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Nations uncertain on how to adjust to oil prices

Sunday, June 15, 2008 | 10:00 a.m. CDT; updated 8:50 a.m. CDT, Tuesday, July 22, 2008

Loory: Almost two weeks ago, my wife and I left Columbia en route to Orlando and then to Los Angeles for our grandchildren’s high school graduations. When we left, for the first time a tank of gasoline for our car cost more than $50. However, the huge gasoline price increase does not mean highway use is slowing down. Rush-hour traffic in Atlanta, Orlando, Mobile, Ala., and Houston is still bumper-to-bumper, and we saw almost no use of the high-occupancy lane on Houston’s Interstate 45. While American drivers take the fuel increases in stride and do little to object to record profits by petroleum companies or the inactivity of government in keeping prices down, protests have been growing around the world. In Spain and Portugal, truck drivers have been striking in protest. In India, Malaysia, Hong Kong, South Korea and Chile there have been similar work stoppages. And are we in for an increasingly gloomy energy crisis?

Jim Zarroli, business reporter, National Public Radio, New York: We are beginning to see a crisis. Although we haven’t had strikes in the U.S., oil prices in America generally are still lower than in much of the rest of the world. However, there is a lot of concern among people like truck drivers and school bus companies.

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Loory: Some people think the problem results from countries like India and China where so much fuel consumption might increase prices.

Shivnath Thukral, associate business editor, New Delhi TV, Mumbai, India: Blaming Asian countries for higher consumption is typically a Western argument, but India is nowhere close to the U.S. in per capita consumption. Prices are controlled in India, which is a big negative for emerging countries. With controlled prices, countries are artificially fueling higher consumption. Market-determined prices would discourage consumption but that would have a severe impact on inflation, India’s biggest worry.

Loory: Who benefits from price controls?

Thukral: The intention is that the lower economic strata that cannot afford to buy expensive diesel should benefit, but what happens is the subsidies are never targeted. In order to benefit a few, those who can afford higher prices also benefit. It’s a flawed policy.

Loory: Isn’t the Chilean government also subsidizing prices for gasoline consumers?

Elaine Ramirez, reporter, Santiago Times, Santiago, Chile: It started when the national trucking industry recently went on strike. After three days, the finance ministry compromised with the trucking industry with an 80 percent tax rebate. But many politicians are complaining the government is playing favorites with those who are striking. Now President Michelle Bachelet has proposed $1 billion in subsidies to decrease fuel costs. The biggest problem is the subsidies will run out, and there will still be a gas tax. The government doesn’t want to get rid of the tax because it makes a few hundred million dollars from it per month.

Loory: Hasn’t John McCain talked about a tax rebate on gasoline prices?

Zarroli: He basically said the U.S. should lower the scheduled gasoline tax for the summer. Hillary Clinton took up the idea quickly, saying it would be a good thing. Then Barack Obama said it would only make a tiny difference, and used it as a way of accusing Clinton of pandering to voters. Cars are a big part of who Americans are, so when gasoline prices show no sign of going down, people are unhappy. It’s hard for people to decrease their use of cars because it’s built into the American lifestyle to drive a lot.

Loory: Are any good ideas coming from India to decrease consumption?

Thukral: There are efforts in big cities to encourage use of public transportation. There are also energy efficient standards on electronic goods to ensure the right practices are encouraged.

Loory: Didn’t an Indian company announce it is going to produce a small car in large numbers for the lower end of the market?

Thukral: Yes, the company sees a huge market for people who aspire to give up their two-wheelers and move on to four-wheelers. But can one stop that company from producing that car, or would it be fair to dictate such movements? What we can do instead is increase the road tax, increase parking charges, and increase car registration fees. We have to look at more judicious ways to encourage public transport.

Loory: Is anything being done in Chile to wean people away from using automobiles?

Ramirez: People aren’t going to buy new cars now. They’re going to keep using the same energy inefficient cars they’ve been using. Bachelet has been making a whirlwind tour of North America, trying to revamp the entire energy system. She is interested in renewables, using biodiesel.

Loory: Alternative fuels are seen as helpful, but they have contributed to higher food prices. Do people in the U.S. still believe alternative fuels may save them from serious problems?

Zarroli: There has been a lot political support for using corn-based ethanol as an alternative fuel, but politically Americans are also starting to question that. Food prices, especially for corn, have gone up. There are no easy answers. Americans are going to have to go through some long-term changes, including changing the way they live, the things they do, and what they eat. People have said one of the things the U.S. needs to do is make energy more expensive because only then will people conserve energy.

Loory: In India, isn’t the government doing what it can to hold down fuel prices?

Thukral: We have strange fuel pricing in India. In terms of gallons, we are paying $3.50 to $4. Whereas the price of petrol, which India imports 70 percent of its energy needs from abroad, is way too high. India has been subsidizing the entire process, and that has been a huge flaw. The prime minister has said India cannot go on with this pricing formula because international prices are dictating prices in India. If we continue to shy away from it, we will only put a big burden on our fiscal deficit. The next generation would have to repay that debt, which is completely suicidal.

Loory: What is going on in the rest of Asia?

Thukral: In the countries where prices are market determined, there have been truck driver protests. Everyone feels the pinch, and if the Asian countries that control the prices don’t do something concrete, we will continue to see protests.

Zarroli: How much is the subsidy in India?

Thukral: It is almost a $30 to $40 billion oil subsidy, which the government recently attempted to correct through partially hiking prices and partially reducing the duties. If the subsidy were done away with, there would be about a 20 percent increase in the price of a liter of petrol.

Loory: And the subsidy in Chile amounts to about $1 billion?

Ramirez: That is about 33 cents a gallon. In Santiago, gas is about $5.30 a gallon, so it would bring us down to about $5 a gallon.

Loory: In American terms, that is still expensive gasoline. Obviously, the time of cheap energy is past, and how we’re going to adjust to the future is uncertain both in the U.S. and throughout the world.

Producers of Global Journalist are MU journalism graduate students Jared Gassen, Eunjung Kim, Mark Stanley and Catherine Wolf.


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Comments

Mark Foecking June 15, 2008 | 6:14 p.m.

How about adjusting to it by NOT DRIVING SO MUCH?

I'll bet half the people reading this have a bicycle somewhere in their house. Get it out, dust it off, and RIDE IT. One of the best things you can do to control gasoline prices. Don't use so much of it.

DK

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