Date July 23rd, 2004
For Immediate Release
Halifax — The Select Committee of the Nova Scotia Legislature on Petroleum Product Pricing was struck to examine the causes behind recent price spikes for gasoline. The Committee, however, has lost track of that mandate and is leaning toward recommending regulatory measures that will increase the cost of gasoline to Nova Scotia consumers by anywhere between $36 million and $60 million.
These are the conclusions reached by AIMS President, Brian Lee Crowley, in an oral brief submitted to the Committee on Tuesday in Truro. An augmented written version of the brief, entitled Keeping our eye on the ball: Looking out for consumers, not producers, in the Nova Scotia gasoline industry, was released today by the Institute.
In the brief, Crowley argues that the Committee’s members have allowed complaints by gasoline retailers about their low margins on gasoline to cloud their judgment about whose interests the Committee was created to protect. He also argues that the Committee has been far too willing to lend credence to claims of anti-competitive behaviour by the major oil and gas companies as the major explanation of the behaviour of gasoline prices.
“It is clear from the sympathetic hearing gasoline retailers have received in the Committee, and the supportive comments of Committee members, that they are leaning strongly toward some form of retail price support by regulation to ensure fatter margins for retailers. But the evidence is that such price support will not come out of the margins of the oil and gas industry, but out of the pockets of consumers” says Crowley. If, as the Committee’s members have suggested, retailers’ margins should be 3-5 cents per litre higher than at present, that would represent an effective gasoline tax increase for consumers of $36 million to $60 million, based on annual gasoline sales of 1.2 billion litres.
But Crowley’s brief argues that the old gasoline retail business model is faltering chiefly because consumers won’t support it, not because of any alleged bad behaviour by oil companies. It has always been open to rural consumers, who are a major (and quite proper) preoccupation of the MLAs on the Committee, to support local retailers by willingly paying a higher price locally for service, convenience and security of local supply. But the fact of the matter is that rural consumers have themselves chosen not to pursue this strategy, and prefer instead to save money by filling up on their regular trip to the nearest town, city or major highway retailer. Moreover, the spread of gas bars to major retail operations like Sobeys, Superstore, Canadian Tire, etc., will put greater gasoline supply and lower prices within reach of the vast majority of consumers in the next few years, including in rural areas.
As for the old canard that criminal conspiracy by the major oil and gas companies is the explanation for high gasoline prices, Crowley pointed out that every major independent arm’s length study of the behaviour of the industry, including by the Competition Bureau, Industry Canada and the Conference Board, using the most intrusive investigatory powers and most sophisticated economic analysis, has consistently failed to find any evidence whatsoever of widespread anti-competitive activity by the majors. The evidence is reviewed in the Brief released today.
Representative of that evidence is the update that the Competition Bureau released in May, 2003 of the Conference Board’s 2001 report, ‘The Final Fifteen Feet of Hose: The Canadian Gasoline Industry in the Year 2000’. In that report, the Conference Board pointed out that Canadians enjoy some of the lowest gasoline prices in the world. The Conference Board also concluded that the response of the retail price of gasoline to both increases and decreases in crude oil prices was the same. The Competition Bureau’s update, that used a further two years’ worth of data, confirmed those findings.
Crowley noted, “In my appearance before the Committee, I was told that the Competition Bureau is not regarded as credible because those who lay complaints before the Bureau on gasoline pricing issues frequently lament that their complaints do not result in action. That is a total misunderstanding of what is occurring. The Competition Bureau hears wild and inflammatory charges levelled against the oil and gas companies almost every day. What the Bureau, Industry Canada, the Conference Board and other objective authorities know, however, is that they have repeatedly investigated such charges and repeatedly found them to be groundless. The fact that they do not rush to launch fresh investigations every time the same tired allegations are made is not evidence of the immobilism of the Competition Bureau, but of the lack of credibility of the charges made against the oil and gas companies when set against the background of the innumerable efforts to find the evidence to back them up. The Competition Bureau is not toothless — it just doesn’t have that much time and taxpayer money to waste.”
In his brief, Crowley recommended that the Committee look rather to the tax load on gasoline as the chief cause of high prices. The evidence is clear that, when taxes are excluded, Canada has the lowest retail gasoline prices in the world, lower even than the United States. Moreover, the government of Nova Scotia has realised extra HST revenues of $12 million this year alone as the result of price spikes caused by international market factors. There are also steps that the government can take to make gasoline pricing more transparent to consumers. There are, however, no compelling reasons to regulate the price of gasoline in Nova Scotia, and many compelling reasons not to.
An augmented written version of the brief can be found at www.aims.ca/Publications/Gasprices/gasprices.pdf.
To read the transcript of AIMS’ presentation before the Select Committee, click here.
For more information on “Keeping our eye on the ball: Looking out for consumers, not producers, in the Nova Scotia gasoline industry”
Contact: Brian Lee Crowley