Gasoline Price Regulation Earns Bad Reviews

Coming to a theatre near you (if it’s not already playing in your neighbourhood) – the film they said would never be made. The worst story ever told. It is the Bad Idea that Will Not Die: gasoline price regulation.

You can always tell a government in political trouble by the bad policy ideas it embraces. So when Bernard Lord touts a scheme to have bureaucrats fix the price of gas, you know he is desperate.

Superficially, price regulation sounds so … reasonable. Let’s have a "made in New Brunswick" or "made in Nova Scotia" price for our gas. Why should we be in thrall to Arab sheiks and American capitalists when we can just snap our fingers and tell those people exactly what we’re prepared to pay for their oil?

But such calls are not really for "locally made" prices. They are, in reality, calls for "consumer made" prices. In other words, consumers should be able to decide unilaterally what they want to pay for gas, or electricity, or milk, or whatever it is that is to be regulated.

In the real world, though, prices are set by willing buyers and sellers. In the case of gasoline, for example, if consumers use government to seize the power to set prices, but don’t control the resource itself, oil companies simply won’t supply enough. Owners of oil in Saudi Arabia or Texas or Alberta have lots of people who want their product. The thought that tiny New Brunswick or P.E.I. or Nova Scotia could beat up the oil companies and make them accept our local price – or else! – would be hilarious if it weren’t so pathetic.

So regulation cannot lower prices for gasoline. The price to get gasoline into our local markets is set internationally and we have no control over it whatsoever. We either pay the going rate or we don’t get what we need.

That is one of the reasons why there is a broad consensus among those who study these matters that regulation does not, and cannot, lower the price of gasoline. But it sure can raise it. And we’ve got the proof right here in the Maritimes.

Prince Edward Island regulates gasoline prices. Nova Scotia does not. Once you take account of the fact that gasoline is taxed more lightly on the Island, and you compare underlying prices with taxes taken out, several studies have shown that, over time, Nova Scotians pay somewhere between one and one and a half cents less per litre. Spread over billions of litres a year, that’s a lot of money. Premier Lord himself has even recognized that regulation will not save the consumer money.

Yet there must be a reason the canard of gasoline regulation still finds a willing audience among the electorate. After all, what politician would promise regulation if it didn’t hold out the prospect of more votes?

Consumers hate the way gas prices jump all over the place with no apparent rhyme or reason. In fact, the price is constantly reacting to thousands of factors: winter temperatures, refining capacity, transport costs, wars and civil unrest in oil-producing regions, pipeline capacity and more. But these factors are not obvious to the consumer in Moncton or Mahone Bay, who buys the same gas at the same station from the same cashier week after week. The only thing that seems unaccountably different each time is the price.

The simmering anger of these consumers is what makes them an attractive target for politicians wanting to mark cheap points against oil companies.

All they have to do is promise regulation. It sounds decisive and consumer-friendly. And above all, it makes the price appear stable. Retailers have to get permission to raise prices, and bureaucrats always act more slowly than markets. But prices are just as slow to come down as they are to rise. And those long, slow regulated adjustments are precisely what cost consumers more in the long run.

The federal government’s Competition Bureau has studied the behaviour of gasoline markets more than anyone in the country. When Nova Scotia was holding legislative committee hearings on retail price regulation, Richard Taylor of the bureau testified, "Free markets that rely on competitive forces provide the best mechanism for competitive prices."

Politicians who genuinely have the interests of consumers at heart do not, therefore, propose price regulation. However attractive the price stability it creates, that stability comes with a stiff price tag. Politicians on the way up do not succumb to the short-term allure of regulation.

But those whose popularity is flagging always find it a handy stand-by. That’s why it was brought in during the dying days of the last Liberal regime in Newfoundland, and why a committee in Nova Scotia’s minority legislature recommended it (although no party leader endorses it). Premier Lord has consistently dismissed calls for regulation. Until now. I wonder what that means.

HronicleHerald