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Fuel bills: an impending disaster

Sir Ronald Sanders

Sunday, November 25, 2012    

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In the words of the prime minister of Barbados, Freundel Stuart, the annual bill for the importation of fuel in his small Caribbean island of 250,000 people is "wholly untenable". In 2010, the national oil import bill for Barbados was US$393 million. That figure is indicative of the annual oil bill that damages the viability of every Caribbean Community (Caricom) country except Trinidad and Tobago, which is a substantial oil and gas producer.

Prime Minister Stuart has declared that "if not corrected", the oil import bill would become "wholly unaffordable" in his country. The same is true for all other Caricom countries except Trinidad and Tobago and now, to a certain extent, Suriname. The cost of energy is adversely affecting both the manufacturing and service industries and contributing to making the exports of Caribbean companies uncompetitive in the world market.

The situation in the Caribbean reflects the grave condition of the majority of countries in the 54 member states of the Commonwealth of Nations which, in 2011, consumed about three billion barrels of oil (about eight million barrels per day, one-tenth of the world total), with more than half of this for road transportation at a cost of over US$159 billion.

Information about the majority of Commonwealth countries, of which 12 are Caribbean, has been provided in a report by Dr Lewis M Fulton of the University of California Davis. The report, Fuel economy policies could spare Commonwealth governments from an impending transport fuels disaster, is published by the Commonwealth Advisory Bureau at the University of London.

Fulton makes the point that the costs have been rising rapidly "both because of rising demand and rising world oil prices and could double over the coming decade if no action is taken". Describing the situation as "unsustainable", Fulton points out that "about half the Commonwealth's (and the world's) oil is used in transport and oil accounts for about 95 per cent of transport fuel use".

The problem will worsen rapidly in the coming years. Based on projections by the International Energy Agency (IEA), the number of road vehicles and road fuel use in Commonwealth countries could double by 2030 and increase by a factor of four by 2050. With continuing increases in the world price of oil, expenditure on fuel will rise even faster and could approach US$1.5 trillion per year by 2050.

For Commonwealth countries, including its Caribbean members, this huge import bill will amount not only to hundreds of billions of dollars per year in lost foreign exchange, but also to the collapse of some economies.

Having identified the problem, Fulton also sets out a strategy for dealing with it. He recognises that "vibrant transport systems are critical to economic development and healthy functioning of society". The question is how to deliver needed transport services while cutting their negative impacts.

Fulton states that work in which he has been involved at the IEA shows that it is possible to cut the world's road transport energy use by nearly half over the next 40 years, compared to where it would otherwise be, and at very low cost (or potentially even net savings) to society.

So what could Commonwealth countries, including those in the Caribbean, do? Fulton proposes a number of measures. One of them is fuel economy improvement in cars, trucks and motor cycles that would save a great deal of fuel each year. Governments could encourage the use of hybrid vehicles which combine a small electric motor and batteries by applying a lower tariff or value-added tax on their importation. Hybridisation saves around 30 per cent of fuel per kilometre in cars that have it. But hybrid vehicles only represent about two per cent of world car sales today. In the Caribbean, where there is no incentive to focus on hybrid vehicles, the percentage of sales is even lower.

Another measure would be to place a higher tariff or value-added tax on imported vehicles that are "gas guzzlers". This could help to fund incentives for purchases of more efficient cars.

A third measure is for governments to set fuel economy standards. Most of the member countries of the Organisation for Economic Co-operation and Development (OECD) now have mandatory fuel economy or CO2 emission standards. China has also recently adopted similar standards, and India has announced it will do so from 2015. Therefore, at the moment, of the 54 Commonwealth countries only three -- Britain, Cyprus and Malta (because they are European Union members) -- have adopted higher fuel economy standards. The three have benefited from the use of far less fuel per kilometre, thus bringing down their oil costs.

Fulton makes the point that the measures he proposes are by no means exhaustive. He draws attention to the recent IEA Fuel Economy Technology Roadmap and Policy Pathway report, and to a tool kit prepared by the United Nations Environmental Programme and the Global Fuel Economy Initiative (GFEI) which are there to provide support and guidance to governments that are interested in pursuing fuel economy policy development.

Commonwealth countries, including those in the Caribbean, will purchase millions of cars and trucks in the coming two decades, and will drive these vehicles billions of kilometres. As Fulton states, "It will take a lot of fuel to power all this mobility, and the cost of that fuel is startling."

Heeding the warning of Barbados' Prime Minister Stuart, Caribbean governments individually and the Caricom Secretariat should aggressively seek the help of the GFEI to reduce the oil import bill through more efficient road fuel use. This will, at least, free up foreign exchange for critical investment in both domestic and commercial use of oil in the productive sector. Without it, the costs will overwhelm the region, pushing it into more poverty at home and less competitiveness abroad.

Putting this issue on the back burner is to mount up the scale of the disaster into which the majority of Commonwealth countries, including the Caribbean, are now sleep-walking.

Sir Ronald Sanders is a consultant and former Caribbean diplomat

Responses and previous commentaries: www.sirronaldsanders.com

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