FOR a long time, Jamaica’s policy on the importation of cars has been irrational. Due to quota restrictions in the two decades up to 1990, cars effectively became a “luxury” item, the justification being to conserve scarce foreign exchange. In addition, by reducing the number of cars on the road, it was thought that we would conserve on the consumption of oil. The fallacy of such a view is quickly obvious if we take it to its theoretical extreme. Indeed, we need to look no further than Cuba to find a real live example, where not too long ago, most of the cars on the road in Cuba were from before the revolution. Such a policy of restriction reduces economic growth, and foreign exchange earnings. The Cubans have clearly realised this, in that for more than a decade, they have imported new cars as taxis for their tourist industry.

Jamaica’s quotas were replaced by very high import duties on cars. Overly high duties still discourage the growth of the transportation sector, reducing overall economic growth. For example, take the case of Jamaica’s rent a car industry. Over its lifetime, a rent a car vehicle will produce at least two to three times the value of the imported vehicle in terms of foreign exchange, with a tourist customer paying for his gas in US dollars. Jamaica receives nearly 2,000,000 land based tourists a year, but according to the U-drive (rent a car) association this is serviced by a current fleet of a measly 2,500 cars. Clearly, the high price of cars is restricting the size of the rent a car industry.

Car ownership and energy consumption should be expected to rise with economic growth. In fact, the key conundrum that we need to answer in Jamaica is why our energy consumption has risen despite negligible economic growth over the past two decades. The likely answer is several decades of poor energy and transport policy. Like the Americans, we were reluctant to tax gas, despite having no oil of our own, a policy that has encouraged excess consumption in both countries. Transportation, according to an article entitled Clean energy: an imperative for the future of the Caribbean by Dr Raymond Wright in Trinidad’s Business Journal, accounted for 37 per cent of total petroleum consumption in 2008.

Another explanation of the greater than expected rise in energy consumption on transportation (without the normal economic growth) are the unintended long-term consequences of how car imports were liberalised. Overall duties remained very high after liberalisation, with a customer paying for the equivalent of two to three cars if he bought a new car. Thus, the vast majority of consumers were forced to buy used cars due to affordability. Unlike virtually all other countries in the world, for the past 20 years the number of used cars imported continues to be a multiple of the number of new cars. This automatically increased the age of the overall motor vehicle fleet, guaranteeing high (and increasing) fuel consumption per vehicle.

Jamaica’s energy policy should be to improve the quality of Jamaica’s fleet to meet the objectives of Jamaica’s new energy policy, namely that of “efficiency, improvement and energy diversification…. high quality, affordable, environmentally friendly energy”, to quote Dr Raymond Wright again. This can only occur through new investment.

We have been reluctant to lower duties because we believed that the car market had to be rigged to prevent an import mix change to large inefficient cars like the US. This scenario supposes that everybody will buy a gas guzzler if we lower import duties. Consumers are smarter than this however, both in Jamaica and the US As economic theory predicts, they respond to incentives, and balance the total cost of ownership. The proof is that over the past two years as the price of oil (and the taxation of gas rose), the consumption of oil by the transportation sector has declined. Thus, the increase in price of gas has had the expected effect of encouraging conservation.

A reduction in the abnormal duty faced by the car industry would allow greater economic growth, improve energy efficiency, and promote greater environmental sustainability. The current duty structure is backward looking, encouraging a continued aging of the transport fleet, and takes no account of future technological improvements. In his recent speech at the opening of ATL Autohaus, Adam Stewart noted that at the rate at which technology is advancing, buying a car will become “like buying a laptop, in two months its outdated. We have cars in this showroom here manufactured by Volkswagen and Honda that are 50-60 per cent more efficient than cars that are three years old on that road.”

The Consumer Federation of America agrees, suggesting a target of 38 miles per gallon by 2016 (rather than the expected 34 miles per gallon currently planned by the US administration), and recommending a target of 60 miles per gallon by 2025. Such targets may even be conservative in the light of new developments with more environmentally friendly “clean fuels”. Technological change is only going to accelerate. The benefits of such change will only be available to Jamaica if we make new investments in transport, however, which are currently discouraged by our excessive rates of duty.