Thursday, May 10, 2007

CCPA Passes Gas Regarding Fuel Prices

Left-leaning think tank targets oil companies

The news media is abuzz today over allegations that oil companies are gouging consumers at the pumps.

If many people had to sum their thoughts up on this matter, one way or the other, they could likely do it in two words: quelle suprise!

According to a study released by the Canadian Centre for Policy Alternatives, Canadian oil companies may be gouging Canadians by as much as 20 cents per litre. For Canadians enraged by the outrageously skyrocketing price of gasoline, this comes as little surprise. Conversely, Canadians who work in the oil and gas sector will likely be a little more skeptical.

In the sudy, economist Hugh Mackenzie compared the per-barrel price of crude oil to the comparitive value of the American dollar in order to calculate what he considers the "normalized cost" of gasoline (82.8 cents, by his estimation).

Naturally, the Canadian Petroleum Products Institute begs to differ. According to Tony Macerollo, increased demand, and the postponed improvements on American refineries (further impacting the relatively low supply of fuel) account for a portion of the price increases.

It should prove no surprise that the CCPA is targeting oil companies. The left-leaning think tank has consistently adoped a beligerent stance toward the petroleum sector. The CCPA has leveled its sights both at the Fort McMurray oilsands, and at foreign investment in Canada's energy sector in general, advocating protectionist measures.

The fact that, historically, Canadian businessmen were so uninterested in western Candian oil reserves that foreign investment as very much a necessity in order to develop these resources, it isn't hard to imagine that the CCPA would politically manipulate its economic studies in order to transform it into a bombshell.

While it is questionable whether or not the CCPA's estimate of profit margins is entirely accurate, even Macerollo admits that they have increased, which will certainly led credence to the CCPA's claims.

There are other questions that could be directed at major oil companies as well: namely, have they done enough to control their own costs before passing them on to the consumer?

These questions aside, controversy over this issue could also prove politically perilous to Prime Minister Stephen Harper. While in opposition, Harper once called on the government to alleviate gas prices by eliminating the GST at the pumps. Given that the taxes levied on gasoline (10 cents by the federal government, and 14.5 cents by provincial governments) stand at an even quarter (25 cents) per litre before provincial and federal sales taxes are added, the government essentially collects an additional .87 cents in taxes per litre.

Does it seem inconsequential on its own? Certainly. Will it add up over time? Absolutely.

Now that Harper is in government, he should certainly take the opportunity to do what he advocated as leader of the opposition. This being said, he didn't do this last year, and probably won't this year.

Is it hypocritical? Perhaps. All the same, the relief of one cent for every litre of gas purchased doesn't seem like such a huge savings at current prices.

Unsurprisingly, the Liberal party has raised the banner of increased regulation of the petroleum sector. "[Oil companies] have a classic oligopoly, and it's important for Ottawa to get its collective head out of the sand," Liberal MP Dan McTeague declared. It's actually unsurprising from a party that remains smug over having never paid a political price for its consfiscatory (in the words of Hugh Segal) National Energy Program.

In some ways, however, the rising price of gasoline could prove to be a blessing in disguise. The higher price of fuel should prove a boon to the climate change-obsessed environmental lobby, as it should convince people to drive less, thus lowering their greenhouse gas emissions. If anyone actually needed an excuse to walk to the corner store for a package of cigarettes or a slurpee, this could prove to be precisely that incentive.

Of course, not all Canadians will be so fortunate. As is often the case, rural Canadians will suffer significantly more than their urban counterparts. For them, walking to the grocery store simply is not an option. Furthermore, for them the purchase of fuel represents an absolute necessity, one that literally fuels their livelihoods.

Whether the defining factor in fuel prices is truly supply and demand, or merely the greed of major oil companies, the solution to the problems posed by rising fuel costs will not be found easily.

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