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Wanna Argument?
September 2000 Fuel Crisis
Tax and Farmers
In fact, farmers already get a big subsidy on the diesel they use to power tractors and other farm vehicles. 'Red diesel' as it is called (because it is actually tinged red) is delivered direct to the farm at a massively reduced rate of tax. It costs them only 24p per litre, compared with the 80p per litre that other diesel users pay. This subsidy costs us £250 million a
year.
Some observers of the recent fuel protests have remarked on the lack of regard for the environment that is exemplified by the British motorist's seemingly unquenchable thirst for petrol. Britain is clearly a car-based society and also one that has benefited from large reserves of North Sea oil. But need the economy be so dependent upon petroleum? A useful contrast is provided by
the attitude of Norway to the use of petrol.
Like Britain, Norway has been able to rely on the discovery of oil fields around its coastline. Unlike Britain, though, Norway has used the revenues from fossil fuel extraction (unsustainable in the medium to long term), to invest heavily in public transport, infrastructure and alternative energies (sustainable over the long-run).
The results for Norway are seen in the construction of new train lines to connect the country's often remote communities. There has also been large investment in hydro-electric power on its North Sea coast. The OECD recently pointed to Norway's ability to withstand the effects of oil price changes. The Norwegian Government highlights that: 'Norway's petroleum wealth
is being converted into financial assets….to safeguard Norway's welfare state.'
What chance the UK adopting this approach (so-called 'generational accounting') - or is it already too late?
Externalities and the Environment:
The optimum equilibrium for society would be where the marginal social cost is equal to the marginal social benefit (Q!). However, a free market left to itself will produce where the marginal private cost is equal to the marginal private benefit (Q^). If there are negative externalities in consumption, a private market will therefore tend to over-provide a good.
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