CA: What soaring oil prices mean for Canada
World crude prices have created deep divides within Canada. And that portends trouble ahead on issues like water.
By Deirdre McMurdy
April 19, 2008
As world oil prices have spiked again in recent weeks, the resilience of consumer demand for gasoline continues to surprise economists.
Aside from some relatively minor changes in habits, most people have absorbed the higher prices at the pumps, in airline fuel surcharges, in delivery costs.
In fact, for 2007 the United Nations World Tourism Organization reported that global tourism hit a new record, up 6.2 per cent from the previous year with 898 million arrivals.
In Canada, even more remarkably, the rate of inflation in March clocked in at a very temperate 1.4 per cent - the lowest level in 14 months. If gasoline prices are excluded from the data, inflation was only 1.0 per cent for the month.
To some extent, both the rising price of oil and its inflation-neutral impact, are related to currency shifts - specifically the weakness of the U.S. dollar, which tends to drive money into secure havens like oil and gold.
The absence of alternative mass market fuel sources does, to a large extent, limit the ability to make any substitutions or shifts. And the slowing demand in a weakened U.S. economy is expected to contain some of the seasonal sting as vacation time - and travel - ramps up in the summer months.
There's no question that strong oil prices create winners and losers among sectors and companies as well as among nations. But in Canada, an exceptionally diverse economy, it's having a very singular impact on public policy.
For all that we keep hearing about the trend to corporate and political consolidation in an age of globalization - everything from cross-border business mergers to the formation of trade zones like the European Union - there is another equally important counter-trend gathering steam: fragmentation.
In Canada, this is already apparent in the reality of consecutive minority federal governments and polls that repeatedly show the likelihood of another minority in the event of an election.
That sort of stand-off in turn reflects growing rifts between urban and rural Canadians, recent immigrants and more established families, even between male and female voters (women have remained stubbornly unmoved by the Conservative Party agenda).
Then there's the failure of the federal finance minister to fulfill his promise, made over a year ago, to finally create a national securities regulator.
That fizzled out quickly because of a complete lack of co-operation from the provinces.
The so-called passport system that has emerged from that fiasco is a workable compromise, but it misses the point of perception. Canada is still known by outside investors for its lack of a single set of rules and enforcement standards for capital markets.
So while the U.S. and Australia forged a "ground-breaking" securities alliance earlier this month, Canada was conspicuously left in the cold.
It's the same story with enduring barriers to interprovincial trade, to labour mobility and professional accreditation from province to province.
And now there's the domestic divide caused by steep oil prices.
Western Canada and Newfoundland are now thriving because of their reserves of crude oil and the economic activity generated by the business of extracting, processing and shipping it. But high oil prices are among the elements that have contributed to the steady demise of the country's manufacturing sector, the core of the central Canadian economy.
Those distinct economic cycles make it increasingly difficult to forge a national monetary policy, to manage interest rates and the Canadian currency in a way that doesn't punish one at the cost of another.
The fragmenting effect of energy prices is also coming into play on the policy front with provincial carbon taxes. First Quebec and, more recently, British Columbia have introduced piecemeal carbon taxes to help fund the cost of new environmental initiatives.
Although Finance Minister Jim Flaherty expressed reservations about the provinces formulating their own environmental policies, the moves got the nod from federal Environment Minister John Baird.
Quebec's tax aims to raise about $200 million a year with a 0.8 cent tax on each litre of gasoline and 0.0 cents charged on a litre of diesel fuel. That tax is levied on companies and the hope is that they, rather than consumers, absorb it. Not likely.
The B.C. tax, which takes effect on July 1, put a price on carbon-dioxide emissions starting at $10 per tonne. That's expected to add about 2.4 cents to each litre of gasoline initially. It will increase by 2012 to about 7.2 cents a litre.
By allowing the provinces to fill the policy void they've left, the federal government has created yet another opportunity for fragmentation and un-harmonized regulations.
It's not a terribly encouraging trend at a time when the economy is uncertain and the need for comprehensive national strategies and vision are stronger than ever.
Furthermore, it's worrisome in light of such emerging issues as how to deal with water exports and water security in the coming years. If each province adopts its own strategy, we'll almost certainly come up dry.
Market Data 
Markets 
AI
