Gasoline prices have been surging across Canada, sparking proposals to limit the pain at the pumps – including an election campaign pitch for direct regulation from Ontario’s NDP.
The NDP proposal would place a ceiling on the prices that both fuel retailers and wholesalers could charge, mirroring some of the rules already in force in the four Atlantic provinces.
Those regulatory frameworks have not provided much of a refuge from surging fuel prices, a Globe analysis of data shows. Prices have jumped in Ontario and the Atlantic provinces since the start of the year, as the combination of rising demand and supply concerns sparked by the Russian invasion of Ukraine have pushed up the price of crude. Adding to the spike is a rise in margins for refiners, typical in times of tighter supply.
Those forces have pushed up prices across Canada, including in Ontario. But as the chart below shows, drivers in Ontario have not been hit as hard as those in most of Atlantic Canada. (Those comparisons use pretax prices to better reflect the impact of marketplace-driven changes.)
The cost of gasoline has jumped even more since the start of the year in Newfoundland and Labrador, Prince Edward Island and Nova Scotia. Only New Brunswick has seen a smaller increase than Ontario. And in Toronto, the most competitive gasoline market in Canada, prices have risen less than in the Atlantic provinces.
That same trend is evident if average prices in 2022 are the yardstick instead. As this second chart shows, competition in Ontario and Toronto’s unregulated market delivered a result largely in step with the lowest average price in regulated Atlantic Canada. Only in New Brunswick were prices lower, and then only by less than a penny a litre compared with Ontario or Toronto. (Ontario generally has the advantage of lower crude-oil prices.)
Despite that reality, the combination of the soaring cost of gasoline, surging inflation and a provincial election has sparked accusations of gouging from the NDP, and a promise to push down pump prices.
The NDP is not the only one pitching relief at the pumps: the Progressive Conservatives promised a temporary cut in fuel excise taxes in the spring budget, and the provincial Liberals have included that pledge in their own platform.
NDP candidate Gilles Bisson, who put forward a private member’s bill to regulate fuel prices in Ontario’s past legislative session, said refiners, not retailers, are the primary target because the margins for refiners have been increasing.
The numbers back him up, to an extent. Refining margins – the spread between the wholesale price of refined gasoline and the cost of oil used to produce it – have widened this year. Refining margins have risen 10.9 cents a litre in both Toronto and for all of Ontario, But they have risen even more in the regulated markets of Atlantic Canada, most notably in Nova Scotia, where that spread has widened by 20.2 cents a litre – close to double the increase in Ontario or Toronto.
Mr. Bisson says another goal of the policy is to reduce disparities in gasoline pricing within Ontario, noting that the northern city of Timmins, in the riding where he is seeking re-election, has much higher prices than in Toronto. Indeed, pump prices in Timmins were the second highest in Ontario on Thursday, according to the daily countrywide survey by Kalibrate, with only Sudbury having more-expensive gasoline.
Price disparities are wider in Ontario than in the regulated Atlantic markets, with a spread of 16.3 cents between the pretax cost of a litre of gasoline in Sudbury and the cheapest market, Sault Ste. Marie (Toronto, meanwhile, was the 12th most expensive market, in the middle of the 25 Ontario markets measured in the Kalibrate survey.)
Those spreads between the least and most expensive markets are much smaller in the Atlantic provinces, ranging from 9.8 cents in New Brunswick to just 1.7 cents in Nova Scotia.
Mr. Bisson said he and the NDP believe that eliminating price disparities in Ontario would mean that higher prices would fall, not that lower prices would increase.
The NDP candidate says his party’s proposal would also reduce the volatility of gasoline prices. On that front, at least, there is ample proof that regulation leads to more stable prices. As this third chart shows, pump prices in Toronto have fluctuated much more than in regulated markets so far this year, with an average daily change nearly twice as high as in Prince Edward Island.
Such volatility is at the heart of a paradox when it comes to gasoline prices, and drivers’ perception of how fair and competitive the market is, says Brandon Schaufele, director of the Ivey Energy Policy and Management Centre at Western University in Ontario. Those fluctuations are evidence of stiff competition, but can look like collusion since retailers follow in step so quickly, he notes.
Prof. Schaufele said there is a case to be made for regulation in areas where there is insufficient competition, but that “is not a risk in Ontario.”
And any move to impose price regulations in Ontario carries some perils, particularly given the proximity of U.S. markets, says Kent Fellows, assistant professor of economics at the University of Calgary’s School of Public Policy. Under existing trade agreements, gasoline can be shipped across the Canada-U.S. border. That cross-border arbitrage – much less practical in the Atlantic provinces – typically keeps wholesale prices in the two markets closely aligned, with a small gap for transportation costs.
Dr. Fellows said an artificially depressed wholesale price in Ontario could lead to wholesalers declining to supply product when higher margins were available elsewhere. Even more important, regulation done badly could blunt price signals in times of tight supply, he said, resulting in shortages and lineups at the pump. “It’s not just the price, it’s the availability,” he said.
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