Productivity |  Quebec continues to catch up

Gasoline | The explosion of prices has caused the fall of GHG

I have good news for environmentalists who took to the streets of Montreal on Friday. News that should make our politicians think, at the risk of displeasing motorists.

Posted at 6:30 am

The explosion in gasoline prices at the pump over the past two years has pushed summer fuel consumption in the United States back to a 22-year low, if we exclude the exceptional summer of 2020 when the pandemic began. And this decrease has very concrete effects on global warming, I have seen it.

Broadly speaking, the lower volume consumed this summer in the United States translates into a saving of 32 million tons of GHG compared to the 2016 peak. This is equivalent to 40% of all GHG emissions produced in Quebec annually.

How do we arrive at such a number? Comparing the 8.8 million barrels per day of gasoline consumed by Americans this summer to 9.7 million in the summer of 2016, according to data from the US Energy Information Administration.

For the 12 weeks of the summer, the daily difference represents 77 million barrels saved. It’s huge.

Knowing that each barrel of gasoline emits 0.41 tons of GHG when consumed by motorists, we can estimate that the atmosphere has saved 32 million tons of GHG thanks to the increase in prices at the pumps, fundamentally1.

“This effect of prices on gas consumption and GHG is excellent news. It shows that solutions are possible,” rejoices Pierre-Olivier Pineau, HEC Montréal professor specializing in energy.

Evidently, the rise in prices at pumps has forced consumers to reduce their trips during the holidays, or to look for alternative transport solutions (carpooling, public transport, use of smaller vehicles, etc.).

The effect of prices on consumption is clearer since 2005, according to my observations (see graph). Paradoxically, such detailed but crucial data does not exist in Quebec and Canada, which is deplorable.


INFOGRAPHIC THE PRESS

Big price hikes at gas stations have infuriated motorists, prompting politicians including Eric Duhaime to propose a gas tax cut, as in Ontario.

But according to most economists, taxes and other carbon royalties, which affect the price of gasoline, are precisely one of the most effective solutions to reduce GHGs.

The Trudeau government plans to gradually increase its carbon “tax” to $170 by 2030, $120 more than the current level. In 2030, the tax would have an impact of 40 cents per liter of gasoline.

The recent increase in the price at the pump, from $1.07 per liter in September 2020 in Montreal to more than $2 during the summer, is a unique opportunity to test whether taxes and other forms of carbon taxation are an effective solution to reduce GHGs.

From my observations, in the United States, the effect is significant, but obviously a very strong price increase is needed to have tangible results.

Why is this so? Because gasoline is a fairly inelastic product in terms of price, unlike food in supermarkets, for example. A significant and prolonged increase in price at the pump is needed for consumers to significantly change their behavior.

Telecommuting, a factor

Motorists, it must be said, do not have many options. They are not buying a new vehicle after a few weeks of higher gas prices. And public transportation doesn’t suddenly become more accessible.

It’s the exact opposite of fruits and vegetables in a supermarket: when the price of broccoli gets too high, consumers turn to carrots or other vegetables to compensate.

“In Europe, the car park is 20% more efficient (in liters per 100 km) because the taxes on the purchase of vehicles and on fuel are higher [depuis longtemps] “, argues Pierre-Olivier Pineau.

Telecommuting is another factor that plays in favor of a drop in consumption. During the announcement of its recent results, Alimentation Couche-Tard, one of the main gasoline retailers, also mentioned working from home and the increase in the price of fuel to explain the drop in its volumes sold of gasoline compared to the year past.

The decrease for the same stores is 4% in the United States and 3.7% in Europe, compared to an increase of 0.4% in Canadatwo.

Yes to bonus-malus

That said, the party might be short-lived for environmentalists. The US Federal Reserve’s interest rate hike had the effect of pushing the price of a barrel of oil below $79 a barrel on Friday. This same barrel was trading at US$120 in early June.

The price at the pump is likely to continue falling, as it has been doing for several weeks. It will relieve consumers, who are facing historic inflation, but the environment will suffer, once again.

In this context, the proposals of Québec solidaire or the Parti Québécois aimed at improving the public transport offer and lowering fares are welcome, although several aspects could be reconsidered.

Similarly, higher tax on gas-guzzling vehicles but lower tax on greener ones (bonus-malus), as suggested by Québec solidaire, is a good idea. Do we want to reduce GHG or not?

1. The summer data I used is from late June to mid-September each year. This summer, consumption has fallen by 7% compared to the corresponding period in 2021 (and almost 10% compared to the peak of 2016). The price at the pump has risen 33% between the summers of 2021 and 2022, reaching $4.31 per gallon this summer, on average.

2. However, this pullback had no impact on earnings, given the significant increase in gas profit margins, among other things. Couche-Tard’s earnings per share rose nearly 20% in the quarter ended July 17.


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