Cheap petrol – is it good or bad?

Serious tax hikes on petrol, and cutting subsidies on oil itself and its derivatives are demanded by Jeffrey Frankel, who used to be Chief Economist at The White House under the presidency of Bill Clinton.
In the interview, the Harvard professor (Kennedy School of Government) gave to Fundblog, he talks about that current savings should be spent on the renewal of the out-of-date and hazardous infrastructure, and on investments to increase traffic safety.
According to the interviewee, low oil prices will prevent fossil fuel replacing technologies – for example, electric cars – from gaining ground; and demand on petrol products will also undesirably increase. This has to be stopped by tax hikes and reducing reimbursements.

Péter Zentai: You have been suggesting raising petrol prices by advocating tax hikes on petrol products – in America and the developed world too. The reason why I do not see your point is that cheap energy and petrol were the very things that contributed to the recovery of world and the United States economy…
Jeffrey Frankel
: First, the extra revenue from the tax hikes on petrol could be used on infrastructural – for example, transportation – investments, which are urgently needed, but no sufficient funds are allocated for such purposes from the state budget. If the increased revenues were spent on it, then it would further speed up general recovery. Second, the United States is about to raise interest-rates in order to prevent excess demand. In that case, the extra revenue coming from the increased petrol prices could be used to reduce budget deficit – at least in the United States.

Do you disregard what electric cars and the hybrid technology has achieved? Not to mention the utilization of H-fuel…In your last controversial publication, you mentioned that cheap petrol could pose threats to national security. Why do you think that? The United States is soon becoming absolutely self-sufficient in terms of energy, and Europe is still on the road to exclusively utilize renewable energy sources.
Just because energy supply has become somewhat safer, it does not mean it should not be further improved. Also, there is the danger that low oil price will significantly increase energy consumption in the US and the west. Another risk is – especially in the US – the reimbursement offered to oil-producers.
I believe, reducing energy consumption and decreasing demand on petrol would improve energy security in the US and Europe too.

Even though, these are exciting developments, the percentage of electric, hydrogen, and hybrid cars in world traffic is still relatively low. It is not even sure that these technologies will take over the leading role in traffic. Furthermore, it is still not clear how the electricity that these vehicles use will be generated. If this electricity is generated with coal, which is relevant in countries that still have some coal subsidies, this will not help.

In your recent article, you attacked the subsidy system. You said, reimbursements lead to more social injustices instead of easing them. I think it is the exact opposite: by subsiding basic goods and services, the government helps the poor – it does them justice, if you will.
Reimbursements do have an effect on income distribution, indeed; however, they do not overall decrease social and financial disparities, but increase them. Only less than twenty percent of the reimbursement on petrol affects the poorest twenty percent.
Such compensations make the life of the rich even easier. The poor cannot always afford owning a car; they would rather travel by public transportation or walk.
The world market price of oil has dropped to its half within a year. Only oil-consumer countries made profit from it, while oil-producers suffered losses.
Those using a purely economic approach, exclude environmental and other consequences. By taking such factors into account, it has to be known whether we want oil prices to rise, which decreases consumption, or drop, which lowers production?

Which one do you think is better?
Both objectives should be attained! Oil-consumers should pay more, and producers should receive less from it. This could be achieved by serious tax hikes on petroleum products, and cutting reimbursements on oil production and oil derivatives.
The revenue which is gained from this should be spent on renewing America’s neglected and Europe’s somewhat unsafe infrastructure.