Abu Dhabi, UAETuesday 16 July 2019

No matter the price of oil, fuel taxes continue to impact consumers most

Fuel taxes are a poor tool for encouraging the shift to cleaner energy and end up a burden for struggling consumers at the pumps

With oil prices up and down this year, between highs of $80 per barrel and lows of under $60, oil-consuming developed countries have continued to collect steady tax revenues at the service station fuel pumps.

Governments' increased taxing of fossil fuels has become a hot topic as protests in France show the burden they place on struggling consumers. The UK, Italy and Germany have among the highest rates of tax on fuel among importing countries.

The Organisation of the Petroleum Exporting Countries has long argued that the real burden on consumers comes from taxes rather than from the original price paid for crude oil. For example, in 2017, the UK government earned about 64.6 per cent of the price charged for every litre of fuel sold at the pumps, through taxes. That compares to oil producing countries, such as those of Opec, who earned about 22.8 per cent of the total pump price. Opec has calculated that between 2012 and 2016, OECD economies earned on average about $1.5 billion a year more from fuel sales than Opec members made from oil revenues.

Graphic by Ramon Penas / The National
Graphic by Ramon Penas / The National

While the average price of crude increased in 2017 compared to 2016, lifting fuel prices and reducing the overall percentage proportion that taxes contributed to the cost at the pumps, the actual amount levied by governments went up in France, Germany, Italy and Japan, Opec data shows. Taxes fell by less than 3 per cent at the pumps in the UK in 2017 compared to a year earlier.

Ministers and heads of state from around 120 countries on Tuesday gathered in Katowice, Poland for a final push to meet an end-of-year deadline for agreeing how to enforce action to limit further warming of the planet.

Economists, policymakers and politicians have said the best way to fight climate change is to put a higher price on the fuels that are causing it — gasoline, diesel, coal and natural gas. Taxing fuels and electricity could help pay for the damage they cause, encourage people to use less, and make it easier for cleaner alternatives and fuel-saving technologies to compete.

A protestor wearing a yellow vest (gilet jaune) throws a tear gas canister back at police during a protest in Paris last week. AFP
A protestor wearing a yellow vest (gilet jaune) throws a tear gas canister back at police during a protest in Paris last week. AFP

Carbon taxes are expected to be a major part of pushing the world to reduce carbon dioxide emissions and try to prevent runaway climate change that economists say would be far more expensive over the long term. However, the taxes levied are causing pain at the pump for ordinary consumers in the short term.

In France, after weeks of often violent demonstrations by so-called yellow vest protesters, President Emmanuel Macron reversed a proposed hike in fuel levies and instead responded with measures to boost the spending power of retirees and workers, including a 100-euro boost to the minimum monthly wage.

The French reaction to higher fuel prices is hardly unique, which highlights just how hard it can be to discourage fossil fuel consumption by making people pay more. In September, protests in India over high gasoline prices shut down schools and government offices. Protests erupted in Mexico in 2017 after government deregulation caused a spike in gasoline prices, and in Indonesia in 2013 when the government reduced fuel subsidies and prices rose.

"Higher taxes on fuel have always been a policy more popular among economists than among voters," Greg Mankiw, a Harvard economist and former adviser to President George W Bush, told AP.


Read more:

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Updated: December 12, 2018 05:53 PM