Edit: Supporting wholesale oil traders isn’t just about reducing gas prices

[ad_1]

To counter the rising retail gasoline prices, the government has decided to provide subsidies to petroleum wholesalers as part of the “COVID-19 Emergency Economic Relief Measures”, which will be implemented immediately.

But is this the only recourse? We have our doubts.

Crude oil prices started to rise this year when the epidemic slowed and the economy began to recover. Recently, the nationwide average retail price of regular gasoline approached 170 yen ($1.47) a liter, the highest in 13 years.

To prevent exorbitant prices from negatively affecting the economy, the government will provide petroleum distributors with subsidies of up to 5 yen per liter when the average retail price of regular gasoline exceeds 170 yen.

The subsidy will also apply to kerosene, light oil and heavy oil, and will remain in place from late December until the end of March.

As a countermeasure against rising gasoline prices, there is a mechanism in place that enables the government to abolish the special tax rate of the indirect tax on gasoline and reduce the tax by about 25 yen per liter.

However, this measure has so far remained frozen to secure funds for projects recovering from the Great East Japan Earthquake of March 11, 2011.

To activate this countermeasure requires a legal amendment, which will take a long time, and the Ministry of Economy, Trade and Industry (METI) is not ready to move forward.

But the support program, METI explains, can be implemented quickly by drawing on emergency funds for the current fiscal year.

However, subsidizing wholesale petroleum traders will not directly lead to lower retail prices. Although METI claims that distributors will be bound by contract to commit to reversing subsidies on their wholesale prices, it is up to individual retailers to set their own after-wholesale prices.

This is because petroleum wholesalers are prohibited by law from restricting the freedom of retailers.

METI plans to check retail prices at about 29,000 gas stations across the country to see if they’re lowering their prices. Although this will cost 15 times more than the amount being spent now, its viability is not guaranteed.

According to the principle of market economy, prices are determined by supply and demand. To control prices by increasing supply, measures that can be taken into account include working in coordination with other consuming countries to urge producing countries to increase their production and benefit from crude oil reserves.

When the media reported last weekend that the government was considering releasing part of its crude oil reserves in government storage facilities, the prices of crude oil futures contracts, which were then at a seven-year peak, began to drop rapidly.

Also bearing in mind is the fact that the utilization of crude oil stocks has so far been limited to severe shortages in the post-11 March 2011 range, but short-term arrangements could be explored in coordination with other countries such as South Korea and the United States. (Prime Minister Fumio Kishida announced on November 24 that the government had decided to sell part of its oil reserves.)

Shifting focus to users, it should be enough to strengthen support measures for small-scale fishing operators and carriers with heavy fuel cost burdens as well as people with low incomes.

But even short-term actions to artificially reduce price hikes can delay the nation’s transition to a carbon-neutral society. Introducing carbon pricing to reduce emissions is something to consider.

Any government policy regarding energy prices requires this kind of medium to long-term vision.

– The Asahi Shimbun, November 24

.

[ad_2]