Ontario’s NDP says it will lower gasoline prices ‘right away and permanently.’ We asked experts if that’s possible

Soaring gas prices, now topping $2 per litre across much of Canada, have emerged as a central topic on the Ontario election campaign trail, with the three main parties pledging different plans for relief. While the Progressive Conservatives and the Liberals have promised to slash the provincial gas tax, the New Democrats are taking a different approach. But will it work?

In its platform, the NDP says it will regulate gas to stop gouging at the pump" by directing the Ontario Energy Board to regulate the retail price and wholesale markup of gas."

Speaking via livestream to reporters on Friday, NDP Leader Andrea Horwath said her party's plan will lower the gas prices right away and also permanently." But economists say this is misleading and not likely to be the case.

What the NDP is proposing - putting a price ceiling on gas - effectively already exists in the four Atlantic provinces. The experience of those provinces shows that regulating gas markets does not necessarily manifest in lower prices at the pumps, said Trevor Tombe, economist at the University of Calgary.

A Globe and Mail analysis found rising gas prices have hit drivers in Atlantic Canada harder than in Ontario. Between Jan. 1 and May 12, pre-tax gas prices jumped more in Newfoundland, P.E.I. and Nova Scotia than they did in Ontario, with just New Brunswick experiencing a smaller increase, equivalent to around one cent per litre.

That's because fluctuations in the price of crude oil are what primarily drive spikes and dips in gas prices, even in regulated jurisdictions, Tombe said. Gas prices have been steadily rising since late February when Russia's invasion of Ukraine spiked the cost of crude oil to $100 a barrel. Adding to the high prices at the pumps are higher refiners' margins, driven by increased demand for gas during the summer months.

Ontario typically benefits from cheaper crude than the Maritimes because it imports its oil from the U.S. by pipeline, rather than by ship.

The NDP says its price ceiling would limit the profit margins wholesaler and retailers can charge for gas - but such profit margins are already determined by a competitive market which follows closely what's happening in the United States, said Dan McTeague, fuel price observer and president at Canadians for Affordable Energy.

The notion that the NDP can regulate the price and give people some kind of security is, to say the least, misleading," McTeague said.

Fiddling with profit margins is like playing with fire," said Philip Cross, senior fellow at the Macdonald-Laurier Institute, because there is an integrated North American market for gas that's guaranteed under free trade agreements.

If you actually try to lower prices," Cross said, what's going to happen is all the gasoline will just leave Ontario because the gasoline will get a better price in Michigan or Quebec."

A 2017 report commissioned by the Ontario Energy Board found regulating gas prices can fundamentally alter the competitive dynamics of a market," including sometimes in ways that may not necessarily benefit consumers."

At news conferences last week, Horwath did not explain how the NDP approach to regulating gas prices differs meaningfully from those taken in other provinces, where regulated gas markets have not resulted lower prices for consumers.

We know that gas prices are different in different regions across the country," she told reporters Friday. What we are saying is here in Ontario we don't want to see drivers being gouged at the pumps anymore."

Instead of regulating prices, Progressive Conservative Leader Doug Ford and Liberal Leader Steven Del Duca have both promised to cut the province's gas tax by 5.7 cents a litre for at least six months beginning July 1.

Horwath said gas companies will just hike their prices to reap the benefits of the reduced gas tax - but Tombe, McTeague, and Cross said doing so would be nonsensical because it would hurt gas companies' competitive advantage.

Horwath also said Alberta, which scrapped its 13 cent per litre gas tax on April 1, is proof that this method doesn't work, as the province continues to experience record prices.

But Tombe has been tracking the trajectory of Alberta's gas prices compared to a fixed-weighted average of other provinces. So far, he's found about 90 per cent of the tax cut has gone directly to consumers' pockets.

On Saturday, the average gas price in Alberta was at $1.70 per litre. Tombe estimated it would have been 10 cents higher had the tax not changed.

Lex Harvey is a Toronto-based politics reporter for the Star. Follow her on Twitter: @lexharvs