Alberta’s Energy Minister Ron Liepert has certainly been aggressive in his support of the Keystone XL project, urging US President Obama to, “sign the bloody order,” and saying the the President was, “out of touch with Americans,” who he insists want the pipeline to go ahead. Liepert went on, in the same interview, to say that, “the (Obama) administration today is highly influenced by the environmental movement, and there’s a lot of foot-dragging relative to the approval of projects that are seen to have, quote, environmental impact.” He said that, “if we don’t have either increased access to the U.S. Gulf Coast or a pipeline to the West Coast of Canada, we’re going to be a province that’s landlocked in bitumen.”
energy
Environmentalists and energy prices 2.0
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.
A discounted, domestic oil price would be bad policy for Alberta
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.
High gas prices more likely due to oiligopoly than collusion
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.
Gas prices: Who benefits from tax relief?
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.
Liberals’ significant climate plan cloaked in silence
My second Globe and Mail Economy Lab post on the new Liberal Platform is available here. After this piece was posted, Liberal Senator Grant Mitchell posted a response to some of the questions I raised here. Rick Szostak posted another response detailing how revenues from the auction of permits would remain in Alberta here.