Dollars and Jens
Monday, July 28, 2008
The local fishwrap has an article on countries subsidizing petroleum-based fuels.
From Mexico to India to China, governments fearful of inflation and street protests are heavily subsidizing energy prices, particularly for diesel fuel. But the subsidies — estimated at $40 billion this year in China alone — are also removing much of the incentive to conserve fuel.
The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.
In most countries that do not subsidize fuel, high prices have caused oil demand to stagnate or fall, as economic theory says they should. But in countries with subsidies, demand is still rising steeply, threatening to outstrip the growth in global supplies.
President Bush warned about the effects of subsidies on July 15. “I am discouraged by the fact that some nations subsidize the purchases of product, like gasoline, which, therefore, means that demand may not be causing the market to adjust as rapidly as we’d like,” he said.