What’s Behind High Gas Prices?

The Canadian Centre for Policy Alternatives has released What’s Behind High Gas Prices?, a short analysis of the current gas price spike by economist and CCPA Research Associate Hugh Mackenzie that sparked numerous news stories across the country.

The news release for the report appears below. The report can be downloaded from the CCPA web site:

http://www.policyalternatives.ca/Reports/2005/09/ReportsStudies1193/index.cfm?pa=BB736455

High gas prices unjustified—report

OTTAWA—The recent spike in gas prices constitutes nothing short of price-gouging on the part of the oil industry.

According to an analysis by economist Hugh Mackenzie released today by the Canadian Centre for Policy Alternatives, the Canadian oil industry has been taking advantage of public fear prompted by the devastating hurricanes in the United States and charging more than was justified by the increase in raw material costs.

Mackenzie looks at what’s behind the current high gas prices and finds that taxes have virtually nothing to do with the increased price in gas because, with the exception of the GST, all provincial and federal gasoline taxes are flat amounts per litre and don’t go up when crude prices go up.

While the price of crude oil has gone up, Mackenzie’s calculations find a 7-9¢ per-litre increase would have matched the crude oil price increase. “The 15¢ increase we’re now paying is profiteering,” he says. “And the 40¢ increase we were paying over the Labour Day weekend was just plain gouging.”

According to Mackenzie a reasonable price for gas in Ontario would be 95¢ per litre, about 10¢ less than the current price. A 10¢ per litre difference may not sound like much but every penny per litre generates an additional $1.1 million for the industry every day.

“For the period around Labour Day, when the difference between the price and what would have been justified by crude oil prices was much greater — as much as 45¢ per litre at the peak — the industry was bringing in $49.5 million in excess profits a day,” Mackenzie concludes.