Tom Adams
National Post
March 28, 2000

Oil prices are sky high but the sky is not falling. Improvements in efficiency since the oil price shocks in the 1970s mean that high prices won’t cause a repeat of the nasty economic indigestion we suffered then.

Some environmentalists, focused only on the increased incentive to conserve energy, welcome these high prices. They forget that high prices encourage expansion of our most polluting and environmentally risky oil sources — tar sands, heavy oil and Hibernia.

Low oil prices in recent years had forced tar sand and heavy oil producers to slash output, but now they are back and belching at full output. Plans are afoot to boost Hibernia’s output, increasing the potential risk of blowouts and leaks on the sensitive Grand Banks. High oil prices aren’t helping the environment.

People are prone to believe the myth that, with these high prices, all the oil companies are making out like bandits. The truth is that margins on refined products such as gasoline and heating oil are down. Although oil producers are hauling in cash, dedicated refiners and marketers are being squeezed.

People are also prone to believe that our politicians should “do something” about high oil prices. The more demagogic the politicians, the greater their tendency to jump onto that bandwagon.

Before we let them, we should remember what happened the last time they “did something” about high oil prices. Government “Off Oil” programs in the 1980s precipitated such magnificent errors as the urea formaldehyde contamination of thousands of homes and the Darlington nuclear boondoggle. Our “made in Canada” oil price thwarted energy conservation efforts.

New Brunswick Power proposed subsidized oil-fired power exports to New England. That scheme — which, fortunately, was not fully implemented — would have seen Canadian taxpayers subsidize U.S. power consumers. From an environmental perspective, it would have made more sense for the Canadian government to send cheques directly to the U.S. consumers.

Despite intense pressure from trucking interests and others, the federal government deserves some praise for managing to not manage the issue. John Manley, the Industry Minister, announced in the Commons last week that the Conference Board of Canada has been commissioned to do another ultimately pointless study examining why gasoline prices have increased in the past year. Fortunately, the federal Competition Bureau hasn’t been dragged into wasting further time on this dead end.

The bottom line is that we shouldn’t spend too much time worrying about oil prices — OPEC has proven that it can’t keep internal discipline for long, as demonstrated by the declining prices of the past two weeks.

For all its faults, the market is still the best protection for consumers. Of course, oil is an example where the market is not the best protection for the environment. There is a role for government, not in trying to protect consumers — because such efforts almost invariably boomerang — but in actually protecting our air quality, since high prices won’t do it.