Plummeting energy prices made a lot of smart people look dumb in 2015. The “peak oil” pundits who said we were running out of the stuff now make sorry spectacles on the business news channels. Business cases have been blowing up all over the place, and not just for multi-billion dollar oil projects.
If heating oil prices go any lower, we probably don’t want to know how many decades it will take to pay off the $5.5 million the Yukon government is spending re-insulating its headquarters.
The mayhem is making people do the unthinkable, like propose income taxes in Alaska or - amazingly - a sales tax in Saudi Arabia.
You can save big bucks, however, if you are an oil importer. Low energy prices are good economic news for places such as Turkey, Singapore, Japan or the Yukon.
What do I mean by “big bucks” in the Yukon’s case? In 2012, Statistics Canada estimated we used 137 million litres of fossil fuel a year. In June 2014, just before falling oil prices became big news, the Yukon Statistics Bureau says regular unleaded cost $1.42 and half a cent per litre in Whitehorse. Just before Christmas, that figure was 99.8 cents, a difference of roughly 42 cents.
If a similar reduction happened across all the kinds of fossil fuels we use, that would be a savings of $58 million. That’s around $1,500 per Yukoner per year. You don’t even have to pay tax on it.
Even better, you didn’t need to do anything. You didn’t have to buy new bulbs for the house, get to work by snowbike instead of car or even wear a sweater and turn down the thermostat.
The Yukon isn’t immune to the downside of low energy prices. If the Alberta-powered Canadian economy stutters, that will flow through into our transfer payment eventually. Some of the forces powering lower oil, such as weakening emerging markets economies, also negatively affect the mining industry. If your retirement savings were invested in the Canadian stock market, and therefore likely in oil stocks, your portfolio is likely taking a beating. And if you were working on a renewable energy project here, your business case now faces a higher bar.
It’s even worse if you’re worried about climate change (which you probably should be). For all the talk about carbon taxes, keep in mind that B.C.‘s much praised carbon tax works out to about 7 cents per litre. That won’t encourage cutting fossil fuel usage if it’s matched by a 42 cents fall in the starting price per litre.
Nonetheless, Yukoners are large net beneficiaries of lower energy prices. This is natural, since we use a huge amount of energy by global standards to power our northern lifestyles.
So what are you going to do with your share of it? Not every Yukoner will benefit by $1,500 exactly. In what will strike some as spectacular cosmic unfairness, you’ll see a smaller benefit if you already walk to work, live in a small and well-insulated house, and don’t fly very much. For those who drive big trucks, live in over-sized and poorly insulated houses, and like to spend the weekend in Vancouver, low oil prices are great news.
You have a few options.
Option 1 is the Spinal Tap option: just spend it. To paraphrase one of the members of Spinal Tap, if you get a windfall then you should spend half of it on having a really memorable party and then just fritter the other half away.
2015 data showing surging purchases of full-size pickups and sport utility vehicles in the United States suggests that many of our American friends have picked this option already.
Option 2 is to pay down debt. With the Canadian economy struggling due to low oil prices, it’s become less likely that interest rates will start going up as soon and by as much as economists thought six months ago. Nonetheless, if you’re running a balance on your credit card or have high consumer or car loans, you could do much more foolish things with your savings than pay off a few bucks of debt.
It’s a boring option, but gets more interesting once you do the math and realized how much compound interest costs you over the course of a multi-year loan.
Option 3 is to invest the money to save even more on energy in the future. If you’re driving a clunker with bad mileage but couldn’t afford to swap it for a new car, perhaps this is the moment. I’d suggest getting the most fuel economic vehicle you can. Even at 99.8 cents per litre, it’s still expensive to fill up a Suburban. And low prices may not last forever. A similar logic applies to buying those expensive low-energy light bulbs or getting some work done on the draftiest holes in your house.
Just make sure your investment is actually an investment, not just wishful spending. Look for things where the investment pays back within five years or less. Many people report even better results than this with energy-efficient bulbs, for example. Re-insulating your forty-year-old administration building may be a different story.
If you do end up choosing the Spinal Tap option, be sure to invite some Alaskans, oil company investors or neighbours who just spent $20,000 re-insulating their homes. They may need some cheering up.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s Yukonomist show.