Higher Fuel and Utility Rates
Taiwan Tightens Its Belt
The effects of rising oil and electricity prices are proving far-reaching and long-lasting, as people from all walks of life in Taiwan enter a new era of energy saving and carbon reduction.
Taiwan Tightens Its BeltBy Sara Wu
From CommonWealth Magazine (vol. 398 )
Starting with the government and expanding to enterprises and individuals, saving energy and cutting carbon dioxide emissions has become an imperative.
On May 27 Taiwan's premier Liu Chao-shiuan announced fuel and electricity price hikes just a few days after taking office. Liu's announcement drew heavy condemnation, so that he felt forced to apologize to the public twice during the following three days.
However, several enterprises came forward supporting the price hikes. Danny Lam Shun-Choi, executive vice president of ING Antai insurance company, defended Liu's move, saying, "The price increases are right, because the prices of oil and raw materials are rising worldwide, so the hikes are a must. If the government wants to do things for the long run, it needs some guts."
Lam, who hails from Hong Kong, is used to high gasoline prices. In the former British colony, diesel prices have already risen to NT$42.2 per liter. This compares to NT$31.9 for one liter of diesel fuel in Taiwan after the price hike. Presently, Taiwan's gasoline and diesel fuel prices are still the lowest in Asia (see Table 1). And electricity is cheaper only in South Korea. Around the world the price for crude oil rose 43 percent between October last year and May this year. But over the past two years, Taiwan's government kept at bay the prices that consumers pay for fuel. As a result state-owned Chinese Petroleum Corp. (CPC) and state utility Taiwan Power Co. (Taipower), which rely on costly fuel imports, reported net losses after tax last year.
It is an undeniable fact that energy prices have been skyrocketing around the globe. In his first policy address in the legislature on May 30, Liu said that two kinds of resources have a decisive influence on Taiwan's development: energy and people. While Taiwan has virtually no energy sources – 99 percent of the island's energy is imported – it has abundant human resources. So Liu pointed out that his government will focus on how to make the best out of these two resources.
Saving Energy Is In Again
Liu hopes to turn crisis into opportunity by pushing for energy conservation and carbon reduction. Cabinet officials gave up their large limousines and switched to smaller cars. Transportation and Communications Minister Mao Chi-kuo even changed to a hybrid motor vehicle. Some officials are now riding bicycles to work. The Legislative Yuan has also begun to adopt measures for comprehensive electricity saving. President Ma Ying-jeou is planning to propose an action plan to make saving energy and reducing carbon dioxide emissions a new way of life. The plan's goal is to radically reduce greenhouse gas emissions and to reach zero growth in oil and power consumption within one year.
The government is setting an example by practicing what it preaches, hoping to encourage others to follow suit and to unleash a popular energy saving drive. But several enterprises have actually been the forerunners of a more economical use of energy and materials.
Fast-food restaurant chain McDonald's has installed smart electricity meters in all its 350 outlets across the island. The new meters are expected to save the company NT$42 million in electricity costs per year. Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest chip foundry, has switched to a smaller size toilet tissue in employee restrooms, which will lower expenses for toilet paper by more than NT$600,000 per year.
Food conglomerate Uni-President Enterprises shaved two grams off the PET bottles used in its Cha Li Won bottled tea beverages. The lighter bottles enable the company to consume 1,120 fewer tons of plastic per year, which translates into an annual cost reduction on the order of NT$56 million. At Eva Airways an energy conservation committee set up by company president Peter Chen has helped the international airline save 12,600 tons of fuel over the past two years.
Saving energy is in again, be it in the national government, in society, in business, or in our individual lives.
But in Taiwan the shift to a less wasteful use of energy and fewer greenhouse emissions has only just begun, because fuel prices are still low compared with international levels. Energy conservation means a long-term adjustment of our lifestyles, instead of short-term solutions.
Will Gasoline Rise to NT$40 per Liter?
Just how much more expensive will fuel and electricity become, now that the new cabinet has announced the price hikes? Who is going to foot the bill? Will higher prices solve Taiwan's pressing needs? Opinions on the issue are utterly divided.
Fuel prices in Taiwan have remained below the international level for more than a decade, but the public is little aware of this and also does not fully understand why this is the case. Since the former Democratic Progressive Party (DPP) government was committed to keeping fuel prices low, its pricing policy was, first, not to raise oil prices higher than 80 percent of international levels and, second, to keep the final price lower than in all other Asian countries. As a result Taiwan's fuel prices are severely distorted. The average oil price in South Korea, Hong Kong and Singapore has already reached the equivalent of NT$48.76 per liter. But even after the price hike, fuel will still only cost NT$33.9 per liter in Taiwan, which amounts to a price gap of more than 40 percent. The new fuel price will still not truly reflect international oil prices.
"Fuel prices in Taiwan should be hiked to NT$40 per liter at once. That wouldn't be too much," concludes Christina Liu, chief economic advisor of Daiwa Institute of Research. "Everyone is unclear what it really means to raise prices sufficiently in a single hike. I wonder now how the government is going to catch up with international oil prices. The only way is to have the government massively subsidize fuel prices, but the negative fallout will be worsening government finances."
Economic Transfusion: Will it Work?
But aside from practicing energy saving and carbon reduction, economic growth will need a shot in the arm if the Taiwanese people hope to live a simple but high-quality life.
Premier Liu is pushing for two polices that are hoped to invigorate the economy, the first being direct flights between Taiwan and China and opening the island to Chinese tourists. The second policy is to expand domestic demand through local public works projects in the hope of boosting annual economic growth to 4.8-5.0 percent.
Chen Tain-jy, chairman of the cabinet-level Council for Economic Planning and Development, hopes that the economy will grow faster than inflation this year. "If economic growth reaches 5 percent this year, it will be greater than the 3.8 percent rise in the consumer price index," he suggests. "Then people will no longer feel that they have to struggle so hard."
Danny Lam of ING Antai is quite positive on direct cross-strait flights and Chinese tourists. He believes that the arrival of Chinese tourists will contribute to raising the income of every Taiwanese citizen.
"Taiwan has a population of just 23 million people. With such a small population, this should not be difficult," says Lam, adding that economic growth in Hong Kong with its 8 million residents soared from 3.2 percent to 8.6 percent in the year after Chinese tourists were allowed to visit the territory in 2003. Scholars and experts largely agree on the strategy of expanding domestic demand, but some question the quality of policymaking as well as the ultimate effects of implementing such policies.
"Expanding domestic demand is the right direction," agrees Liang Kuo-yuan, president of Polaris Research Institute. Analyzing some economic indicators, Liang points out that last year foreign trade (exports minus imports) contributed 70 percent of Taiwan's economic growth rate. This year that share is expected to fall to 25 percent, due to the economic slump in the United States, the island's largest export market. Therefore, domestic demand will play a very important role in generating economic growth.
To cite an example, the opening of the planned metro line that will connect Taipei with Taiwan Taoyuan International Airport is expected to be delayed for two years due to rising costs for steel and other construction materials. But if the government subsidized the project, it could be finished according to schedule.
According to the concept known as the butterfly effect, tiny changes in initial conditions can have far-reaching repercussions. The same goes for rising oil prices and utility rates: Their effects will be felt for a long time.
We can see already now that a new era of energy conservation and carbon reduction has begun for people in Taiwan, from the government at the top, down to the man in the street.
Translated from the Chinese by Susanne Ganz