Chinese Government Raises Fuel Prices by 10% (That's Good!)

Those prices are in Yuans per liter, I think.
Fuel Subsidies Punish Virtue
The Chinese government has recently decided to raise fuel prices by about 10%, the third increase in the past few months, following a 6-7% increase on June 1st, and a 3-5% increase in March. The stated goal is to bring the price of fuel in China closer to what the market price is. From a green point of view, this is good because subsidized fossil fuels only encourages waste, over-consumption, and the buying of vehicles that aren't fuel efficient. It also artificially reduces the competitiveness of technologies that aren't based on fossil fuels, slowing down their adoption.
Rewarding Waste, and Making Everybody Pay for It
Another big downside of fuel subsidies is that it screws up the incentives for conservation. There's no such thing as a free lunch, and if fuel is subsidized, people are paying for it through higher taxes (or higher inflation, if the government just prints the money). But since they aren't paying for it proportionally to their fuel usage, people who are very frugal and conserve fuel are punish since they pay the same taxes as everybody else, and those who use tons of fuel and waste it are rewarded since they aren't paying higher taxes. That's what I mean when I say that fuel subsidies punish virtue.

Too Bad Politicians Can't (Won't?) Sell a Carbon Tax
And the opposite is true. A carbon tax that would, for example, increase the price of a gallon of gas by $2, would proportionally reward those who use less fuel and punish more those who waste it (and the money raised from that tax could be used to reduce the income tax or pay down the deficit). Such a system would be a lot fairer and more effective than cap & trade because if would be transparent and couldn't be as easily derailed by special interests (exhibit #1: The recent US cap & trade bill, which says that 85% of permits will be given away for free to certain companies...). A carbon tax would also be a lot less expensive. But that's another story...

Via WSJ
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Tags: China | Energy | Transportation

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