A Combustible Concept: Stop Subsidizing Fuel Prices

A traffic jam shuts down Calle 26. Would charging the real price for gasoline and diesel
reduce congestion and clean up the air?

The idea seemed sensible enough: Create a fund to stabilize gasoline and diesel prices. When international prices were low, Colombian prices would be raised, contributing to the fund. When prices rose, money would be withdrawn from the fund to reduce the price at the pump.

That was the idea. But in practice, the fund has been used mostly to stabilize prices downward, to buy voters and pacify strike-prone truckers.

EcoPetror: Not so green, and
maybe someday bankrupt, too.

However, the fuel subsidy is costing EcoPetrol a trillion pesos per year, threatening its economic health. And, such subsidies disproporionately benefit the wealth and businesses, who consume much more gasoline than do poor people. They also increase air pollution and violate Colombia's promises in the Paris anti-climate change agreement.

Colombia's Controlaria recommends freeing up gasoline prices. Colombia doesn't subsidize books, apples or clothing - so, why vehicle fuels?

I just talked to a schoolteacher from Medellin who had come to Bogotá to participate in the protest marches. She told me that public school teachers often must reach into their own pockets to purchase cleaning supplies for the school and even food for the children.

"That's the government's responsibility, and they've got plenty of money to throw around," she said, accusing government officials of corruption.

The government has offered teachers only a 2,000 peso-per-month raise, she added.

Certainly, the billions of dollars thrown away on fuel subsidies could have gone a long way toward helping public school students.

'No resources for teachers,' says Santos - except maybe those millions and millions wasted subsidizing gasoline.

By Mike Ceaser, of Bogotá Bike Tours

Paying With Our Lungs - and Wallets

'Subsidies for fuels have cost the nation more than 20 trillion pesos.'

Polluting on the public dole.

Bogotá's traffic congestion costs all of us everyday: In stress, pollution, lost time and damaged hearing. However, now El Tiempo reports that every one who pays taxes here is subsidizing every one of those cars, buses and trucks.

A recent report by the government's Mining & Energy Planning Unit calculated that between 2008 and August 2014, Colombia spent 20 trillion pesos subsidizing gasoline and diesel fuels. That's as much money as it plans to spend on the National Development Plan (PND) between 2014 and 2018.

Should Colombia really subsidize this?

There are economic and social justification for subsidizing buses and other mass transit. But I can think of lots better ways to do that than handing out subsidized diesel, which also subsidizes beer trucks owned by Colombia's wealthiest men, those smog-belching buses and trucks on Colombia's roads and gas-guzzling SUVs bereft of emissions controls.

So, fuel subsidies are not only terrible for the economy, but also an inequitable shift of money that should help the poor, to wealthy car and truck owners. Fuel subsidies are bad for cities, for the environment and the economy. But the government fears the protests which raising the price brings.

I can't help observing that, as destructive as Colombia's subsidy is, it's tiny compared to neighboring Venezuela, which is driving itself bankrupt spending about 15% of its GDP subsidizing fuels down to a few cents per gallon.

Take a whiff of that subsidized smoke.

Idling away the nation's wealth.

By Mike Ceaser, of Bogotá Bike Tours

Why expensive car fuel is a bargain for Colombia

High gasoline prices got us pedaling! (Photo: Flickr)

Over the past week, on radio call-in shows and newspaper letter pages, Colombians have complained about rising gasoline prices. Few realize that the more they pay, the better the deal they get, at least in the long term.

The Colombian government has been carrying out a gradual, years-long policy of reducing fuel subsidies and allowing prices to slowly float to international market levels. On March 1, they raised the gallon price in Bogotá by 210 pesos, to 8,299 pesos, or $4.39 per gallon. Good for them!

Traffic jam in Bogotá. Higher gas prices benefit even  drivers,
who save in time what they pay at the pump.

Yes, gasoline costs more in Colombia than it does in the U.S., a far-wealthier nation. Yet, even here, I'm willing to bet that drivers don't come close to paying the external cost of cars: the infrastructure, pollution damage, traffic congestion, police and emergency services, etc - and that's without mentioning driving's broader environmental impacts including global warming and the deforestation caused by oil drilling.

And, unlike nations such as the U.S. and Canada, where the great majority of people own cars, here in Colombia it's the small middle and upper classes who drive private cars, meaning that fuel subsidies go disproportionately to the wealthy. The subsidy bill came to three billion pesos in 2004, one fourth of the budget of the city of Bogotá. The money could much more productively - and justly - be spent on health, education and housing for the poor.

Bad investment.

In fact, gasoline and diesel fuels should not only be allowed to rise to their international market prices, but the country ought to tax them like crazy. Less domestic gasoline consumption means more oil to export, less pollution and traffic congestion at home, and a healthier population. Imagine $10/gallon gasoline - and uncongested, unpolluted streets full of bicyclists and walkers.

Colombia only has to look at its two biggest trading partners, the U.S. and Venezuela, to see the disastrous impacts of car culture fueled by cheap gasoline. The U.S. suffers epidemic levels of obesity, heart disease and diabetes in great part because many people do no more physical activity than walking to their cars and back. And don't forget the nation's petroleum-fueled trade deficit and economic dependence on often hostile authoritarian regimes, such as Saudi Arabia and Venezuela. Venezuela, for its part, subsidizes gasoline down to a few cents a gallon - and pays a horrendous price in traffic jams and pollution and a huge economic burden, which some analysts say could drive it to bancruptcy. (But almost-free gasoline does benefit one Venezuelan: Hugo Chavez, who buys votes.)

Subsidize my life - and death!

It's no concidence that the three nations in the Americas with the highest gasoline prices - Brazil, Chile and Uruguay - have three of the region's healthiest, fastest-growing economies. Similarly, most Europeans pay far more for gasoline than North Americans do - and enjoy better health and higher living standards.

I've never quite grasped why gasoline subsidies are the ultimate populist tool, when direct subsidies for food, shelter and school supplies would benefit the poor much more. In oil producers like Venezuela and even Colombia, cheap gasoline has a nationanalistic element, as in 'the oil's ours, so we should get it for free!' But I haven't heard many calls for subsidized milk, coffee, bananas or chocolate.

By Mike Ceaser, of Bogotá Bike Tours