The Thai government’s efforts to control energy prices, while appealing to the public short term, are sparking worries about fuel consumption in the long run.
In one of the most recent initiatives, the government extended the diesel price subsidy, underwritten by the Oil Fuel Fund, fixing the retail price at 33 baht per liter until July 31.
The authorities aim to alleviate the financial strain on households and businesses, especially those grappling with the fallout of the pandemic and surging global crude prices following the Russia-Ukraine conflict escalation in 2022.
To address these challenges, the administration led by Prayut Chan-o-cha introduced a diesel excise tax reduction and a subsidy from the Oil Fuel Fund.
The policy to regulate diesel prices has persisted under the Srettha Thavisin administration, even after the expiration of the tax reduction. This compelled authorities to manage diesel retail prices solely via the fund.
In the electricity sector, the government remains cautious about electricity price increases, striving to avoid fluctuations, albeit prolonging the time required to assist the Electricity Generating Authority of Thailand (Egat) in offsetting substantial losses incurred from subsidizing electricity prices impacted by the Russia-Ukraine conflict.
A sector of each power bill supports compensating Egat, contingent upon government policy and public input.
However, prolonged government control over energy prices could hamper corporate investments in upgrading environmentally friendly fuels and impede efforts to promote energy efficiency—an essential aspect of combating climate change.
DELAY IN EURO 5 ADOPTION
A decision by the Energy Ministry that drew criticism was postponing a diesel price increase to transition to higher-quality Euro 5 diesel, initially slated for implementation on January 1, 2024.
While beneficial to diesel consumers, this deferment disappointed oil refinery operators who had invested significantly in enhancing diesel quality.
The delay was termed a setback for the government and marred its image, according to an industry executive.
The advancement toward Euro 5 diesel had been ongoing for years, with oil companies encouraged by authorities to enhance diesel quality.
Refinery operators collectively allocated over 50 billion baht to upgrade facilities and expand production capacity to cater to Euro 5 diesel requirements, intended to replace Euro 4 this year.
The Department of Energy Business announced petrol stations could vend Euro 4 diesel for a few months before its full replacement with Euro 5 diesel.
This was part of broader state efforts to maintain low energy prices for households and businesses throughout 2024, encompassing electricity and oil.
The continuation of energy price subsidies arouses concerns about their negative impact on energy efficiency efforts, essential for addressing climate change, note energy analysts.
Maintaining energy price subsidy schemes in the long run may deter individuals from focusing on saving energy and improving their energy consumption practices—hindering progress towards achieving carbon neutrality and net-zero targets.
While energy subsidies may buoy businesses and individuals in the short term, executives cautioned against the ramifications on long-term energy consumption habits.
Lower energy prices are correlated with increased energy usage, while the absence of subsidies usually leads to heightened awareness of energy utilization.
During the first quarter of this year, gasoline and gasohol consumption dipped by 0.2% to 31.7 million liters per day following the cessation of measures aimed at reducing energy costs imposed by the state.
Subsidies for gasohol and gasoline, enacted through excise tax cuts and state-managed price subsidy programs from November 7 to January 31, 2023, were effective at prompting reduced usage.
The continuous subsidy program in the power sector may dilute focus on energy-saving practices, especially since fossil fuel-fired power plants supply most of the electricity, posing concerns over sustained fossil fuel usage and resulting carbon dioxide emissions.
