Labour's plan for dealing with high energy
July 9, 2008
Source: Canadian Labour Congress
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Higher oil and natural gas prices are here to stay. That may be a good
thing in terms of helping us move to a more energy-efficient economy and
averting catastrophic climate change. But we need a plan to safeguard
jobs and the living standards of working families in the transition.
Rather than leave it all to the market, we need to take control of our
national energy future and ensure that the costs of higher energy prices
are fairly shared.
High prices for energy, especially gasoline, are clearly now having
major negative impacts on the Canadian economy and on our jobs. We have
already seen major layoff announcements in the auto sector as sales of
SUVs and trucks slump and in the airlines sector as fares begin to soar.
Truckers and others who can't easily pass on their costs are being
pushed out of business.
Ordinary working families who mainly live from paycheck to paycheck will
inevitably react to higher gas prices and utility bills by cutting into
other areas of spending. The travel and hospitality industry already
looks like it may be in big trouble this summer.
This big new hit to jobs is coming on top of job losses arising from a
continued very high dollar, reduced exports to a US economy flirting
with recession and growing competition from Asian imports. Unemployment
is on the rise, from a low of 5.8 percent at the start of the year to
6.1 percent in June; private sector paid employment has stopped growing;
and economic growth has ground to a halt, falling even below growth in
Besides oil and gasoline prices, many basic food prices are also now
soaring out of sight. Home heating costs will rise dramatically this
coming winter due to higher fuel oil prices and fast-rising natural gas
prices. These increased costs will hurt lower and middle-income families
the most, for the simple reason that they spend more than the well off
on the basics.
The fact that overall inflation is still quite low (2.2 percent in June)
shows that the higher Canadian dollar is still cushioning us against
global price movements and that it is difficult in a weak economy for
businesses to pass on major input cost increases to consumers. Still,
the Bank of Canada and other major central banks have stopped cutting
interest rates. Instead of dealing with the economic slowdown and the
credit crisis, they now seem quite prepared to see unemployment rise
significantly so as to maintain low inflation.
Some blame speculation for higher oil and food prices. There is no doubt
that the hedge funds have moved into commodity futures and derivative
markets in a major way. Flows of funds in and out of derivatives markets
are the major explanation of why oil prices can move so far, up and down
— but mainly up — so dramatically in even a single day.
Dealing with speculation will require international regulation of
commodity markets. Canada should be pushing other governments to act
together before it is too late.
While speculation plays a role, the dramatic increase in the price of
oil is still primarily driven by basic supply and demand factors. Demand
from developing Asia has been growing fast (partly due to subsidies
which cushion them from global prices), as has domestic demand within
many major oil producing developing countries where prices are kept
deliberately low. China has just significantly hiked domestic oil
prices. But generally, most economists think that demand falls only
slowly in response to higher prices. This has been the case in Canada,
at least until very recently, because most energy use cannot be easily
reduced in the short-term.
Meanwhile, world oil supplies do seem to be very tight. Even if we do
not buy into the most pessimistic scenarios of 'peak oil', cheap
conventional oil supply is running down quite rapidly, and it takes a
long time to develop and bring to market non-conventional supplies such
as oil from the tar sands, deep offshore wells, etc. In other words,
high world oil prices are likely here to stay.
What could and should Canadian governments be doing to ease the impacts
on jobs and on the living standards of working families? The Canadian
Labour Congress proposes a seven-point action plan.
- Rein in the global speculators
Governments must take a cue from the destructive collapse of the
dot.com bubble in 2000 and the recent collapse of the US sub-prime
housing bubble. They should restrict highly leveraged purchases of
commodity futures by regulating hedge funds and other traders, or
impose transaction taxes on short-term trades in commodity markets
(following the model of the proposed Tobin tax on speculation in
international currency markets). Short-term capital gains should
also be taxed much more heavily than capital gains from longer-term
- Maintain low interest rates
The impact of soaring energy prices on jobs and real wages is going
to be worse if the Bank of Canada deliberately lets unemployment
rise to forestall any threat of energy and food price driven
inflation. With inflation excluding energy and food prices running
at just 1.2 percent in June, there is, in fact, no evidence of
energy-driven inflation to date.
- Tax surplus oil company profits
Every dollar increase in the price of a barrel of oil delivers huge
windfall profits to oil companies and their shareholders, since the
cost per barrel of current production averaging perhaps $40 today is
far below the current price. The operating profits of Canada's oil
and gas industry in 2007 came in at $26 Billion, of which less than
one quarter ($6 Billion) was paid to governments in corporate income
tax. There is no good reason why governments should not tax away a
significant share of these high profits, at least to the extent that
incentives are still maintained for oil companies to invest in added
One way to raise energy sector corporate taxes would be to eliminate
the deductibility of provincial resource royalties for federal
corporate income tax purposes, as recently proposed by none other
than the Organization for Economic Co-operation and Development
(OECD). As the OECD further suggests, remaining tax breaks for the
highly profitable oil industry should be removed. Both of these
measures would boost federal corporate income tax revenues from the
- Redirect surplus oil company profits to protect low-income
households against energy poverty
Higher taxes on the oil industry should be used to finance immediate
increases in tax credits for households, tilted to lower and middle
income families, to provide some cushion against higher prices. High
prices would still give people a major incentive to reduce their
We should immediately increase the GST credit, the Working Income
Tax Benefit and the Guaranteed Income Supplement for seniors to
cushion very low-income households against rising gasoline and home
- Give people real and affordable energy alternatives
To reduce oil consumption, we need major new investments to expand
the capacity of public transit systems, tied to "Made in Canada"
procurement requirements. Existing transit systems can be expanded
quite quickly by buying new vehicles, hiring new staff, expanding
Park and Ride operations etc. Expansion of passenger rail will take
longer but must begin.
Households (and owners of rental buildings) should be given interest
free loans, repayable from lower utility bills, to immediately
retrofit their houses and apartments for greater energy efficiency,
including the purchase of high energy efficiency furnaces and other
appliances as well as much higher standards of insulation. A major
national program could reduce consumption quite quickly at modest
cost and create many new jobs, offsetting the slowdown, which is
just now beginning in the residential construction sector.
Governments should support development and production of highly
energy efficient "Made in Canada" vehicles and appliances, so that
adjustment to higher prices creates jobs.
- Re-regulate oil and gas exports and increase domestic supply
We are maintaining and even increasing exports to the US of our
remaining low cost, readily accessible conventional oil and natural
gas resources, even as our known reserves are rapidly depleted. We
should direct the National Energy Board to approve exports only if
Canadian longer-term needs will be met, and re-establish the
pipeline capacity needed to bring Western Canadian oil to central
Canadian markets to reduce our dependence on imported oil.
All tar sands production should be upgraded and refined (or
processed into petro-chemicals) in Canada so as to enhance national
energy supplies and national energy security while also maximizing
Canadian economic benefits from our resources.
- Focus Climate Change policies on the large industrial
The sharp run up in oil and gasoline prices and rising natural gas
prices already amounts to a significant carbon tax on working
households, even though almost all of the growth in greenhouse gas
emissions has been driven by the oil industry and very affluent
Rather than impose even higher energy prices on working families
through a carbon tax, the immediate focus of our climate change
policies should be to reduce the emissions of the "large final
emitters", especially the energy intensive tar sands and coal-fired
power plants. Regulations capping emissions must force investment in
new technologies and revenues from selling emission permits should
be directed to helping industry adjust and to cushioning lower
income households against price increases. Further tar sands
expansion should not take place unless the industry can reduce its
total emissions by investing in carbon capture and storage.
from the Canadian Labour Congress
The Canadian Labour Congress is the largest democratic and popular
organization in Canada with over three million members. The Canadian
Labour Congress brings together Canada's national and international
unions, the provincial and territorial federations of labour and 130
district labour councils.