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Regulating Petroleum Prices

Crude oil prices were controlled by the Government of Canada, pursuant to federal legislation and a series of agreements with the oil producing provinces, from 1974 to 1985. The regulation of crude oil prices required a system of oil export controls, export taxes and oil import subsidies for importing refineries. The effect of price controls was to distort the Canadian oil market, reducing the incentive for investment in new supply and in more efficient consumption.

Under the terms of the Western Accord of 1985, the governments of Canada, Alberta, Saskatchewan and British Columbia agreed to remove crude oil price controls. Deregulation has increased the flow of investment in Canada's petroleum industry, facilitating its development. The Canadian oil and gas industry is very capital-intensive and must compete in a highly competitive international market for investment dollars. Capital-intensive projects such as Canada's oil sands and east-coast offshore development need access to international capital and technology to develop to their full potential. Canada benefits from these investments through increased economic activity, significant job creation and higher revenues for government.

Canada is now committed to a market-based approach to oil prices, including petroleum product prices. This means that we rely upon competitive markets to determine prices. We continue to consider that prices set in free and competitive markets represent the best signals to producers in terms of their investment decisions, and to consumers in terms of the type of energy they use and how they use it. This helps to ensure that sufficient supplies are available at the most competitive price.

Under the terms of the Canada-United States Free Trade Agreement and the North American Free Trade Agreement, Canada committed to provide "national treatment" to oil consumers of the United States and Mexico. Canada also agreed to not impose export taxes on oil. Under these provisions, the control of crude oil prices in Canada would require that oil be exported at controlled prices, with significant revenue losses for the oil producers and governments of the producing provinces. Actions contrary to the trade agreements could expose Canada to significant retaliatory measures.

In the absence of a national emergency, the Government of Canada has no jurisdiction over the direct regulation of retail petroleum product pricing: under the Canadian Constitution, the provinces have that authority. Most provinces choose not to exercise their regulatory authority, relying instead on market forces. Currently, only Prince Edward Island, Newfoundland and Labrador, and Quebec regulate prices in some manner.

Furthermore, most evidence suggests that eliminating competition through regulation, while improving price stability, would lead to higher prices for consumers. Regulatory activity in Newfoundland and Labrador, P.E.I and Quebec has not led to lower prices in these jurisdictions.