No evidence to support claims against gas regulation
The Gulf News recently printed an editorial commenting on a study by the Atlantic Institute for Market Studies (AIMS) (“Burned at the pump,” Aug. 25). The editorial noted that the study “estimates motorists paid more than an extra … $63 million in Newfoundland and Labrador” as a result of regulation, with others in Atlantic Canada paying tens of millions in additional costs because of regulation in their provinces.
It concluded that the “information put forward by AIMS is compelling” and suggested that governments were artificially raising the price of gasoline to collect more taxes.
These claims by AIMS are bogus, but they have been reported uncritically across the province. Let’s see why the numbers are wrong.
The new AIMS study, “What’s Still Missing From Your Wallet?” updates their 2009 study “What’s Missing From Your Wallet? How Gas Prices Regulation Robs from Consumers.” That 2009 study reported that regulation had cost consumers $65.3 million in the roughly seven years it had been in place. The new study reports a cost saving to consumers of $2.2 million for 2009-2017, giving a total of $63.1 million.
This already looks strange. Why should the costs have been so large in the first period after regulation and negative after that? To answer this, we have to see where these numbers come from.
What AIMS is trying to calculate is how much consumers paid wholesalers and retailers for a litre of gas for a period of time before and after regulation. If this “marketing margin” rises after regulation, AIMS claims that regulation caused it. Knowing the total number of litres of gas purchased gives an estimate of the change in total costs to consumers.
However, comparing dollar values over time requires adjustment for inflation. Their 2009 report didn’t do this, while also using incorrect exchange rate values.
I corrected these mistakes in a paper published later in 2009 by the Canadian Centre for Policy Alternatives (“Debunking the Myth That Gas Price Regulation Robs From Consumers”). I found that there had actually been a decline of half a cent per litre (in today’s dollars) in average marketing margins after regulation in the three cities for which there were data (St. John’s, Gander, and Corner Brook).
Using AIMS’s method, this implied savings to consumers of $23 million up to 2009. Their 2009 claim of a $65.3 million cost to con- sumers was wildly wrong. Remarkably, AIMS persists in using it, an indicator of the integrity of their report.
Their current study attempts to address my earlier criticism by adjusting for inflation. According to the numbers reported in their study, the inflation-adjusted average marketing margin declined by 0.4 cents per litre after regulation.
AIMS could have simply used this value and multiplied it by the number of litres of gasoline purchased since regulation began to conclude that regulation saved consumers $39 million.
But they didn’t. They chose to use the erroneous $ 65- million cost to consumers from their 2009 study and to apply their -0.4 cents per litre estimate only to gasoline consumption since 2009.
Despite years of claims that gas price regulation has raised prices for consumers in Newfoundland and Labrador, AIMS has yet to provide a shred of evidence to support its position. Debates about public policy should be based on fact not fiction.