Wednesday, March 9, 2011

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

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