Rhein on Energy and Climate

International oil prices have declined to < $ 60/b, the lowest level since early 2007. But in the future demand will keep rising, especially in emerging countries while supply will have increasing difficulties to keep pace. No surprise that the EIA expects a price of $ 200/b in the not too distant future.

This is therefore the right moment for many countries that traditionally have subsidised gasoline/fuel prices to put an end to an increasingly unsustainable situation. Subsidies will become unsustainable for national budgets when oil prices rise again beyond $ 100/b; they send the wrong signals to consumers and are incompatible with the need to reduce oil consumption and C02 emissions.

The International Energy Agency has repeatedly called for the abolition of oil subsidies, but these calls have largely fallen on deaf ears.
The International Climate Conference that will take place in Poznan early December offers an opportunity for all countries to commit abolishing all subsidies on fossil energy, whether fuel, gasoline or coal, say before the end of 2009. Such a gesture would constitute a concrete act of climate mitigation, in particular by the oil producing countries and several emerging economies.

In view of balancing this appeal, the more advanced countries should commit to introduce a moderate excise tax on gasoline and fuel. This goes in particular for advanced countries like Russia, Saudi Arabia and USA that have failed to follow the European example of a high excise tax, which has been a powerful incentive for higher fuel-efficiency of
At present international oil prices of $ 50-60/b, no government can argue that an excise tax of $ 10-20/b would constitute an unsupportable burden for consumers, who less than four months ago had to pay the equivalent of $ 120-140 for a barrel.

A specific excise tax on gasoline/fuel also flattens the gyrations of international oil prices. That is positive for consumers, as Europeans have appreciated when prices skyrocketed in early 2008.
It is an easy tax to collect and to adjust to changing market situations. This is particularly important for oil producing countries, many of which sell gasoline far below world market prices. In Saudi Arabia gasoline prices amount to about 5 percent of what Europeans pay at the filling stations and 10 percent of American and Russian prices. By all standards these differences are unsustainable.

So let us hope that the UN or the IEA will table a resolution for abolishing all fossil fuel subsidies and introducing excise taxes on gasoline/fuel at Poznan next month. Or should they forget that taxation of fossil fuel has something to do with climate change?

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