Diesel

The energy crisis requires a conservation strategy, not a public relations response

Joseph Cheng – Updated on Jul 02, 2008 – SCMP

The sharp rise in oil prices recently prompted hundreds of truck drivers to block traffic in Central, demanding the government to scrap the tax on diesel. This has been a worldwide phenomenon. Many governments were confronted with protests from drivers, fishermen and others whose livelihoods are threatened by high oil prices.

It is expected that the government will concede to the demands of the truck drivers who have seen their incomes slashed. Scrapping the tax on diesel, however, goes against the principles of energy conservation and environmental protection, and reinforces the perception that interest groups that exert pressure on the government can secure concessions.

The coming Legislative Council elections in September mean that even pro-establishment political parties are eager to please certain interest groups. The decline in the government’s popularity, and its recent controversies, have weakened its political will to stand firm.

According to government statistics, the price of diesel for vehicles rose 12 per cent between January and April this year, and at present the tax on diesel amounts to only 5 per cent of its retail price. Scrapping the diesel tax will not significantly cut overall fuel prices, and its impact on truck drivers’ incomes will be very limited. If oil prices continue to rise, the impact of dropping the tax will disappear.

In contrast, the government seemed to have adopted a more reasonable policy in responding to applications to raise ferry fares. It allowed the ferry companies to lease the ferry piers for commercial purposes, thereby giving the operators an extra source of profit and creating less pressure to raise fares. The benefits to consumers are direct and obvious.

There is no way of telling how scrapping the diesel tax would benefit truck drivers and consumers. It might favour logistics companies instead: the government has no mechanism to monitor the process.

Much more significant, if we believe that rising energy prices is a permanent global trend, and if we all support the principle of environmental protection, then the government must have a long-term strategy for energy conservation. Hong Kong is a sophisticated metropolis; but in comparison with major European cities, we are obviously behind in energy conservation and environmental protection.

If oil prices approach US$200 or even US$225 a barrel by 2012, what will be the impact on our economy and society?

Cities in Western and Northern Europe have absorbed the lessons of the two oil crises in the 1970s, and they have spent great efforts on energy conservation. They have developed satisfactory mass transit systems and discouraged the use of private cars. Urban planning facilitates pedestrians and cyclists.

To achieve the objective, the metropolitan authorities have to develop long-term plans. They also have to change people’s lifestyles and values. Transport reform not only aims to conserve energy, but also to reduce pollution and promote healthy living.

Oil prices have quadrupled or quintupled in the past five years or so, but neither the government nor the community have given it much serious thought. Air pollution in the central business district has been deteriorating. Private cars are an obvious source of pollutants, but Hong Kong people generally have done little to improve the situation. We cannot put all blame on the government; we all have our share of responsibility.

From a purely economic point of view, the transport industry is in deep trouble. Truck drivers work fewer and fewer hours and their incomes have plummeted. The diesel tax is certainly not the main issue. The government, however, still considers logistics one of the territory’s four pillar industries.

At the very least, a review is needed. The government should initiate a large-scale study of the problems and challenges facing the industry, especially its future development on a cross-border basis.

The government subscribes to the principle of “small government”, and normally does not want to interfere in the economy. This is well supported by Hong Kong people. But it lacks vision, and often considers major issues from a public relations point of view. This can only lead to an erosion of its legitimacy.

Joseph Cheng Yu-shek is a professor of political science at City University of Hong Kong

Transport workers see little relief

Dennis Eng and May Chan – Jun 24, 2008 – SCMP

The scrapping of tax on Euro V diesel would do little to alleviate high fuel costs, truck drivers and public transport operators said yesterday, refusing to rule out more fare rises.

Their comments came after Secretary for Transport Eva Cheng, speaking to legislators, said the 56 HK cents per litre duty on Euro V diesel would be dropped, while the duty on ultra-low sulfur diesel and petrol would be unchanged. She said the move would affect 130,000 vehicles and save drivers HK$600 to HK$700 a month.

The policy was designed to encourage use of Euro V diesel, which emits about 80 per cent less sulfur and 5 per cent fewer particulates than Euro IV fuel.

Ms Cheng denied the government had caved in to public and industry pressure and legislators largely welcomed the relief measure.

Spokesmen for Shell and Exxon Mobil said they would reflect the duty waiver in their pump prices as soon as possible once the change was ratified.

Lai Kim-tak, chairman of the Medium and Heavy Truck Concern Group, did not hold out much hope that the tax exemption would offer appreciable long-term relief.

“There will be no guarantee of affordable fuel prices unless the government promises to regulate and monitor fuel prices,” he said.

Lai Ming-hung, a spokesman for the Taxi and Public Light Bus Concern Group, said the measure would not benefit the majority of taxis and minibuses, which had been converted to run on the cleaner liquefied petroleum gas.

“Taxis and minibuses may still feel pressure to raise their fares if fuel prices remain high,” he said.

Taxis have already succeeded in raising the flagfall by HK$1 to HK$16 in urban areas and HK$13.50 in the New Territories.

Chiang Chi-wai, a spokesman for the Fuel Price Concern Transportation Joint Conference, which welcomed the concession, said the government should lower the land premium on petrol station sites.

The tendering system for operating licences for the stations should also be reviewed, Mr Chiang said. The leases for petrol stations are not automatically renewed but put up for tender. The high land premium payable on the sites is often cited by the transport and logistics trade as a reason for the high price of fuel in Hong Kong.

But Ms Cheng said land prices were determined by market forces and the government would not subsidise any one particular trade by scrapping the premium.

Deputy secretary for the environment Roy Tang Yun-kwong said the government kept a close watch on fuel prices and had measures in place to ensure the change in duty was passed on to drivers.

The 56 HK cents per litre duty for Euro V diesel was introduced for two years on December 1 last year.

The Transport and Housing Bureau said it hoped the exemption could take effect during this Legislative Council session, but it could consider imposing the duty again in future.

In line with the EU, the government plans to make Euro V the required minimum for diesel vehicles from January 1 next year. Euro V can be used by all existing diesel vehicles.

Duty shall be payable on hydrocarbon oil (other than ultra low sulphur diesel and Euro V diesel) at the following rates per litre –

(a) aircraft spirit – HK$6.51
(b) light diesel oil – HK$2.89
(c) motor spirit (leaded petrol) – HK$6.82
(d) motor spirit (unleaded petrol) – HK$6.06

If oil keeps rising we all pay, or change our ways

Updated on Jun 19, 2008

A sustained surge in world oil prices eventually hits everyone in the pocket. But some social good can result from dearer oil, such as a conscious effort to avoid waste of a finite resource and the benefit that that can have for the environment. People make choices they previously resisted, such as buying smaller vehicles that emit less pollutants, using public transport and travelling less.

However, Hong Kong’s truck, van and minibus drivers, who are spending thousands of dollars a month more on fuel than previously, can do none of these things to relieve this burden. They also lack the bargaining power to pass it on down the supply chain, and no one is suggesting the consumer should pay.

As a result, their leaders have mounted a sustained public campaign to force the government to cut diesel taxes, marked by a demonstration in which heavy vehicles brought traffic in Central to a standstill. As we report today, it appears to have worked, with the government likely to waive the duty of HK 56 cents a litre on Euro V diesel. The tax was cut by half six months ago as an incentive for drivers to switch to using it.

The government spends billions on incentives and tax concessions for the use of less-polluting vehicles and cleaner fuel. For example, the existing duty on Euro V diesel of less than 5 per cent of the retail price is one of the lowest in the world.

Setting it at that level, in a city where diesel prices are low by world standards, was an attempt to encourage people to switch from dirtier fuels to Euro V diesel without making it so inexpensive as to lead to wasteful usage. If the government can be pressured into detouring from this socially responsible approach, it will be evidence of the political volatility that rises in fuel prices can induce. Financial Secretary John Tsang Chun-wah is right to have said the issue is complicated. But it is questionable whether a waiver is good public policy.

It has been suggested a waiver would be temporary, lasting perhaps two or three months. Hopefully, oil prices will eventually drop, relieving pressure on the drivers. But few industry observers can see an end to the spiral. What will the government do if the price of crude oil continues to head towards US$200 a barrel, as some predict, thereby negating the benefit of a duty waiver? Officials will be under pressure to introduce other measures.

There is every reason to believe high oil prices are here to stay. The increase in demand, led by the mainland and India, coupled with lagging exploration and exploitation of remaining reserves, has changed the equation. Alternative energy sources and technologies are a long way from making a real difference.

The rising cost of fuel does not mean that fuel taxes should be scrapped. They help ration, by price, the source of vehicle emissions which contribute to air pollution and global warming. Consumers then use fuel less wastefully. This is not the time to be talking about getting rid of such a tax. A call by a spokesman for drivers to scrap the diesel tax altogether is out of the question because it would encourage the use of more polluting fuel.

The government appears to be ready to give a measure of relief to a hard-pressed sector. However, unless the oil price retreats soon, waiving duty will be only a short-term palliative. Sooner or later, consumers must foot the bill for rising fuel costs or change their consumption habits. But first, a way must be found for transport operators to pass them on.