In the last few weeks, Whitehorse residents have witnessed an inversion at the pumps. Rather than watching the “dollars” increase faster than “litres” – as we have become accustomed to in the last few years – we have been able to enjoy the opposite. For the first time in some time we can get a litre of gas for less than a dollar.
Usually I find some amusement in the excitement that changes in fuel price generate. Typically the savings are pretty trivial. A two cent a litre drop in prices, for example, saves someone with a 50 litre tank only a dollar on a fill up. Yet drivers are over the moon and will go out of their way to seek out rather minor savings.
But this time it is different. This time the drop in prices in big. When I filled up my vehicle this past weekend for 94.9 cents a litre the savings were noticeable and welcome. The precipitous drop in fuel prices is, on its face, good news for price-conscious consumers and likely even more so for fuel-intensive businesses where the savings measure in the tens, even hundreds, of thousands of dollars.
But these savings could come at a great cost – both economically and environmentally – and I am not sure they are something we should get too giddy about.
In terms of the economy, it seems that no one really agrees how this will all shake out or how long these low prices will last. The federal government has gone so far as to take the unusual (yet prudent) step of delaying the budget until it has enough time to really analyze how falling prices affect the bottom line. The Conference Board of Canada is predicting that federal revenues will take a $4.3-billion hit.
Not everyone is doom and gloom. Some analysts seem to think that economic gains in other sectors will balance out the effect of the looming economic disaster in the oil patch.
Call me cynical. Canada has put a lot of eggs into the oil and gas basket, and the suggestion that lower fuel prices will give a boost to manufacturing in central Canada sufficient to offset losses in energy production is naive. While lower fuel prices certainly benefit manufacturers, it was labour costs – not energy – that drove the exodus of manufacturing jobs from Canada.
So for the moment we just don’t know. If you have a stable, full time, unionized Yukon Government job you likely have very little to worry about. But those of us who make our living in the private sector may feel a pinch even here in federal transfer land.
If you have investments you have probably already seen a hit to your portfolio that wipes out any savings at the pump. Want to be a downer at a dinner party?
Tell your friends who are excited about low gas prices to have a look at their portfolio.
But my greater concern relates to how these low prices will influence behaviour. Unfortunately we humans are not great forward thinkers. These low prices will likely lead many of us to make a number of poor choices that ignore the imminent crisis of climate change and the reality that prices will eventually go back up – like buying larger vehicles, foregoing renewables in favour of cheaper fossil fuel, or opting not to make fuel efficiency a priority.
The fact that consumers buy more of those things that are cheap is among the most uncontroversial in the study of economics.
For example, solar panels have come a long way towards being economical in recent years. Before fuel prices dropped, the cost having some panels installed had never been as competitive to the cost of buying power from the grid. But will a prolonged period of cheap oil set back some of the gains? If it’s plainly and significantly cheaper to buy power from the grid, will fewer make the switch? Economics says yes.
Truck sales surged in 2014, and while this obviously can’t be attributed to falling fuel prices (which only took off late in the year) low gas prices will probably only exacerbate that trend.
The effects of low oil prices could reverberate throughout the entire economy. Whenever a fossil fuel intensive option is weighed against an alternative, it just became much more likely that the decision maker would choose the former.
Politicians now have an opportunity to tip the balance. If I were a policymaker at this moment in history willing to spend some political capital on an idea that could prove dangerous to my electoral prospects it would certainly be a carbon tax.
We have already become somewhat accustomed to high fuel prices, so relieving us of some of those savings would not be that noticeable and could cause us to think twice about making less fuel efficient choices. Given how far fuel prices have already fallen, we would probably have to settle for a carbon tax which, at best, encouraged consumers to not make things worse rather than make things better but that is still better than nothing.
Saving money on fuel for our vehicles or heat from our homes is a good thing, while increasing our consumption of fossil fuels is not. It is important that policymakers create some incentive not to revert to the bad habits of the past.
Kyle Carruthers is a born and raised Yukoner who lives and practises law in Whitehorse.