After over a year of falling international oil prices, the finance minister has indicated that a new pricing policy may be brought in to allow cuts to local fuel prices.
The government needs to think long-term in reviewing the policy to make sure future energy prices more closely follow the market and comply with the nation’s long-term interest in reducing reliance on carbon-emitting fossil fuels.
Current pricing structures harm the economy through the excessive use of costly subsidies for fossil fuels. This only encourages wasteful use by consumers who can afford to pay market prices. Moreover, by distorting the market, it reduces the funds available for investment in improving efficiency and developing new energy sources.
As a nation committed to reducing global dependence on environmentally harmful carbon fuels, and with limited fossil fuel resources of our own, it makes no economic or environmental sense for tax-payers to subsidise and fix fossil fuel prices through costly subsidies.
The government should utilise the window provided by falls in global energy prices to phase out fossil fuel subsidies completely, as a priority over simply cutting oil prices on an ad hoc basis.
This will free up a large amount of government funds which can be better invested in education and health, or spent on targeted financial aid for poorer consumers.
Tax-payer funds should not be burned up subsidising finite fossil fuels. The harm done by distorting the market creates more costs for the public in the long run by keeping energy supplies unreliable.
Ending subsidies is imperative to cut waste and incentivise new investment in renewable energy sources. It is the best way to end distortions to the market, and allow it to deliver long-term certainty and flexibility in oil prices for consumers.
