The soaring cost of oil regulation
Terence Corcoran
National Post
Ottawa and the world's leading champions of fossil fuel reduction are getting their first solid public reaction to global plans to hijack energy consumption with big price hikes. If people are taking to the streets over US$35-a-barrel oil, imagine what they'll do when they find out that governments are looking at US$150 a barrel as a club to force people out of their cars and onto bicycles and mass transit.
To the average citizen, oil products are a vital source of transport and energy; to governments, oil is a giant political toy, a plaything they can regulate, control and -- best of all -- tax to the hilt. The world doesn't have an oil crisis, it has a tax and regulation crisis.
That message may already have registered in Ottawa, where Finance Minister Paul Martin has been particularly cautious. He says he's willing to look at tax cuts, along with the provinces. His caution may have been fuelled by a looming federal election, and the fact that next month marks the 20th anniversary of Ottawa's 1981 National Energy Program. The Chrétien government would not want to be seen celebrating the anniversary with another West-alienating plan.
The oil price spike also comes at an unfortunate time for global warming enthusiasts. Canada's energy and environment ministers meet Oct. 16 to dream up new energy control measures, but they will certainly stop short of their ultimate weapon: massive carbon taxes. And the world's nations are set for a November meeting of the Congress of the Parties in The Hague to decide how to implement the Kyoto protocol's major energy price increase measures.
As people read about the appalling gas taxes extorted out of drivers in Europe -- $1.33 a litre in Britain, $1.10 in France -- it may dawn on them that they are being driven over by their leaders rather than by OPEC and the oil industry. The world oil price spike has little or nothing to do with OPEC, nothing to do with oil profits, and everything to do with the grubby oil politics practised by the world's major oil-consuming governments.
Even with existing high tax rates and galloping green-driven regulation, world oil demand has been climbing steadily for the past five years. Estimates are that this year, demand could exceed a record average 76 million barrels a day, a gain of 17% from a decade ago and 55% since the 1970s oil crises. The sudden spurt in demand over the past five years, however, has not been accompanied by appropriate investment in new reserves, production, refining and distribution capacity.
The fat oil revenues, instead of going to new production and capacity in oil-producing regions and states, have been gobbled up by retail and other taxes. When consumers pay 65¢ or $1.65 a litre, they're sending a clear economic signal that they are willing to pay that much to cover the cost of finding, producing and distributing a litre of gasoline. Under the tax regimes, however, most of the money gets sucked into the state vacuum for other purposes.
Attacks on the OPEC cartel are nothing but global hypocrisy. For most of the past decade, as demand rose while oil prices dropped below US$10 a barrel, OPEC's share of world oil revenue shrank. Governments in Europe, especially, pumped up their tax levels to fill the void. OPEC, meanwhile, has not increased its production capacity fast enough to keep pace with demand. Analysts estimate OPEC capacity at about 31.5 million barrels a day, with production exceeding 28 mbd, the tightest relationship in decades.
The major price gougers through the 1990s have been our governments, under the pretext of cleaning up the environment, stopping global warming and paying for highways. Ottawa collects a small fortune each year off gasoline sales, supposedly for highway construction, but it spends little on national road transportation.
The worst policy shift at this point would be for Ottawa and governments around the world to orchestrate grand price control regimes and impose draconian schemes to manage national and world oil markets. Yet, despite the high political risks, there are rumblings in the media that Canada needs a hybrid National Energy Program or some other political fix to the oil price "crisis."
Aside from tax cuts that could both reduce prices to consumers and increase the flow of money to the oil industry and oil production, the best national oil policy is no oil policy. If demand is high and supply is tight, temporarily higher prices will work to alter the balance. Anything governments might do would only prolong the current price spike and intensify the crisis. |
