As oil companies lie back and collect super-profits due to the geo-political incompetence of the Trump administration, Canadians are facing mounting fuel costs at the same time as they struggle though an on-going affordability crisis. In response, the federal government announced today that it would temporarily remove the federal excise tax on gas and diesel, saving Canadians ten cents a litre on gasoline and four cents a litre on diesel. All told, this gas tax holiday will cost the government an estimated $2.4 billion.
Certainly, politicians of all stripes have been clamouring for fuel price relief through some kind of cut to taxes—including here in Saskatchewan. But while the tax cuts may provide a modicum of consumer relief, don’t they let the oil industry off the hook? Governments’ that cut the fuel tax are effectively lowering the price of the oil industry’s product at the pump at no cost to the companies themselves. If anything, the oil industry now has the advantage of being able to sell a slightly more affordable product while it still rakes in an extra $170 million in profits every day compared to before the war began.
With no clear end in sight to the volatility in the Persian Gulf, perhaps it’s time for Saskatchewan to take a page from former Premier Alan Blakeney. Blakeney governed Saskatchewan during a similar oil crisis in the 1970s, another period where geo-political events a world away drove up fuel prices across the country. His words then could easily be spoken today:
“Saskatchewan residents should not suffer huge increases in oil and gas prices which do not represent increases in costs of production, but only events in the world of international oil politics.”
Blakeney wasn’t about to let private oil companies be the sole beneficiary of price hikes to a commodity that was wholly owned by the province. Instead, Blakeney implemented a 100 per cent windfall profits tax on Saskatchewan-produced oil using part of the proceeds to “control wholesale prices of gas and oil in Saskatchewan.” Oil companies still made profits under Blakeney’s plan—but profits beyond a certain threshold would be entirely taxed back to the province. Blakeney promised to “capture for Saskatchewan people the profits flowing from the unearned increments in crude oil prices.”
Even under normal price conditions it is an open argument whether Saskatchewan actually recoups its fair share for the sale of many of our natural resources, oil included. The government’s royalty formula will see increased revenues as prices rise. A US$1 per barrel change in the price of West Texas Intermediate oil—generally considered the benchmark for oil prices more broadly—is estimated to shift oil revenues by $16 million.
But perhaps extraordinary circumstances call for extraordinary measures. If there are extraordinary profits to be made on Saskatchewan’s oil, surely the residents of the province should be the primary beneficiaries. We don’t need to emulate Blakeney’s ambitious 100 per cent windfall, even a much less ambitious tax on oil profits could raise a considerable amount of revenue that could be dedicated to greater affordability measures. An even wiser strategy would be to try and insulate ourselves from the volatility of fossil fuels altogether by pursuing a much more aggressive electrification and renewable energy strategy in our province.
There is no doubt that the current crisis will motivate fossil-fuel dependent countries to aggressively decarbonize. While oil prices remain high for the near future, the reality is that prior to the U.S.-Iran war, the world was experiencing an oil supply glut with prices to match. This means that current prices may be one of the last remaining opportunities for producers to fully maximize returns. If this is the case, then we have even more reason to ensure that we can use our resource wealth today to prepare ourselves for the energy economy of the future.
Whatever we decide, Blakeney knew that Saskatchewan was often battered by outside economic forces that it could rarely control. That made it all the more important that we control our economic destiny within our own borders. As Blakeney himself put it, “We hoped that we could encourage people to regard the future as not wholly determined by decisions made by foreign resource companies, but to be partly determined by Saskatchewan people themselves.”
