Fuel prices have skyrocketed! We all know that and are concerned about it. There is also an ongoing debate on why fuel prices are increasing. Let’s get some perspective on the same.
Crux of the Matter
Let’s dive into the details by taking a look at the breakdown of the fuel price.
Reasons As Claimed By Minister
Union Petroleum and Natural gas Minister Dharmendra Pradhan remarked the rising fuel prices was due to:
- Reduced Fuel Production
- OPEC+ nations seeking more profits
- Brent Crude rate increased from $40 a barrel to $63.49 since the pandemic.
- Saudi Arabia cut down its daily production by a million barrels to shoot oil prices
- 85% of India’s total fuel consumption is imported.
- Experts say, the Govt promptly passes the base price hike to the retail customers.
- However, when oil prices reduced during the pandemic, the benefit was not passed.
- In April 2020, petrol stood at ₹69.59/litre, while the base price was ₹27.96/litre.
- In economics, the Jevons paradox occurs when technological progress or government policy increases the efficiency with which a resource is used, but the rate of consumption of that resource rises due to increasing demand. However, governments and environmentalists generally assume that efficiency gains will lower resource consumption, ignoring the possibility of the paradox arising.
- In conservation and energy economics, the rebound effect (or take-back effect) is the reduction in expected gains from new technologies that increase the efficiency of resource use, because of behavioural or other systemic responses. These responses usually tend to offset the beneficial effects of the new technology or other measures are taken. For instance, if a 5% improvement in vehicle fuel efficiency results in only a 2% drop in fuel use, there is a 60% rebound effect. The ‘missing’ 3% might have been consumed by driving faster or further than before.
- An ecotax is a tax levied on activities that are considered to be harmful to the environment and are intended to promote environmentally friendly activities via economic incentives. Such a policy can complement or avert the need for regulatory approaches. Ecotaxes address the failure of free markets to consider environmental impacts.