Written for Daily Hive by Max Fawcett, the former editor of Alberta Oil magazine and Vancouver Magazine. He lives in Calgary. Connect with him on Twitter at @maxfawcett
As the coronavirus continues to take over our lives, it’s only natural to look for silver linings where you can find them.
Amid the economic carnage that it’s wreaking, one of those linings is the impact it’s had on oil prices, and — by extension — what you pay to fill up your car. Gas prices are down to levels they haven’t seen since the early 2000s, and there are even reports that some stations in the Lower Mainland are selling gasoline for less than a dollar per litre.
Good news, right?
Not exactly. Yes, the fact that oil prices have free-fallen from around $60 per barrel to just over $20 this week has made refuelling a bit cheaper. But it will also end up costing Canada billions of dollars in foregone tax revenue and lost economic activity, as the Canadian Energy Research Institute noted in a 2015 study. According to their work, “every dollar gain in the annualized price of WTI, as measured by the Canadian dollar per barrel, would increase national Canadian GDP by $1.7 billion on average.”
The reverse, of course, is also true, and the $40 drop in price of WTI over the last few weeks would blow a nearly $70 billion hole in the Canadian economy if it lasts for the rest of this year.
That impact will be felt most acutely in places like Calgary and St. John’s, where the oil and gas economy is the strongest. Unemployment in both places will soar, and any dreams that Premier Jason Kenney might have had about balancing his province’s budget before the next provincial election are well and truly dead.
And while he’s wrong that Albertans are funding the equalization payments that go to provinces like Quebec, New Brunswick, and Nova Scotia (and, in the past, British Columbia), he is right that Albertans have paid far more in federal taxes than they’ve received in services.
As University of Calgary professor Trevor Tombe noted in an op-ed for The Globe and Mail, they effectively sent $264 billion to Ottawa between 2007 and 2018. If oil prices stay where they are right now, those days — and that sort of unintentional generosity — are squarely in the past.
Newfoundland, meanwhile, is in a far more precarious position than Alberta. If oil prices don’t improve quickly, it might need to be bailed out by the federal government or end up defaulting on its debts, something that would drive up the cost of debt servicing for all other provincial governments in Canada.
That wouldn’t be the only impact that low oil prices would have on the rest of the country. Like it or not, the strength of the Canadian dollar is directly tied to the price of oil, given that it’s one of Canada’s largest exports by dollar value. When oil traded above $100 a barrel, our currency was at par with the US dollar — something that made everything from avocados to American vacations more affordable. Today, the Loonie is worth less than 70 cents on the US dollar, and it could well revisit the lows we saw back in the early 2000s, when it traded as low as 62 cents.
This decline in the price of oil is also bad for the environment and our collective effort — an admittedly inadequate one, so far — to fight climate change. That’s because lower gasoline and diesel prices will encourage people to drive more, all other things being equal, and make purchasing alternatives like electric vehicles less economically attractive.
This is, as it happens, exactly what countries like Saudi Arabia and Russia want: to ensure that their oil is used for as long as possible. And while Canadian oil and gas companies may falter or fail as a result of the price war the two have unleashed on the world as a result of the coronavirus, they will continue pumping — and profiting. Our environmental standards and regulations in Canada could be more stringent, but they are far more robust than anything those two countries have to offer.
That’s why, although it might be tempting for some people to cheer the recent collapse in oil prices, they ought to give that some second thought. Economic pain rarely leads to better outcomes or a more productive political discourse, and Canada’s position here is more precarious than it might seem to some.
If we’re going to lead the global transition to a lower carbon economy, it’s far better that we do it from a position of strength rather than weakness, and because of decisiveness rather than desperation.
Cheap gas might seem like a victory, but it could easily end up being an empty one.
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