Monday, December 1, 2008

China leading the revolution?

China, in showing that it has the ganas to lead the revolution, is about to enact a fuel tax reform which includes an increased gasoline tax for refiners. Economists in China argue that the measure will ultimately benefit consumers as the state may simultaneously lower state-controlled gasoline prices which now stand much higher than current international standards.

Bravo China.

Although there are many different aspects to the Chinese gasoline market (including price controls on pretty much everything!), the government is showing leadership in this arena. Economists in the US and elsewhere have long argued that there is a de facto subsidy on gasoline because of its many negative externalities which are hardly covered by existing gas taxes. Higher taxes could help close this gap while also reducing demand for a proven green house gas emitter.

Furthermore, lower gasoline prices worldwide mean that governments will have a narrow window to raise gasoline taxes while not being burdened by protests that were so apparent just seven months ago and before prices inevitably sky rocket yet again. Particular innovation is shown by the Chinese by implementing higher taxes on the refining process - rather than at the pump - thereby forcing the industry to bare the brunt of the tax increase before they reach the consumer. This move in the United States or elsewhere could mean that refiners and distributors are forced to accept lower margins in order to compete; hence, saving the consumer the full brunt of a tax hike.

Although this kind of thinking is gaining traction worldwide, the usual suspects are taking the first steps, leaving the US and others to continue polluting and continue under-funding our national transportation infrastructure while giving a "sigh of relief" at gas prices. Let's move fast, America. Pretty much all transportation-related alternative energy solutions have not yet met parity with the economics of middle class families. Moving the gas curve to the right will help as Silicon Valley and others continue to move the curve left.

Hat Tip: Green Inc.

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