Inflation has been especially good for Canada's extraction industries
“Wealthy oil and gas companies are using this opportunity to make their CEOs and institutional shareholders even richer than they were before."
While most people struggle to afford the basics, executives at Canada’s oil, gas and mining companies have pocketed nearly a quarter of the extra money Canadians are spending due to inflation, according to a new report from the Canadian Centre for Policy Alternatives (CCPA).
The report, entitled “Where Are Your Inflation Dollars Going,” reveals that from the third quarter of 2020 to the third quarter of 2022, the corporate sector saw an increase of $72 billion in revenue due to inflation.
Of that $72 billion, $18 billion went to the oil, gas and mining industries, with just $656 million of the $18 billion going towards increased worker compensation.
“In a broader sense, 25 cents out of every extra dollar spent on inflation is going straight to higher oil, gas and mining profits,” the report notes.
Julia Levin, national climate program manager for Environmental Defence Canada, said that CCPA’s new report “adds some much needed evidence on something that we already know but don't talk about enough in Canada — that fossil fuels are driving inflation.”
David Macdonald, the senior economist at the CCPA who wrote the report, said that the traditional measure of inflation, the Consumer Price Index (CPI), is useful for telling us which prices have increased, but doesn’t explain why they’re increasing.
The purpose of the report, Macdonald said, is to examine various industries across the supply chain and determine which industries are earning the most revenue from inflation, and where that revenue is going.
Using a novel approach, Macdonald compared increases in prices versus increases in production to calculate inflation.
“Imagine a gasoline refinery produces 20 per cent more gasoline and its revenues go up by 20 per cent. Well, that’s not inflationary, they're just producing more gasoline,” he said.
“But if they're not producing more gasoline and the revenues go up 20 per cent, that probably is inflationary.”
Some of these increased revenues are going towards worker compensation.
In the manufacturing industry, the second largest beneficiary of inflation according to the report, two-thirds of the $9.6 billion in increased revenues are going towards profits, and one-third is going towards increased pay.
But, as noted above, the amount of enhanced revenues going towards workers in the oil, gas, and mining industry is miniscule.
This increase in profit-driven inflation has impacts across various industries, with its effect on transportation prices, due to increased fuel costs.
Canadian politicians have sought to find a snappy portmanteau to identify the culprit of inflation, with Conservative leader Pierre Poilievre referring to “Justinflation” and NDP leader Jagmeet Singh referring to “greedflation.” Isabel Schnabel of the European Central Bank has dubbed the phenomenon “fossilflation,” a term which has yet to gain prominence in Canadian discourse.
Levin uses much more pointed language to describe the situation.
“Wealthy oil and gas companies are using this opportunity to make their CEOs and institutional shareholders even richer than they were before. And that level of understanding, that scrutiny is really missing,” Levin noted.
One reason for this lack of scrutiny is the immense power and influence fossil fuel companies have, which Levin said underscores the importance of “cutting our ties to the industry,” which is burning the planet.
These companies aren’t necessarily using their enhanced profits to expand fossil fuel production, though some are. “[The money is] mostly going to just fatten the wallets of a very select small number of people,” Levin added, noting that growing profits nonetheless point towards these companies’ immense political clout, which has been used to delay meaningful climate action.
“We're in a climate disaster. The first thing we need to do is stop throwing fuel on the fire and that means starting to starve these companies of their access to public and private cash,” she said.
That these increased revenues are going towards corporate profit rather than cleaning up billions of dollars of environmental liabilities, which fossil fuel companies are legally obligated to fund, or investing in a transition to renewable energy, demonstrates that these companies cannot be trusted, Levin said.
The Alberta government has endorsed a program dubbed RStar, which would subsidize environmental liability cleanup for fossil fuel companies.
Meanwhile, these same companies are asking for the federal government to subsidize investment in “highly speculative” carbon capture and storage technology, so they can continue drilling until the last drop of oil is extracted from the ground, said Levin.
“They have the money. Let them use their own money,” she said.
In its most recent budget, the federal Liberal government applied a surtax on the banking and insurance industries — the third biggest beneficiary of inflation by industry, according to the report.
This surtax, also known as a windfall tax, will increase the corporate tax rate to 16.5 per cent from 15 per cent on profits greater than $1 billion, which is projected to raise $6 billion in revenue over five years.
But the top two industry beneficiaries of inflation — oil, gas and mining, and manufacturing — were left untouched.
Macdonald suggested expanding the surtax to target these industries would be a good start. As the report notes, their growing profits are “without productive merit.”
“But frankly,” Macdonald noted, “I don't know that we need to be picking and choosing particular industries. Let's just charge the corporate surtax more broadly across the entirety of the corporate sector.”
There’s no doubt expanding the tax would lead to a backlash from industry. The modest surtax on banking and insurance companies was decried by Scotiabank CEO Brian Porter as "a knee-jerk reaction that sends the wrong message to the global investment community."
Meanwhile, Prime Minister Justin Trudeau has dismissed the idea of expanding the windfall tax to other sectors as “simplistic,” arguing the tax would “just pass along to the consumers.”
But Macdonald said expanding the surtax to other industries that have benefited even more from inflation than finance could be reinvested in assisting consumers with managing inflation’s impact.
“We could use the proceeds for something useful like offsetting these big cash transfers to lower income households,” he said. “As the Bank of Canada continues to look at this issue, they're laser focused for some reason on workers, who are clearly not the ones benefiting from inflation.”
Last year, Bank of Canada governor Tiff Macklem told a business lobby group to “hold the line on wage costs,” and not to negotiate higher wages into contracts with their employees, “to keep inflation down.”
For Levin, a windfall tax is a valuable short-term solution, which Environmental Defence supports, but she said what’s needed in the long-term is to wind down the fossil fuel industry.
“We're allowing them to just suck money from every possible source and we're just making it really easy for them to continue their business as usual when we desperately need to be doing the opposite,” she said.
Originally published in Ricochet.