November 18, 2020

Welcome to Newfoundland & Labrador, where life will soon be unaffordable

Welcome to Newfoundland & Labrador, where life will soon be unaffordable

In September, Canadians for Affordable Energy (CAE) commissioned a report from economics firm LFX Associates on the implications of the federal government’s proposed, new “Clean Fuel Standard”. 

The report, titled Assessment of the Proposed Canada-Wide Clean Fuel Standard (CFS), concluded that the costs of the Clean Fuel Standard (or, CFS) will be significant. It is estimated that nationally, the CFS will result in home heating costs increasing by 60%, 30,000 jobs lost, and $22-billion of capital lost from the Canadian economy.

In addition to examining the effects of the CFS on a national scale, the report also included case studies - snapshots of the economic implications of the CFS for specific provinces. 

Today, let's look at one of those: the effect the CFS will have on Newfoundland & Labrador.

Newfoundland & Labrador’s geographic location means that it relies heavily on oil for the transportation of goods - most of this oil arrives from offshore by cargo boat or plane. If the CFS is implemented as an additional tax on gasoline, those transportation costs will increase. This means the costs of all the goods will go up.

High costs will be felt first in the price of gas at the pumps.

In 2018, the average price of gas in NL was $1.27 per litre and total gasoline purchase in the province was just over 600 million litres. The models used by LFX in their assessment estimate that if the same amount of gas was purchased with the additional fuel price, the average price of gas would increase to $1.40 per litre. 

The federal government argues that, as the price of gasoline increases, use will go down. But our case study estimates that gasoline consumption would only decrease by 2.9% - people still need to drive to and from their homes, and transportation of goods by vehicles dependent on hydrocarbons needs to continue. People will continue to buy gas – going forward with the CFS, they will just be punished for it through higher costs.

But rising gasoline prices are not the only costs that Newfoundland and Labrador residents will feel with the CFS.

Canada’s eastern-most province is also quite northerly: it has a cold climate. The average January temperatures in Labrador range from lows of -19C to -28C. And over 20% of residents in NL use heating oil to counter that cold. LFX estimates that with the added costs of the CFS, residents using oil will spend an extra $284 per year to heat their homes. 

But the hit will not only be in people’s homes. 

NL has over 17,000 food and accommodation businesses. Almost 25% of the energy used by the commercial and institutional sectors is produced by light fuel oil. With the additional costs of the CFS, a restaurant of approximately 600 m2 can expect to pay an additional $1335 per year. 

As most businesses reel from the effects of the COVID-19 shutdowns, additional costs like the CFS could knock them down completely. 

Our analysis proves that in Newfoundland and Labrador, where residents rely greatly on liquid fuels from hydrocarbons, the CFS will do nothing to reduce consumption – but it will cause a lot of price increases - making energy less affordable and dramatically raising the cost of living for its residents. 

Newfoundland and Labrador cannot afford Justin Trudeau’s second carbon tax - the Clean Fuel Standard.