Skip to main content

Cheap oil is Santa's little gift to America, creating jobs, stimulating consumption and making Joe Plumber a happier guy. So now it is time for President Barack Obama to raise federal taxes on gasoline.

Sadly, he won't dare do it. The U.S. President has too many political problems with the constituency of white working-class males in pickup trucks. But that doesn't mean he should not play the Grinch and put a firm brake on the gas price decline. If the world is enjoying a holiday from expensive road fuel at the expense of corrupt oily dictatorships, it is in part because American and European oil demand has been static for a decade. And if we are to keep it that way and avoid another price surge, we need to do two things: Keep the price incentive to deter gas-guzzling and stimulate the development of new energy technology.

For the past five years, the Bakken shale explorers and Canadian oil sands miners have been pouring more oil at an accelerating rate into America's storage tank but the consumer has been drawing off roughly the same amount every year. The rising glut of oil has had nowhere to go, hence the price collapse. Since June, the average American has been paying 25 per cent less to fill up while the average Canadian (who pays more in fuel taxes) has enjoyed a 19-per-cent saving. Too bad for Britons who benefited by a decline of only 8 per cent in the cost of gasoline.

Story continues below advertisement

European motorists are heavily taxed: In the U.K., about two-thirds of the cost of fuel ends up in government coffers; in Canada, the tax take varies from province to province but the average is about a third of the gasoline price. In the U.S., the average tax is a mere 13 per cent of the cost of a gallon of gas. So the impact of a fall in the price of fuel is more directly felt in the U.S., which means more dollars left in the pocket of Joe Plumber. The question is whether demand for gasoline is elastic to price. Will cheap U.S. gasoline wreck the West's drive to greater fuel economy and the incentives to develop new forms of energy?

In Europe, high crude prices and weak consumer demand have so ruined the economics of the business of making road fuel that the oil majors have been selling and closing refineries. High motoring taxes and heavy road congestion mean that driving has less appeal and the falling price of crude is not enough of a stimulus to get people to drive more kilometres. Small wonder that in October, despite a continuing fall in the pump price, the amount of gas purchased by British motorists fell, continuing a decline in gasoline consumption that has now reached 20 per cent from the previous year. Part of that decline in gasoline represents a switch to more efficient diesel but the overall impact is still weakening demand for road fuel and a relentless drive for savings.

Canadians and Americans might be tempted to thank their lucky stars that they are not burdened by severe European fuel taxes. However, the corollary of a cheap fuel policy could be a brief binge followed by a longer headache. We don't even need to bring up the question of climate change to understand that the world needs not just cheap oil but more energy alternatives. The key factor behind the shale revolution was the stimulus of the high crude price. Likewise, the huge investments by auto manufacturers into more efficient gasoline engines and the technology that has driven down the cost of solar energy, superior battery technology and the Tesla sports car. Would any of these things have happened if the price of gasoline in the United States had never risen much above $2 (U.S.) a gallon?

U.S. demand for crude oil would still be rising and the Organization of Petroleum Exporting Countries would be firmly in the driving seat, its market share rising steadily as conventional non-OPEC reserves dwindled. The world's economic future would continue to be mortgaged, as it was until recently, to chaotic and corrupt regimes in the Middle East, Africa and Latin America. Happily, the price stimulus of dearer energy has done its magic and the world is very slowly weaning itself away from the curse of oil and moving toward less harmful alternatives. We need to keep working on that one.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter