.

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Alberta needs to do more than tell Ottawa, “hands off the golden goose!”

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This article, by Jason Fekete and Darcy Henton, discusses the Alberta Government’s growing anxiety with respect to the coming Federal GHG regulations for the oil and gas sector. Premier Stelmach and the Alberta Government may be late to the game, but they have moved quickly in the past to head off federal action with regulatory changes in the province.

As I wrote during the election, the Conservatives have committed to a regulatory model, which could be similar to the EPA approach in the US, although details for Canadian regulations have yet to be released.  If you want to know what source performance standards will look like in the oil and gas sector in the US, look here.

What should concern Alberta is the fact that regulatory approaches generally look at each facility and ask what that facility can afford to pay. Alberta has some of the highest value uses of carbon emissions in the country – you don’t have to look far to see a story about how profitable the big oil companies are today. Under a regulatory approach, oil and gas facilities can afford to pay a great deal more than, for example, steel mills in Eastern Canada. I wrote then, and I still believe it to be the case now, that we should not be too quick to assume that the oil sands will be the first to get special treatment.

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My latest Economy Lab Post: Emissions: Peter Kent’s 178 millon-ton challenge

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It may be his most important task, and setting Canada’s GHG policy course for the next four years will not be an easy one for Environment Minister Peter Kent. By his own admission, meeting Canada’s GHG goals will be a daunting challenge and will require stringent regulations on oil and gas, electricity generation, transportation, and … Read more

A discounted, domestic oil price would be bad policy for Alberta

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There’s something about oil that makes some of my favorite conservatives start to think like liberals.  Yesterday, I was surprised to read, on John Winslow’s blog, the question of, “whether it stands to reason the people of Alberta and, to a lessor extent, the people of Saskatchewan should be receiving a nice break on the price of fuel since, unlike the rest of the country, WE HAVE OIL?” In other words, should Alberta consider pricing oil as Quebec prices electricity – with one price for domestic consumption and another price for export?  The answer is absolutely not.  The fact that we have oil shouldn’t drive us to use it to subsidize gas prices in our economy any more than a government budget surplus should drive foolish spending or a government surplus in real estate holdings should lead to allocating low-rent office space to some pet industry or another.  We should allow the market to determine the price of oil (and gasoline) and use the benefits of high oil prices efficiently to enhance the Alberta advantage.

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High gas prices more likely due to oiligopoly than collusion

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The knee-jerk reaction of many Canadians, including Industry Minister Tony Clement, is to assume that high gas prices and inflated profit margins are likely to be explained by collusion among the big oil companies to fix prices at higher than acceptable levels.  It may well be true that that there are price setting agreements reached among the major players in Canada, as Lorne Gunter suggests has happened before, but explicit collusion is not the only plausible explanation for high refining margins in Canada.  The refinery sector should be under the lens of the Competition Bureau because the potential exists for the abuse of market power in this sector due to high concentration ratios, significant barriers to entry, and a product market with inelastic short run demand.   Market power does not imply collusion or some grand conspiracy – it simply implies that the competitive forces in the market for refined products aren’t sufficient to drive prices down to marginal cost.

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Gas prices: Who benefits from tax relief?

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Since oil prices began their steady march back to three-digit levels, the cries for government intervention in gasoline markets has risen in tandem.  These calls have reached a fever pitch this week with reports we will soon see a US-style dressing-down of the oil executives by federal MPs as well as calls from politicians including Ontario PC Leader Tim Hudak to consider tax relief at the pump.

Often, the case for government intervention in energy markets is premised on protecting low-income consumers from the effects of price increases.  A quick look at Stats Can data suggests not only that this would be what Kevin Milligan has termed a “price solution to an income problem,” it would be an expensive and regressive policy change to say the least.

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