Wed, May 16, 2018 - Page 8

Wrong-headed measure

Responding to rising global oil prices, the Ministry of Economic Affairs on Monday started to initiate controls to mitigate rising international oil prices. Under the mechanism, CPC Corp, Taiwan will absorb part of the cost increases if oil prices reach a certain level: If the price of unleaded gasoline reaches between NT$30 and NT$32.4 per liter, CPC would shoulder 25 percent of the price increase and consumers must cover the remaining 75 percent.

If the price reaches between NT$32.5 and NT$34.9 per liter, CPC must absorb half of the increase in the fuel price, with consumers paying the other half.

If the price goes above NT$35 per liter, CPC and the government together will absorb 75 percent of the increase and the consumer will shoulder the remaining 25 percent.

However, the paradox is that although the government said it was introducing these measures to protect people’s livelihoods, by fixing gasoline prices or implementing price mitigation measures, the ministry is essentially providing subsidies for the rich.

Those who were using less gasoline are now encouraged by the subsidies to use more, while those who were not using gasoline before are incentivized to start using it.

The bigger the vehicle, the more gasoline is used by the individual or company and the cheaper the price becomes, due to economies of scale.

However, the average member of the public uses relatively little gasoline and so has no option but to shoulder the price increase. It is nothing more than exploitation by stealth: A policy that is neither just nor fair.

Conventional economic modeling shows that when gasoline prices increase, consumers will use less gasoline. However, when price mitigation measures are introduced and the government intervenes in the market, this goes against the fundamental principal of capitalism that the most economically efficient allocation of resources occurs when consumers pay the full cost of the goods that they consume.

This means that the ministry’s price mitigation measures will actually de-incentivize the use of public transport, which goes against the government’s stated objective of reducing carbon emissions and protecting the environment.

Wei Shi-chang