Foreign gas subsidies distort market and decrease incentive to conserve

Articles — By forcechange on August 5, 2008 5:00 am

While U.S. politicians have become bogged down in the blame game over whether the Republicans, Democrats, or market speculating boogey men are responsible for our high gas prices, the issue of subsidies by foreign governments is often overlooked in the debate.  Apparently, 96% of the increase in the world’s consumption of oil last year came from countries that have gas subsidies.  The two largest subsidy providers are the governments of China and Indonesia ($40 billion and $20 billion this year, respectively). 

The effect of these subsidies is the exact opposite of what has been occurring in the United States.  Here, the rapid increase in gasoline prices have spurred on a massive shift in how people think about their cars and the environment.  In countries where the governments subsidize gas, much of this effect has been prevented.  It is Economics 101 that an increase in price should result in a decrease in demand.  Governments that subsidize gas distort this corrective force. 

Of course, the oil market is far from free and open, being dominated by a handful of massive multinational corporations and the openly monopolistic OPEC.  Nonetheless, this type of governmental action is apparently having a very real effect on personal behavior throughout the developing world by insulating them from a disincentive to consume. 

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