Party at the pumps
By Judith Lavoie, February 2015
The low price of oil is raising big questions around pipeline proposals, BC’s carbon tax, emissions, and consumer behavior.
Lineups materialized at the Costco gas bar as soon as the price of regular gasoline dropped below one dollar a litre. The prospect of a deal brought Greater Victoria’s avid bargain hunters rushing to Langford to fill their tanks—with some then returning later to fill the second family car.
In the short term, BC consumers are revelling in the pocketbook bonuses provided by dropping oil prices. British Columbians are largely unaffected by the major concerns plaguing their Albertan neighbours who are looking at oil patch job losses, oil sands projects on hold and the prospect, according to Premier Jim Prentice, of this year’s projected $1.5-billion surplus turning into a $500-million deficit.
BC’s job losses are unlikely to be extreme and, according to the Finance Ministry, only about $100 million of BC’s $44-billion budget is derived from oil royalties. “Conversely, low gasoline prices are good for transport, export/import and consumers, which can help benefit BC’s bottom line through increased economic activity,” said an emailed response from a Finance Ministry spokesman.
For many British Columbians, the bonus is that, for now, dropping oil prices are stalling oil sands development and will certainly slow down plans for Enbridge’s controversial Northern Gateway pipeline and the proposed twinning of the Kinder Morgan pipeline.
“I think the business case for pipelines has pretty much evaporated, at least in the short term,” said Tom Pedersen, Pacific Institute for Climate Solutions executive director. Massive disinvestment in the oil sands is likely to last for a while, he predicted. “Unless you have a crystal ball and expect the price to go back up to $85 a barrel, which is what they need in Alberta, you’re not going to invest in the oil sands for a time.”
Effects on this province’s already-faltering liquefied natural gas hopes are less clear. Some LNG contracts are benchmarked against oil prices, although, according to the BC government, those contracts typically have long time frames to smooth out the effects of price fluctuations; observers, however, are keeping a close eye on what the greenhouse gas emissions fallout could be.
According to a 2014 study by two researchers at the University of Ottawa, BC’s per capita use of gasoline has dropped by 17 percent since the carbon tax was introduced in 2008. In that same period per capita use increased by 1.5 percent in the rest of the country. Will the return of cheap gasoline reverse that trend in BC?
The carbon tax adds 6.7 cents to the cost of every litre of gasoline and 7.6 cents to diesel, but is a revenue neutral tax, meaning the money is returned to consumers through income tax. The rate has risen from the initial price of $10 per tonne of carbon dioxide emitted, to $30 per tonne in 2012, a rate at which the BC government intends to stay.
According to Green Party MLA Andrew Weaver, that is the wrong decision and the government is missing a golden opportunity, made more palatable to consumers by lower gas prices, to continue increasing the carbon tax rate by $5 a year. Weaver wants to see proceeds of the carbon tax pumped into improving public transportation and replacing aging infrastructure—an expensive problem plaguing most BC municipalities. “People are willing to pay when they know where it is going,” he said. “The new approach could be to continue to increase it at $5 a tonne, giving every cent back to municipalities trying to fund infrastructure through crippling property taxes…This could be doing so much good and not affecting the economy.”
But acting on climate policy does not lead to political gain, said Mark Jaccard, professor of sustainable energy at Simon Fraser University, who doubts that Premier Christy Clark would even consider increasing the carbon tax. The words “tax increases” are anathema to most politicians and putting the money into transportation and infrastructure would not have enough popular appeal to make it acceptable, according to Jaccard. Clark believes her major job is to win the next election and, even though all analyses show that the only losers in BC’s carbon tax are the very wealthy and that most people are better off, the word “tax” is enough to ensure she will steer away from an increase, he surmised.
“Action on climate change is going to have to be driven by moral motives. If you just care about re-election, you are not going to act on climate change,” said Jaccard, pointing out that BC has had a policy that encourages low emission vehicles—similar to the rules already in place in California—on the books since the administration of former premier Gordon Campbell, but the policy has never been enacted.
Certainly, there is little sign that the government is thinking of changing course, although an e-mailed Environment Ministry response to questions said: “Government is looking into new opportunities and actions to further reduce emissions.”
It is not known whether, over the years, BC’s changing consumption habits have been due to the carbon tax increasing the cost of gasoline—especially for high volume industrial users—or the strong link to climate change resulting in greener choices. But, the bottom line is that the carbon tax appears to have worked. As other provinces and states consider a similar tax or the more complicated system of cap and trade (where limits are set on permitted emissions and companies that need more trade with those that require fewer permits) it is unarguable that the amount of energy-related greenhouse gas emissions in BC dropped six percent overall between 2007 and 2011.
Those figures allowed Environment Minister Mary Polak to tell delegates at the December UN climate change conference in Lima, Peru that BC is on target to reduce greenhouse gas emissions to 33 percent below 2007 levels by 2020—despite the inevitable increase in emissions if the Province’s ambitious LNG plans come to pass.
The next indication of how BC is doing will come this spring with the release of the 1990-2013 National Greenhouse Gas Inventory Report and subsequent release of provincial data. But those reports will not reveal whether targets are being derailed by dropping gas prices.
“The big issue is what impact will [cheap gas] have in terms of CO2 emissions,” Pedersen said. He noted that only 37 percent of emissions in BC come from transportation, but gas prices could slow the sale of energy-efficient vehicles, as automotive dealers are saying that sales of fuel-hungry vehicles such as SUVs have spiked upwards.
Economic commentators agree that, at some point, prices will rise again—with predictions ranging from this summer to three years hence.
“However, one of the character flaws in humanity is so many of us think short term,” said Pedersen, suggesting that anyone considering buying a gas guzzler should consider looking at where General Motors is placing its bets. GM has announced that the Chevrolet Bolt, an electric car capable of going 320 kilometres on a single charge, will be available for sale in 2017.
An Environment Ministry spokesman said there is evidence that driving behaviour has changed over recent years, especially in urban areas and among younger people. More people are living in downtown areas and those in suburban areas are taking rapid transit where possible, he said. “These choices are not purely driven by fuel prices and are not expected to revert back to previous choices with lower gasoline prices, particularly in the short term,” he said. “There is insufficient data at this time to determine whether emissions have increased as a result of decreased fuel prices.”
Jaccard believes that—despite media hype—most consumers will think about where gas prices are likely to go in the future before trading in their Smart Car for an SUV. “In 1986 the prices fell much lower, but it took several years for consumer preferences to move to SUVs and gas-guzzling vehicles, so you would have to convince me the price of oil would be low a year from now,” he said.
Jaccard is also watching the slowdown of investment in the oil sands and pipelines, but doubts that this fluctuation in oil prices will change everything. “Many people don’t remember that [gas] prices were even lower five years ago,” he said.
In the meantime, the party at the pumps will continue, as happy consumers fill up their vehicles. To quote the satirical news source The Onion: “Who benefits from the price drop? Anyone who’s alive to enjoy low prices, but dead before the full consequences of fossil fuel usage are felt.”
Judith Lavoie is an award-winning journalist specializing in the environment, First Nations, and social issues. Twitter @LavoieJudith.