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Yukonomist: How to dodge gas price spikes

Does it seem odd that Yukon gasoline prices are high despite all the talk of the planet transitioning away from fossil fuels?

Does it seem odd that Yukon gasoline prices are high despite all the talk of the planet transitioning away from fossil fuels?

Don’t the Laws of Supply and Demand require that lower demand results in lower prices?

There are a lot of strange ideas flying around fossil fuels these days. A year ago, for example, Whitehorse city council debated whether to approve the drive-thru lane on the new Dairy Queen being built on the Alaska Highway strip. Some were worried about the impact on the global climate of driving from your house and then idling while you waited for your drive-thru ice cream cone to be dipped in chocolate. Meanwhile, just a minute’s drive south on the same stretch of highway, a big new 10-pump gas station fully compliant with City of Whitehorse regulations was opening.

Part of the explanation for the confusion is that we haven’t yet thought through how things like geopolitics and climate change policy affect supply differently from demand. Volatile gasoline prices are just one result.

Demand for gasoline, and fossil fuels in general, has roared back after the pandemic. Indeed, if you look at traffic on public transit systems around Canada these days, it looks like COVID-wary commuters are choosing the car over the bus even more often than before the pandemic.

Meanwhile, on the supply side, many oil producers cut investment during the depths of the pandemic. This has made it difficult to increase production of gasoline quickly. Add the impact of the Ukraine crisis and sanctions on commodity markets, and you have the ingredients for short-term supply shortages.

In the longer term, policymakers worried about climate change are reluctant to approve new oil projects. Citizens protest new oil fields and pipelines. Activists protest investment funds who put their money into oil supply.

No one, on the other hand, is protesting you driving your aging gas guzzler to work. Despite the inspirational language in the territorial government’s climate change plan, the Yukon has among the lowest gasoline excise taxes in the nation. The carbon tax works out to 11 cents per litre. This is noticeable, but not yet enough to cause a big change in Yukoners’ driving habits.

The 2020s may hold more of this for us: surprisingly resilient demand combining with supply hiccups from geopolitics and low investment. The result would be periods of spiking prices.

What can Yukoners do to protect themselves from all this?

One answer is to buy an electric car. Yes, they are usually more expensive at the dealership, cold weather reduces their range and there aren’t that many charging stations on Yukon highways. But you might be surprised how cheap they are to drive the daily commute. Especially if you take the opportunity to rethink how big a vehicle you really need.

CAA offers a handy calculator for vehicle costs, although it only covers the southern bit of Canada. It looks at the total cost of ownership, including operating costs as well as depreciation - a portion of the vehicle’s upfront cost spread over each year it is on the road.

Let’s compare a classic family minivan, the Chrysler Pacifica, with the smaller all-electric Nissan Leaf.

Using Alberta as a proxy for the Yukon, the minivan burns $3,672 per year in gas. That’s assuming 20,000 kilometres of driving and gas at $1.80 per litre. The Leaf uses $577 in electricity for the same distance. Grossed up for higher Yukon power prices and that probably works out to around $650.

If you’re saving around $3,000 per year on fuel, you can afford to pay a bit more for the car at the dealership. However, since the Leaf is a smaller vehicle and enjoys electric-vehicle subsidies, its annual depreciation costs are significantly lower too. CAA estimates the total cost of ownership for the gasoline minivan is $12,239 per year while the Leaf is $6,603 per year.

The electric-vehicle rebates are eye-catching at $10,000 per vehicle, split equally between the feds and the Yukon government. The federal subsidies were originally capped at vehicles costing less than $45,000, but this figure has now been increased to $70,000. This is good news for people thinking about one of the new electric pickups.

The climate benefits of driving an electric car in the Yukon are hard to estimate. On average, our grid has lots of renewable hydro power. But as I write this, the grid doesn’t have enough hydro and is burning fossil fuels. If I plugged in an electric car right now, the grid would have to burn a little bit more.

The CAA calculator says the minivan driving 20,000 kilometres per year emits 23,458 kilograms of greenhouse gases per year. Even accounting for some Yukon Energy diesel and liquefied natural gas, the Leaf would be significantly less.

As with so many things, it is the well-off who will benefit from this first. It will take a while for cheap used electric vehicles to filter through to the used-car market. And if you buy an electric vehicle in the same class as your current gas guzzler, it may be more expensive up front despite the subsidies.

Nonetheless, once you own your electric vehicle you will be immune from gas prices. The occasional annoyance of Yukon electricity prices going up may sting, but you will be able to go on social media and post photos of people huddled against the north wind in the dark jamming credit cards into gas pumps with captions like, “Remember when you had to gas up at Forty Below?”

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.