The increase of dependence on fuel, together with the volatility of its price has driven a few developing countries to extend governmental help in cushioning its impacts to the poor. However, many economists have come against such unnecessary hand of the government. Here, I would like to discuss on the issue of energy subsidies- the pros and cons, and how it affects society.
Energy subsidies have been given on the premise that the poor cannot afford purchasing fuel at market prices. Thus, governments have tried many ways of subsidising the poor, be it through a ceiling price, through discount coupons, or even through direct cash rebates. Many countries which have once awarded subsidies have taken them off, for example Thailand. Countries that are still subsidizing their fuel in South East Asia are Malaysia, Indonesia and the Philippines. Comparing the intended outcome of subsidies and the realities of the poor in these countries, the question still remains- should we be awarding fuel subsidies to the poor?
In attempting to answer this question, one cannot only approach it from a morality point of view. True, it is relatively difficult for the poor to afford fuel consumption, but think about it- although it targets the poor, who actually receives these subsidies? Subsidies are enjoyed by the whole population once any part receives it! It lowers the price of fuel nationally. With the onset of globalization, the difficulty of exclusion emerges. Globalization brings homogeneity even in the context of fuel consumption. Thus, from an economic point of view, subsidies distort fuel consumption because the cheaper price of fuel induces the people to use more fuel rather than to economize.
From a sociological point of view, fuel subsidies bring an unnecessary pressure on ecology because the more fuel is consumed, the more the ecology is affected. These effects are both forward and backward. Forward as in, after the increased consumption of fuel, pollution is induced. Backward effects are when the increased consumption causes the producer to further scavenge the earth for oil, and then proceed to deplete her resources. These forward and backward effects could have been less severe if less fuel was consumed. And less fuel would be consumed without subsidies. Then only it would be fair for Mother Nature, who has been carrying the burden of our massive fuel consumption.
Also, fuel subsidies are given with the assumption that the poor need to be helped- as if they are helpless. This does not help them any further, as they would have no incentive to try to invent new ways of being less dependent on fuel. Currently, it is only the government and NGOs who are working on alternative energy sources. To me, this is a waste, as alternative energy could be sourced out together, if the government had created more synergy together with the poor and rural community. For example, the biofuel project is crafted by governments, and they are ‘forced’ upon unto rural citizens. Why is it that every governmental project is introduced ‘top-down’, rather than bottom-up?
In my humble opinion, fuel consumption should not be subsidized because they create large distortions in the decisions made by all citizens on how much to spend on fuel. Without these subsidies, citizens would spend less on fuel, and the ecology does not have to bear as much a burden as she is carrying now. Also, having less than enough to spend on fuel will induce citizens to source for alternative energy, which then creates an innovative and creative environment, where there is an incentive to seek greater heights.
