Low Gasoline and Electricity Prices Exact High Social Cost
United Daily News editorial (Taipei, Taiwan, ROC)
April 6, 2012
Summary: We support the Ministry of Economic Affairs gasoline and electricity price rationalization policy. We believe that CNPC and Taipower should end its disguised gasoline and electricity subsidies. Gasoline prices must reflect market signals. Market signals must direct the allocation of resources. New York Mayor Rudy Giuliani has a famous saying: Between doing the right thing and doing things to please people. one must always choose the former. Only by doing the right thing, can one please people.
Full Text below:
The Ministry of Economic Affairs has raised the price of gasoline and diesel fuel. The price of unleaded 95 octane gasoline has been increased 3.1 NT per liter. The price of diesel fuel has been increased 3.2 NT per liter. The price of fuel oil has been increased 2440 NT per kiloliter. Reporters have interviewed taxi drivers and other vehicle owners as they filled their tanks. Most respondents were predictably angry about the price hikes. Legislators recently questioned Executive Yuan officials about the price hikes. They reflected public concern over the price hikes. They want China Petroleum, the Taiwan Power Company, and other state-owned enterprises to continue absorbing the losses. Ministry of Economic Affairs officials mentioned price hikes only as the questioning in the Legislative Yuan wound down. Presumably they hoped to diminish the psychological impact on the public.
But is government policy really at the mercy of such superficial concerns for public whim? If so, then the policies that result will surely lack any compelling justification. The Taiwan region is seriously deficient in natural resources. We simply cannot maintain the lowest gasoline prices in the world. We lack the wherewithal to maintain such low gasoline prices. Yet we deliberately insist on trying. This means exacting a high social cost. The Executive Yuan must make clear what the social cost would be. Otherwise the government will be trapped on the horns of a dilemma, wondering whether to favor price hikes or oppose price hikes. If it cannot elevate its decision-making to a higher level, it cannot elevate its decisions to a higher level. We have done some of the Ministry of Economic Affairs' homework below. We have laid out, one by one, the social cost of low gasoline prices.
One. Low gasoline and electricity prices mean that China Petroleum and Taipower are operating at a loss. These losses must be made up by subsidies from the state treasury. Subsidies from the state treasury must be made up by taxes. Taxes are extracted from the general public. Therefore low gasoline and electricity prices mean that those who use less gasoline and electricity subsidize those who use more gasoline and electricity. This violates the principle of "users pay." It also violates the principle of just allocation of resources. The first and most serious social cost low gasoline prices exact is to justice.
Two. Low gasoline and electricity prices undermine President Ma's energy conservation and carbon reduction policies. We may not be qualified to tackle certain esoteric economic principles. But the relationship between price and availability is well-established. When President Ma was inaugurated in 2008, his cabinet proposed energy conservation through higher electricity prices, Large companies implemented energy saving programs. In short order the administration saved the generating capacity of a entire electrical generation plant. Electricity and gasoline consumption is clearly inversely related to gasoline and electricity prices. Opposition DPP legislators are pressuring the Executive Yuan to maintain low prices. If the administration caves in, it will be difficult to cut carbon on Taiwan. It will be difficult for industries to reduce their carbon footprint. It will be difficult to achieve President Ma's carbon dioxide emission reduction targets.
Three. Low gasoline and electricity prices exact a social cost most people never notice, but the green energy industry is acutely aware of. The ICT smart grid, LED power-saving light bulbs, solar panel manufacturing, and smart household meters are well-established on Taiwan. But the base must be expanded. We must gain a production advantage in the manufacture of key components, or an operating advantage in system operator services. But how many vendors are willing to invest in R&D for the aforementioned critical components or systems? That depends on the price of green energy compared to traditional fossil fuel energy. When traditional petrochemical and electricity prices are high, green energy R&D becomes more attractive. Taiwan manufacturers are more willing to invest. They gain global industrial advantages in these areas. In short, lower prices for traditional energy is not conducive to the development of Taiwan's green energy industry. Any advantage we had is gradually lost.
In sum, we support the Ministry of Economic Affairs gasoline and electricity price rationalization policy. We believe that CNPC and Taipower should end its disguised gasoline and electricity subsidies. The Taiwan region lacks an abundance of energy. But it has achieved much in ICT energy-saving technology. Gasoline and electricity prices must not be at the mercy of populist whim. They require industry foresight, energy efficiency goals, and the concept of "user pays." Gasoline prices must reflect market signals. Market signals must direct the allocation of resources. New York Mayor Rudy Giuliani has a famous saying: Between doing the right thing and doing things to please people. one must always choose the former. Only by doing the right thing, can one please people. We say these things to support the Ministry of Economic Affairs. We say these things to chastise populist politicians.
2012.04.06 02:04 am