Addressing the challenges of higher gas prices

May 18, 2004

As of late there has been a lot of concern about the increase in gas prices. The Nova Scotia government has responded by legislating a two-day warning period for price increases. Others are advocating that we regulate the price of gas, as are PEI and Newfoundland. But these approaches miss the boat and are only partial measures at best.

The increased gas prices are a wake-up call and an opportunity for Nova Scotians and all Canadians to develop a long-term strategy for sustainable energy production and consumption, and transportation.

For Nova Scotians living on middle and low incomes, especially those who need to travel long distances to get to work, the gas price increases are a real shock. But for upper income citizens the prices will have little if any impact, except that these drivers may take fuel consumption into account when they buy a new vehicle. Low income Nova Scotians will have to wait some time before the fuel efficient vehicles become available on the second hand market. In the short term they are forced to go without necessities, to try to economize even further, and to increasingly look for work closer to home.

If the price of gas stays high governments, businesses and consumers will have to adjust. Businesses that depend upon petroleum will in the short term try to absorb part of the price, but in the long term will have to pass the increased costs onto consumers. Small businesses will find it most difficult to absorb the price increases.

But let¹s face it, our current approach to transportation is unsustainable. Nova Scotians know that we have to decrease our dependence on petroleum. There are limited reserves and we can¹t afford the price in terms of environmental and health costs due to pollution. There are also the costs in terms of lives lost and human rights violated in the conflicts to maintain secure access to petroleum reserves ­ Iraq, Saudi Arabia and Nigeria are just a few examples. The current market price in Canada is artificially low and does not reflect these ³external² costs of petroleum production and consumption.

The problem is how to make the transition to more sustainable forms of transportation. We can¹t leave the transition to the whim of the ³free² market. To do so ensures that lower income citizens and the environment pay the price. The fluctuations in the market price for gas also provide an unreliable indicator for consumers and manufactures. They are not likely to make the needed move to more sustainable forms of production and consumption if they expect the price to decrease in the future.

We need proactive action on the part of our politicians and businesses. Few have taken up the challenge. Governments in Canada talk the talk but have done little to decrease green house gas emissions as stipulated by commitments to the Kyoto Accord. At this point it does not even appear to be an issue in the pending federal election.

Some have suggested that the gas tax should be decreased to ease the burden, but this approach would send the wrong message to consumers. It encourages them to keep buying inefficient cars and it supports our unsustainable private transport system. It puts off the inevitable need to make adjustments.

A more progressive approach would be to allocate a portion of the tax collected to developing affordable public transport and more sustainable, environmentally friendly energy sources. The strategy should provide incentives to conserve and to switch to more energy efficient vehicles. Support also needs to be provided to people living in rural areas and to Nova Scotians with lower incomes so that they are still able to afford to get around and commute to work.

An increase in the price of gas would be less of a problem if we had an alternative form of transport available. Rather then encouraging unsustainable road use through building more roads and keeping gas prices low we should be providing commuters and travelers with affordable and efficient public transportation options that decrease our impact on the environment.

The development of an integrated transportation system is long overdue. We need trains for longer distances and buses and light rail transit for short hauls and urban transport. But we also need to get the price of public transport down and to have the price of gas reflect the real costs in terms of the environment, the building and maintenance of roads, and human costs in terms of accidents, ill health from pollution etc.

The development of transportation cannot be left to the market. The rise in the price of gas provides and opportunity to move forward. Governments in Canada need to stabilize the price of gas so that increases are slow and predictable, giving the consumers and businesses the opportunity to anticipate the necessary adjustments. Governments need to provide incentives for businesses to invest in more energy efficient production. And we need to invest in research that supports the development of environmentally sustainable sources and uses of energy.

John Jacobs is the Director of the Nova Scotia office of the Canadian Centre for Policy Alternatives. CCPA-NS is an independent public policy research institute.