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Sky-high gas prices may have silver lining

OTTAWA - Sky-high gas prices might be pinching people's pockets, but experts say the pain at the pump is benefiting governments - and maybe even the environment.


OTTAWA - Sky-high gas prices might be pinching people's pockets, but experts say the pain at the pump is benefiting governments - and maybe even the environment.

Black gold is filling tax coffers as crude oil prices surge, notes Calgary-based energy consultant Michael Ervin - and the higher prices may persuade more consumers to buy fuel-efficient vehicles. "The real benefits economically really do relate to the government revenues derived from it," he said.

"Not only directly in the form of royalties, but indirectly through income taxes on a working population that work in this industry."

One need only look east, to Newfoundland and Labrador, to see a province that has benefited from resource royalties.

The price of crude fuelled a provincial budget surplus Tuesday of $544 million that will help Newfoundland trim taxes, boost education and health spending, and pay down some of its whopping debt.

Next year will also mark the first time since joining Confederation that Newfoundland will not receive equalization payments.

Cast a glance westward at Alberta and Saskatchewan and you'll see two provinces sitting on budget surpluses largely due to their abundance of natural resources.

A trio of oil and gas companies collectively posted billions of dollars in profits Tuesday. Calgary-based Petro-Canada (TSX:PCA) reported a first-quarter profit of $1.1 billion, up from $590 million a year ago.

"Obviously, (the higher price of oil) creates additional revenues and, ultimately, employment and income for the oil-producing areas," said TD chief economist Don Drummond.

"So, you do have a number of provinces that would end up being better off with higher energy prices."

Other provinces, such as Quebec and Ontario, get hit with the triple whammy of a higher Canadian dollar, soaring energy rates and high commodity prices. However, Ontario automakers could stand to gain from manufacturing more fuel-efficient vehicles.

Mark Nantais, president of the Canadian Vehicle Manufacturers' Association, says countries with high fuel prices tend to have more fuel-efficient cars, which presents market opportunities for Canadian automakers - not to mention the environmental benefit.

"There's many different things that results from the price of fuel," he said. "One is people, because they have a set transportation budget ... they will buy a more fuel-efficient vehicle."

But determining whether consumers change their driving or vehicle purchasing habits in the face of higher gas prices is difficult because there have been few studies on the subject.

Bob Oliver of the environmental group Pollution Probe says most consumers don't rationally access the cost of driving their vehicle when prices at the pump soar.

"I think it's an emotional and a knee-jerk," he said.

"It may be economically irrational, but it's still not the wrong response for a consumer to say, 'Wow, gas prices are getting high. I'm going to look for alternatives to driving a gas guzzler."'

Tuesday's average pump price in Canada was about $1.26 a litre according to the price-tracking website Gasbuddy.com. That's about 10 cents more than the price last month.

Part of the reason behind higher gas prices is because crude oil - the raw product from which gasoline is made - has steadily grown more expensive on commodity markets.

A barrel of crude traded around US$115 on the New York Mercantile Exchange on Tuesday - almost double the price of a year ago.

 
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