Environmental Regulation and Rationalization in the Retail Gasoline Industry

Abstract

The number of gasoline stations in Canada fell by 40 percent between 1989 and 2000. Many demand and competition related explanations have been offered for this rationalization. While industry sources cite stiffer environmental regulations as a factor in station closures, the role of environmental regulations in station shutdowns has not been formally assessed. In 1988 the Canadian Council of Resource and Environment Ministers published an Environmental Code of Practice recommending that unprotected petroleum storage tanks be upgraded or replaced according to a schedule based on the age of the tank and that nearby unprotected tanks also be upgraded or removed. If this Code were adopted by provincial regulators, the fixed cost of operating a gas station would increase in proportion to the age structure and protection of the station's tanks. Studying closure decisions in Winnipeg, MB, we find mixed evidence that stations with unprotected tanks were more likely to close during rationalization.

Keywords: Petroleum Storage, Rationalization, Retail Gasoline, Underground Storage Tanks

JEL Classification: K20, Q58, L81