Ontario Gasoline Prices Heat Up, Even as Oil Remains Unchanged

-By Griffin Addison | [email protected]

TORONTO, CANADA - If you live in Ontario, you might have noticed the prices at the pump jump from under $1.00 (CAD) just a few weeks ago to hover around the $1.20 range today. In January of this year, the province's cap and trade program came into place which was supposed to be designed to curb the use of carbon emissions by increasing the price. Experts expected the price to rise 4.3 cents, and indeed prices spiked by this amount in the 2017 new year.

However, given the inelastic nature of gasoline prices and demand, the price increases likely had little effect on carbon emissions, but more of an effect on people's wallets.

"This is outrageous! My fuel costs have gone up 20% in the past week." Says Stephen Ackland who commutes daily in the Toronto area using his Subaru Outback SUV for his business, "And I'm forced to pay this increased price."

Some would argue that the government is right and people should switch over to electric cars right away. While they may be correct, the transition could take longer than expected given the scarcity of electric cars in the market currently. The gasoline price increase has come as a surprise to most Ontarians who have been caught off guard.

The extra government taxes haven't stopped rising however and continue to be passed to consumers. Back in January experts from Gas Buddy predicted that gasoline prices could hits $1.20 by year end, but they are already at this level in mid April. Surprisingly, the underlying cost of the raw material, oil, which usually correlates well with gasoline prices as the primary ingredient, is actually at multi-year lows.

Prices of Oil (10 Year Chart) (USD)

Gaslone Prices in Ontario (10 Year Chart)

Of course the CAD to USD conversion has not been favorable to Canadians, but the ratio has not differed much all year, ruling it out of the equation. Notice that the price of crude has remained flat over recent months, while gasoline prices have jumped in 2017.

Some speculate that the mix of ethanol in the summer gas formulation may have caused prices to increase, but usually the mix is swayed to whatever fuel is the cheapest, making this the unlikely cause of the price increases. The real culprit is likely additional taxes from the cap and trade program which continue to balloon higher.

Will electric cars arrive soon enough to save Canadian consumers from being price gouged at the pump? Although strongly desired, the infrastructure for these electron-driven cars is not nearly as robust as the gas station business, and could take years to further develop. The government has offered some tax incentives to speed up the transition, but development of a completely new technology takes time. In the meanwhile, commuters will be forced to pay much more for the same carbon-based fuel, as they wait for an alternative.

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