A GOOD MANY Americans still believe that President Carter was wrong to begin decontrolling oil prices. For those people, the new Canadian energy program provides an interesting test of the idea that a government can, by law, keep oil prices wherever its consumers and voters please. Present evidence suggests that the Canadian plan is going to turn into an extremely costly, but instructive, disaster.
Canadian law currently holds Canadian oil at less than half the world price. The chief danger in the American price controls was that they subsidized oil consumption, driving up imports. Since decontrol began last year, American oil consumption has actually dropped lower than it was in 1973, the year when the great price rise started. Canada is now the only major industrial country in which oil consumption, encouraged by low prices, is running substantially higher than in 1973. Prices really do make a difference.
To import crude oil at world prices and sell it at the Canadian price, the Canadian federal government now pays $20 a barrel as as direct subidy. It has turned into a staggering burden on the Canadian budget, which is now running a deficit that, in relation to the economy, is half again as large as this country's very large federal deficit.
The solution, the Canadian government earnestly hopes, is to swing the country entirely to domestic sources -- the abundant gas, hydroelectricity and oil extracted from tar sands. There's a complex new structure of taxes and subsidies to encourage it. There are also very large subsidies to promote conservation -- difficult to do, when energy stays cheap.
This national program depends on continued exploration, but it's being undercut by the rapid southward migration of drilling rigs, crews and investment capital. The oil industry goes where the prices are best. Worse, the province of Alberta -- Canada's chief source of oil and gas -- has now launched a direct political challenge to the federal government. It has cut back the provinces's oil production in a calculated attempt to destroy the national price-control policy by driving up imports. The unity of the country appears to be, once again, in jeopardy.
Canada's enormous wealth in resources gives it a wider margin of error than the United States enjoys. Canada's oil imports are smaller in proportion to its economy than this country's are, and don't have the same impact on world markets when they unexpectedly surge. But, for the Canadians, there's suddenly much more at stake than the price of gasoline. As this program continues, it's likely to persuade even the doubters that, when he decided to decontrol oil prices, Mr. Carter was absolutely right.