The Paris agreement versus the Canadian passion for cheap gas: Don Pittis

There are few things that seem to stir a Canadian's passion more than the price of gas. Perhaps it is because of the long distances between places here, although that's not what the behavioural economists say.

Judging from the comments attached to any story on gas prices, in the popular mind there are traditionally two devils in the price at the pump. One is the grasping oil companies that have failed to pass on falling prices as oil has plunged. The other is evil government that adds a big slice of taxes to every litre.

Get ready for a third. That is the carbon tax required to meet the latest temperature targets agreed at Paris.

• Gas should be much cheaper with fall in oil prices, BMO says
• Climate deal success hinges on buy-in from ordinary people

The latest round of interest in prices at the pump originated with some analysis yesterday from Bank of Montreal senior economist Benjamin Reitzes. While standing by the gas pumps this past weekend, Reitzes got to thinking. And so he ran the numbers and produced an eloquent graph.

Effectively Reitzes takes the view critical of the oil companies, showing that after rising and falling in lockstep for years, the price of oil and that of gasoline have become disconnected. As of the end of 2014, pump prices and oil prices had drawn apart, with gas running about 30 cents per litre too high.

Many excuses

There have been many reasons given by the oil producers, but in many ways taking a larger share of that margin has helped integrated fuel companies prosper in what would otherwise have been a very rough period.

• Don't weep for the "downstream" part of the oil business, it's booming

"Simply," concludes Reitzes, "consumers don't appear to be reaping the full benefit of lower oil prices."

Cue outrage in the comments section. Though, amusingly, some turned on the whistleblower, asking why the report didn't do a similar job on bank fees.

I'm not suggesting this passion for cheap gas is a fringe point of view. Many of my friends, whom I know to be sympathetic to the climate change case, were just as miffed at the BMO report. Certainly I, too, am unreasonably enticed by low pump prices.

Fanaticism over the price of gas is nothing new. The subject has been studied by psychologist and behavioural economist Dan Ariely and addressed in his 2008 book Predictably Irrational. 

Disproportionate obsession

Several years ago, in a moment very similar to Reitzes', Ariely was standing by a gas pump watching the dollars tick by. Instead of thinking about how the oil companies were out to get him, he thought about why he paid so much attention to the price of gas and not to the price of other things that made up a much bigger part of his budget.

"For the several minutes that I stand at the pump, all I do is stare at the growing total on the meter — there is nothing else to do," wrote Ariely in Psychology Today in 2008. Watching the tank fill was an up-close-and-personal experience. It was repeated daily or weekly. It gave him a false sense of its importance to his life. 

Ariely and many others have shown that people are disproportionately obsessed by the price of gas even when it costs them more than it is worth in time and effort.

A gas station near me with slightly lower prices often has lineups stretching into the street for a savings of as little as a dollar per tank. There are documented cases of people driving kilometres out of their way for a few cents per litre. 

It is in the face of this obsession that the governments signing the Paris climate agreement must reduce the amount of carbon their economies produce. As Ontario Premier Kathleen Wynne has said, with coal power no longer in the mix in her province, one of the biggest carbon emitters remains transportation.

Greenhouse disconnect

And this is where the disconnect occurs. The lower the price of gas, the more we are likely to burn it. Already reports from the U.S. show falling pump prices have resulted in people driving more and buying bigger SUVs.

According to economists, the only effective way to develop alternatives like electricity and hydrogen and wean people away from carbon-based fuels is to raise the price of gas at the pumps. 

As Ariely said, we should "learn to examine all our purchases and expenses more holistically so that we see where rising costs make the biggest difference."

The Paris conference decided the cost that will make the biggest difference to us all is the impact of rising temperatures connected with human-produced greenhouse gases.

The negotiators in Paris have concluded that increasing greenhouse gases are costing us our world, but that feels so far away compared to our intimate experience at the gas pump. I wonder which will win.

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis​