Wed, Feb 22, 2012 - Page 8 News List

Reasonable energy prices for all

By Hwang Jenn-jiang 黃鎮江

The introduction of reasonable oil and electricity prices is one of the stated priorities of the new Cabinet. I would be thrilled to see the government take a sincere look at the longstanding distortion of energy prices and introduce reasonable oil and electricity prices. I suggest that doing so must include complementary measures for the basic needs of low-income households to meet demands for social fairness and justice.

Energy prices have been distorted for a long time and this has had a very negative impact on government finances and social justice and fairness, as well as the implementation of energy and carbon reduction policies and the green energy industry. Taiwan Power Co is providing for all the country’s electricity needs and CPC Corp, Taiwan, provides almost 70 percent of all domestic oil products.

The deliberate suppression of oil and electricity prices has created huge losses for these state-run companies. Following the continued increases in international energy prices, subsidies will continue to increase, as will losses. These subsidies are all coming from the national treasury and are therefore paid for by taxpayers, and as a result, the government’s fiscal deficit continues to expand.

In addition, the subsidies are the same across the board, which runs counter to the idea of social justice and fairness. The more oil and electricity wealthy people, energy-hungry companies and other big users consume, the greater the subsidies they receive, while low-income households that use less energy receive fewer subsidies. The current oil and electricity pricing is an inverted income distribution policy that takes from the poor and gives to the rich. The unfairness is self-evident.

Simply put, although the low energy prices created by the government’s subsidies might maintain price stability in the short run, it leads to energy waste, increased carbon emissions and crumbling government finances in the long run. Even worse, it intensifies social injustice and unfairness. Such a policy should have been changed a long time ago.

If oil and electricity prices are increased, low-income households will bear the brunt of the blow. That is why, as we let markets decide energy prices, the government’s most urgent task is to care for these disadvantaged groups by adopting effective complementary measures and offering energy subsidies to guarantee that they receive basic energy services.

I suggest that as the government allows markets to set energy prices, it should also emulate advanced countries and establish a universal energy service fund to satisfy the energy needs of disadvantaged groups.

Many countries have actually made the right to receive energy services a basic survival right and governments now provide minimum guarantees. In other words, these countries include energy services in social welfare in the broader sense that the government shoulders the responsibility for providing universal energy services so that the public has freedom from a lack of energy.

In the past, the main policy tool was the abovementioned use of a universal subsidy that is the same across the board. Because this approach was riddled with problems, countries are now moving toward a basic mechanism through which they provide universal energy services.

In 1999, the US state of New Jersey passed the Electric Discount and Energy Competition Act. A Universal Service Fund (USF) was set up by the state government to help low-income households pay for electricity and natural gas services. Users could apply for USF energy subsidies on two conditions: Household income could not exceed the poverty line by 175 percent or more and the applicant’s household electricity and natural gas expenses should exceed 6 percent of overall household income.

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