Reopening Keystone pipeline talks won’t address current high oil prices, says Yellen after meeting with Freeland

Deputy Prime Minister Chrystia Freeland and US Treasury Secretary Janet Yellen tour Evoco, a biotech company that uses plant-based materials to replace petroleum products and reduce carbon emissions, at the MaRS Discovery Center Lab in Toronto on June 20.Tijana Martin/The Canadian Press

Finance Minister Chrystia Freeland and US Treasury Secretary Janet Yellen have pledged to help central banks fight inflation by cutting deficit spending, but Yellen was cold in reopening talks on the Keystone pipeline as a way to reduce oil prices.

The two politicians made the comments Monday, during a day of events in Toronto that included private meetings, an hour-long public discussion and an afternoon news conference.

Consumer prices on both sides of the border are rising at the fastest pace in decades, pushed higher in recent months by rising oil prices. High inflation is eroding wages and forcing the US Federal Reserve and the Bank of Canada to rapidly raise interest rates in an effort to cool demand.

Ms Yellen said tackling inflation is primarily the responsibility of central banks, but added that she and US President Joe Biden are considering a range of policy options that could help, including lowering of the deficit and the increase of some taxes while they consider a cut of the gas tax.

The Alberta government urged the Biden administration to address high oil prices by reversing its 2021 decision to cancel the Keystone XL pipeline that would have transported Canadian crude to US refineries. Ms. Freeland said she raised the Keystone issue privately on Monday, but Ms. Yellen indicated that she did not see it as a solution to high prices.

“I don’t see it as a short-term measure to address the current situation. And in the longer term, we remain committed to our climate change goals. But you know, it’s really up to the president to consider it,” Ms. Yellen said during the afternoon press conference.

Ms. Yellen expressed her openness to the idea of ​​a short-term cut in gas taxes.

“Consumers are really affected by higher gas prices. It has been a substantial burden on American households. And I think that while it’s not perfect, it’s something that should be looked at as a policy to address it,” she said.

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Ms Freeland, who hears daily calls, including in the House of Commons on Monday, from Conservative MPs to cut petrol taxes, said she was not ruling anything out. However, she said, a gas tax cut would harm the government’s efforts to reduce the deficit, noting that Canada’s climate change policy provides payments that offset the costs of carbon prices for consumers.

“The situation in Canada is a little different, because our pollution price includes an element where we pay back Canadian families,” he said, adding that Canada is “prepared to do more if needed.”

Inflation was already at multi-decade highs at the start of the year. The oil price shock after the Russian invasion of Ukraine made matters worse. The annual rate of inflation hit a 40-year high of 8.6% in the US in May and a 31-year high of 6.8% in Canada in April. Canada’s consumer price index data for May is due out on Wednesday, with most economists expecting it to be well above 7 percent, a figure not seen since the early 1980s.

The US government has tried to lower oil prices by releasing a million barrels a day of oil from the country’s strategic reserves. Ottawa has said it wants Canadian energy companies to increase oil production by about 200,000 barrels a day and natural gas by the equivalent of 100,000 barrels a day by the end of the year. Canada exports about 3.5 million barrels of oil to the United States each day.

“As energy producers, we take our responsibility to our partners very seriously, which is why we are working hard to increase production,” said Ms. Freeland.

Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, said energy companies are in talks with the government to increase production, but transportation problems could hamper efforts.

“Canadian growers are currently achieving record production and record exports. However, our transportation infrastructure is approaching capacity and will only grow to just over half a million barrels per day with the completion of the Trans Mountain expansion next year,” Ms. Baiton said in a mailed statement. electronic.

Ms. Freeland said both federal governments have to “walk and chew gum on energy right now,” encouraging more production to lower prices today while investing in more renewable energy sources.

“The energy crisis that [Russian President Vladimir] Putin’s invasion of Ukraine is yet another reason to take climate action really seriously,” he said.

During the midday armchair discussion, Ms. Yellen and Ms. Freeland called on like-minded democratic nations to deepen trade ties as part of a global effort to reduce dependence on products from China and Russia.

Ms. Freeland said Russia’s invasion of Ukraine and China’s nearly three-year detention of Canadians Michael Kovrig and Michael Spavor, who were released last year, underscore the need to shift trade away from those two countries in favor of “friendly hosting,” a phrase Ms. Yellen uses frequently.

“The world’s democracies don’t want to be dependent on Russia and China for the critical minerals and metals needed to build electric batteries, semiconductors, nuclear reactors, create fertilizers or even energy sources. That’s not safe anymore,” said Ms. Freeland.

“And guess who has almost all of these things? We make. Canada does. And I personally think we owe it to our allies as good partners to step up. But it is also a great economic opportunity for our country,” he said.

Ms. Yellen said the US and Canada are discussing securing North American supply chains for critical minerals, though she said talks are at a relatively early stage.

Conversations about supply chain security are taking place as the economic outlook worsens. High inflation is compressing household finances and reducing consumer confidence. Meanwhile, central banks are raising interest rates at the fastest pace in decades in hopes of preventing high inflation from taking hold. That raises the possibility that central banks will tighten monetary policy too far and push their economies into recession.

Ms. Yellen said in a television interview on Sunday that she expects the US economy to slow down. “But I don’t think a recession is entirely inevitable,” she said.

This assessment is shared by Toronto Dominion Bank economists, led by Chief Economist Beata Caranci, who moderated the discussion with Ms Yellen and Ms Freeland on Monday.

“Growth is expected to fall significantly below its long-term trend pace in both the US and Canada, and unemployment rates are projected to rise from their current low levels,” Ms. Caranci and his team in an updated economic forecast released Monday. . “We are not forecasting a recession, but with growth close to stalling speed, there is very little margin for error if another shock hits economies.”

Some economists say Ottawa isn’t doing enough to reduce government spending in the face of rising inflation. Bank of Nova Scotia Chief Economist Jean-François Perrault and Modeling and Forecasting Director René Lalonde published a note over the weekend arguing that government spending is making the Bank of Canada’s job harder.

“The simple reality is that businesses and households are going to make concessions as they factor higher inflation and financing costs into their budgets. It seems unreasonable that governments do not do the same,” they wrote.

During Monday’s press conference, Ms Freeland rejected suggestions that the government was not being fiscally responsible, arguing that the April budget put Canada on a path to the fastest reduction in debt and deficit in the G7, tied with the United States.

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