Blame gas for a third of inflation
Oil company profits and speculation are driving a large part of current price hikes, experts say
Living green isn’t just good for the environment, it’s also easier on your wallet.
Fossil fuels are the single biggest driver of inflation, accounting for almost one third of the overall increase, a Star analysis shows. People with low-carbon lifestyles — those who don’t drive or fly or heat their homes with natural gas — are avoiding a big chunk of the recent run-up in prices.
“This increase in fossil fuel prices has the potential to not only reward people living a low-carbon life, but it will also assist in the shift toward a more sustainable future,” says Sheila Bock, a senior economist with the Canadian Centre for Policy Alternatives.
“High oil prices are good for the environment in terms of changing consumer behaviour,” she said.
“When governments are reluctant to do what’s required, let the market do its work.”
While an individual can save thousands of dollars annually by giving up driving, this isn’t an option for those who live in car-dependant areas with no public transit, prompting experts to call for government action to make it easier for people to avoid fossil fuels.
New inflation numbers put out by Statistics Canada on Tuesday peg overall inflation at 7.6 per cent, slightly down from last month’s peak of 8.1 per cent.
While the modest decline was largely due to a small reprieve in skyrocketing gas prices, oil products still account for 2.2 of those percentage points.
Prices for gasoline for cars and trucks, RVs and boats, as well as natural gas and heating oil for furnaces made up 28 per cent of the increase in the Consumer Price Index (CPI).
The figure is actually an underestimate. It doesn’t capture the whole picture, because oil is driving up prices across the board, says Jim Stanford, an economist and director of the Centre for Future Work, an economic think tank.
“Because the CPI only measures the prices paid by consumers for final goods and services, fossil fuels only show up when consumers directly buy them,” he said.
“But there are other cost channels through which fossil fuels affect consumer prices: higher costs for the inputs that companies buy to produce other goods and services for consumers.”
In other words, when you pay more for bananas or a television, some of that goes to the rising fuel costs being paid by the farmer or manufacturer.
“That’s where fuel for air travel, natural gas for electricity generation, and the fossil fuels that go into almost every other industry would show up,” Stanford said. “Consumers buy an air ticket, they don’t buy jet fuel — but the price of jet fuel obviously affects the price of the air ticket.”
International oil prices have risen between 35 and 51 per cent in the last year. Canadian oil prices are up 73 per cent.
This has translated to a 36 per cent increase in the price of gasoline across the country.
Much of this rise has been chalked up to the Russian invasion of Ukraine.
“This is nonsense,” Stanford said. There’s no global shortage of oil, he said, nor has there been a surge in demand.
The U.S. Energy Information Administration projects total world petroleum supply of more than 100 million barrels per day in 2022, up almost five million barrels from 2021, and expects another 1.2 million barrel increase in 2023. Even Russian production has grown this year.
Instead, speculation is driving the surge in oil prices, said Stanford.
“Remember, most of the fossil fuel consumed in Canada is produced in Canada, it was completely unaffected by the war in Ukraine, there is no core economic reason why the price should have suddenly increased so much,” he said.
While speculators drive price surges in stocks and housing, the difference with oil is that “we all pay higher prices for the speculative upsurge — even though the actual cost of producing the energy hasn’t changed,” Stanford said.
“This is not just a ripoff for consumers, it is threatening the whole course of Canada’s economy,” he said.
The evidence shows up in the financial reports of oil companies.
In the second quarter, the top five global oil companies reported a record profit of over $60 billion (U.S.).
It’s no different in Canada. The big four Canadian oil producers reported an all-time high of more than $12 billion in profit during the same period. Cenovus made 10 times more money than it did in the second quarter last year. Imperial Oil increased their profit six times over. Suncor multiplied its profit by four. For Canadian Natural Resources, profit more than doubled.
Bock says the oil companies know the global effort to reduce carbon emissions will make their businesses less profitable in the long run, “so they’re trying to profit as much as possible currently.”
With the oil and gas industry awash in cash, and regular people paying more than ever for basic necessities like food and housing, Bock suggests that now’s the time for the government to intervene.
“There’s an opportunity for redistribution through the tax system,” she said. “I think the idea of a windfall profits tax on oil companies could work.”
In May, Britain passed a 25 per cent windfall tax on oil and gas producers. But in Canada, the federal government subsidizes oil companies to the tune of $14 billion per year.
Those public funds could be better spent on making the shift to low-carbon lifestyles easier, said Clement Nocos, director of policy at the Broadbent Institute.
“Telling people ‘you need to completely change your lifestyle’ isn’t realistic, especially when it’s not a real choice for people,” he said.
People who move out of walkable city centres to suburbs where housing is cheaper can’t realistically opt to not own a car, said Nocos.
“To live a low-carbon lifestyle that reduces your dependence on oil and gas, that’s going to take more of a structural change than any individual action to ditch your car when there is no public transit or cycling infrastructure to take its place.”
Nocos says the combination of high inflation and windfall oil profits provides a political opportunity to create transformative systemic change to reduce emissions and avoid the worst effects of climate change.
“Let’s take that excess profit and invest it into things like public transit, so people do have an alternative and can live a low-carbon lifestyle.”