Spiking energy costs cutting billions from Canadians’ spending

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Canadian have seen their household energy bills climb by 5 per cent this year, an increase that will divert $4-billion from other spending if sustained over the year, a senior Bank of Nova Scotia economist said in a report Friday.

Economist Adrienne Warren said the higher energy prices will crowd out spending for other consumer goods. "The subsequent squeeze on household budgets will likely reinforce a more cautious consumer spending profile over the coming year," she said in the report.

The economist added there is likelihood that energy prices will continue to outpace broader inflation – and incomes – in the coming years, creating a strong incentive for Canadians to reduce their energy consumption, or at least slow its rise.

"Any potential savings [from efficiency and conservation measures] could be redirected to other spending, savings or paying down debt," Ms. Warren said in a release.

"Longer-term, reducing energy consumption would lower the sensitivity of household spending and the overall economy to any future price shocks."

The report notes that the retail prices of gasoline, fuel oil, electricity and water have all outpaced broad inflation since the 1980s and increasingly so since 2000, when crude prices began their ascent from $25 per barrel to the current $100.

"The rapid expansion in industrial activity among emerging markets, led by China has been a major factor in lifting global energy demand," Ms. Warren said, "Meanwhile, periodic bouts of geopolitical tension have added to supply concerns."

But it's not just crude oil that is driving energy prices higher.

Across Canada, the pressures of strong population growth, industrial expansion and aging infrastructure have raised electricity and water costs. Efforts to reduce reliance on dirty coal-fired generation are adding to those cost pressures.

Rising electricity costs are a key issue in the Ontario provincial election, though Canadians in other provinces are also facing price increases.

Conservative Leader Tim Hudak and New Democratic Party Leader Andrea Horwath have both promised measures to reduce electricity prices – Mr. Hudak through reducing subsidies for renewable power and cutting the bureaucracy, and Ms. Horwath through removing the HST from hydro bills and again, cutting the bureaucracy.

Liberal Leader Kathleen Wynne has promised some targeted relief for low-income Ontarians and small businesses, but is also pushing a conservation effort to encourage people to reduce their consumption.

Scotiabank is also promoting home energy efficiency, with an "ecoliving" program that awarded $75,000 in prize money at a gala Thursday night to individuals and businesses that are marketing energy efficient home designs and "smart metre" apps that help consumers to manage their own electricity demand.

Progress is being made in household energy efficiency. Despite rising prices, housing-related energy costs have trended lower as a share of overall household spending over the past two decades. Increased energy demand stemming from growing air conditioning use and the proliferation of personal computers and electronic devices has been offset by improvements in efficiency in a number of areas, including home heating systems, appliances and lighting fixtures, the report noted.

Gasoline accounts for 56 per cent of household energy spending, a share that has steadily increased with as the sharp run-up in crude costs drove since 2000 drove pump prices.

However, vehicle fuel efficiency is also on the rise, driven by U.S. and Canadian regulations that require auto makers to dramatically increase mileage standards through 2025 in order to lower greenhouse gas emissions from the tailpipe.