Varcoe: Rising energy costs lead to inflationary fire

Rising costs on several fronts are hammering Alberta consumers and businesses

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Inflation is racing at the fastest pace since leg warmers first became fashionable in the 1980s — rising more than 7.7 percent in the country last month — as rising energy costs hurt consumers and businesses alike.

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What can a government do about it?

Here’s an idea: encourage responsible production of more energy, as glowing commodity prices drive inflation.

In the short term, however, governments are looking for other ways to mitigate the immediate effect.

US President Joe Biden urges Congress to temporarily lift federal taxes on gasoline. In Canada, the Trudeau administration seems less inclined to provide assistance to the pumps in the short term.

In Alberta, the provincial fuel tax of 13 cents per liter has been abolished since April. With the emergency aid program ending at the end of June, the UCP government announced on Wednesday that it has extended the measure until at least September.

“This is a good policy that helps Albertans,” newly appointed Treasury Secretary Jason Nixon said in an interview.

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“Fuel costs affect the cost of, quite frankly, food and other things within our supply chain. Everything comes by truck. So this is the fastest way we can have an impact.”

Repealing the gasoline tax has cost Alberta’s treasury just over $300 million to date. The county also pledged to honor its previously announced electricity rebates — giving consumers a $50 credit in their bills for three months — starting in July.

However, it appears that a planned natural gas rebate program won’t kick off before October, despite suggestions from Prime Minister Jason Kenney this spring, it could arrive earlier.

Rising costs on several fronts are hammering Alberta consumers and businesses.

According to GasBuddy, the average Canadian price for unleaded gasoline this month was a record $2.06 per liter.

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Statistics Canada reported Wednesday that energy costs were nearly 35 percent higher in May than a year earlier; the war in Ukraine has created uncertainty about supply and pushed energy markets up.

University of Calgary economist Trevor Tombe said higher energy costs contributed 2.5 percentage points directly to the rising consumer price index, while the “ripple effect” on other products across the economy added another 1.5 percentage points.

“Energy is an important input for the production of almost everything,” he said. “Even services are affected.”

Nixon calls on Ottawa to lift its fuel and carbon taxes from gasoline prices. Such a move would save Canadian motorists nearly $22 to fill a 100-gallon gas tank.

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“If Joe Biden in the United States sees this as good policy, I don’t know why Justin Trudeau is taking so long to recognize the positive impact you can have for people in this country,” he said.

Others are not so sure.

Jason Nixon on Tuesday, June 14, 2022.
Jason Nixon on Tuesday, June 14, 2022. Photo by David Bloompost media

Tombe believes there are effective ways to provide aid in a more targeted way, pointing out that lifting the federal gas tax would cost the government about $500 million a month.

Natural Resources Secretary Jonathan Wilkinson told The Canadian Press that the Liberal government has no immediate plans to cut federal excise taxes on gasoline.

But cost pressures on Canadians are mounting.

In Calgary, 48 percent of local businesses expect to see higher operating costs in the next three months, but only a quarter expect their business revenues to rise, according to a survey released Thursday by the Calgary Chamber of Commerce.

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“You have limited pricing power to pass those higher costs on to your consumers,” said room CEO Deborah Yedlin.

“We’ve gone from one challenge to the next.”

Half of the 499 local entrepreneurs surveyed by Statistics Canada in April and May – in partnership with the Canadian Chamber of Commerce – say they are concerned about higher input costs.

Four in ten are concerned about rising transport costs, while 51 percent expect higher energy prices in the next three months.

Governments must reduce inter-provincial barriers to trade, remove international tariffs and accelerate investment in the supply chain to improve the flow of goods, the Calgary chamber said.

South of the border, Biden is urging Congress to suspend the federal gasoline tax of 18.4 cents a gallon for three months.

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He also calls on the oil and gas industry to ramp up production. Earlier this week, Chevron Corp. CEO Mike Wirth replied in a letter to the president that the industry needs “clarity and consistency on policy issues” in order not to be vilified by the government.

As the energy crisis deepens, an obvious solution lies in increasing oil and gas production, although that will require additional investment and greater confidence in future policies in an era of decarbonisation.

The International Energy Agency reported Wednesday that global investment in energy will grow eight percent this year to $2.4 trillion, including record clean energy spending.

“While encouraging, the growth investment is still far from addressing the many dimensions of the current energy crisis and paving the way for a cleaner and safer energy future,” the Paris-based agency warned.

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Meanwhile, Alberta Energy Secretary Sonya Savage, who is in Washington DC this week to meet with US policymakers, is trying to advance the province’s ability to increase its oil and gas production.

Oil shipments from Western Canada could grow by nearly a million barrels per day with pipeline optimization plans in the works, unused crude-by-rail rail capacity and ongoing Trans Mountain expansion, she noted.

“One of the things that would help with the pumps is getting more supply to the market,” Savage said from Washington.

“That would be a more effective long-term strategy. Giving tax relief at the pump is a short-term strategy and it is now necessary to cool inflation and make petrol affordable.”

Higher energy prices usually tempt industry to spend more capital to increase production.

Companies’ reluctance to ramp up production during a period of economic volatility and continued pressure to return capital to investors are both having an effect, said Rory Johnston, a market economist at investment firm Price Street.

“What we need is more supply,” Johnston said. “Every time they invest in production, they take a risk. What we want to do is create a sense of stability.”

Chris Varcoe is a columnist for Calgary Herald.

[email protected]

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