Government attempts to limit energy prices in Thailand may please the public in the short term, but they are raising concerns about fuel consumption over the long term.
Among the latest measures is an extension of the diesel price subsidy, paid for by the Oil Fuel Fund, fixing the retail price at 33 baht a litre until July 31.
Authorities want to ease the financial burden of households and businesses, especially those reeling from the impact of the pandemic and higher global crude prices after Russia's war with Ukraine escalated in 2022.
To deal with these problems, the Prayut Chan-o-cha government offered a diesel excise tax cut and a subsidy from the Oil Fuel Fund.
The policy to control diesel prices has continued under the Srettha Thavisin administration, although the tax cut expired, causing authorities to curb only the retail prices of diesel via the fund.
In the power sector, the government is still cautious with regard to rises in electricity rates, attempting to avoid fluctuation, although this means it will take longer to help the Electricity Generating Authority of Thailand (Egat) settle a substantial loss, accumulated when it subsidised electricity prices that soared as a result of the impact of the Russia-Ukraine war.
A portion of each power bill is used to reimburse Egat, but that portion is dependent on the government's policy and a public hearing.
However, if the government controls energy prices for too long, it may affect company investment in upgrades to the fuels they use for environmental purposes as well as efforts to promote the wise use of energy, a key component in campaigns against climate change.
below Egat is dealing with a huge loss after subsidising power bills. Seksan Rojjanametakun
EURO 5 DELAY
One decision announced by the Energy Ministry that drew criticism was the postponement of an increase in diesel prices as the state wants to use a higher-quality form of diesel that meets the Euro 5 environmental emission standard, which was supposed to be implemented on Jan 1, 2024.
This is good for consumers using diesel, but disappointed oil refinery operators who spent several billion baht developing the quality of diesel, according to an energy executive familiar with the oil and gas trade who requested anonymity.
"The delay marred the image of the government," said the executive.
The development of Euro 5 diesel was initiated many years ago when the authorities encouraged oil companies to invest in improving the quality of diesel.
Refinery operators allocated a combined budget of more than 50 billion baht to upgrade their oil facilities and expand their production capacity, said the Petroleum Refining Industry Club of the Federation of Thai Industries.
They looked forward to selling Euro 5 diesel, which was set to replace Euro 4 on Jan 1 this year. The new fuel would be applied to biodiesel B7 and B20, which are blended with 7% and 20% palm oil-derived methyl ester, respectively.
The Department of Energy Business said in early January petrol stations would be allowed to sell Euro 4 diesel for 3-4 months before it is completely replaced by Euro 5 diesel.
Then Energy Minister Pirapan Salirathavibhaga said later in January the ministry needed to block a request from local refineries to increase the diesel price by 0.5 baht a litre, following the enforcement of the Euro 5 policy.
The move is part of a strenuous state effort to keep energy prices low, including for electricity and oil, for households and businesses throughout 2024.
The energy executive said he understood the reasons behind the decision, but added refiners want clarification regarding the future of the Euro 5 policy in Thailand.
THREAT TO NET ZERO
Subsidising energy prices for a long time also raises concerns over the negative impact on plans to promote efficient energy consumption, which affects campaigns to limit climate change, say energy analysts.
If policymakers prolong energy price subsidy schemes, people will be less concerned about saving energy and ways to improve energy consumption, said Praipol Koomsup, an economist at Thammasat University who was a committee member under former energy minister Narongchai Akrasanee.
"People enjoying low prices for fossil fuel-derived fuels for a long time could slow down efforts to deal with climate change," said Mr Praipol.
"This raises the question of when Thailand will achieve its carbon neutrality and net-zero targets."
Gen Prayut vowed in 2021 at the 26th UN Climate Change Conference that Thailand would be more aggressive in addressing climate change, striving to reach carbon neutrality, a balance between carbon dioxide emissions and absorption, by 2050, along with a net-zero target, a balance between greenhouse gas emissions and absorption, by 2065.
While the subsidies ease the financial burden for businesses and individuals, which may help revive the economy, executives also warned against the long-term impact on people's energy consumption habits.
"If someone tells me to save energy and find ways to be more energy efficient, then controls energy prices at low levels, I am likely to question whether this will convince me," said a former executive of an energy company who requested anonymity.
The lower the energy prices, the higher energy usage will be, said the executive.
In contrast, without subsidies people tend to become more aware of their energy usage.
Consumption of gasoline and gasohol, a mix of gasoline and ethanol, decreased by 0.2% to 31.7 million litres per day during the first quarter of this year, following the end of state measures to reduce energy costs for businesses and individuals.
Egat's coal-fired power plant in Lampang province. Bangkok Post
The price reductions for gasohol and gasoline, ranging from 0.8-2.5 baht per litre, through the use of excise tax cuts and price subsidy programmes managed by the state Oil Fuel Fund were effective between Nov 7 and Jan 31, 2023.
In the power sector, the electricity price subsidy programme might cause people to overlook energy-saving practices, as most electricity is supplied by fossil fuel-fired power plants, said Mr Praipol.
He said he is concerned over the continual usage of fossil fuels, which are one of the main sources of carbon dioxide emissions.
Over the past two decades, policymakers have not launched strong campaigns aimed at promoting energy conservation, preventing people from learning about ways to adjust their lifestyle in order to better manage energy usage, said Mr Praipol.
PINPOINTING GROUPS IN NEED
If the government continues with its energy price subsidy programmes, he said it must be more selective in choosing who receives aid to avoid draining its coffers.
The subsidies should only go to low-income earners, not all individuals, said Mr Praipol.
This approach would enable the authorities to optimise their budget allocation, easing the cost of living for people while also promoting the efficient use of energy, he said.
While populist schemes may appeal to voters, the government needs to be more careful about budget spending for energy price subsidies, which could increase public debt over the long term, said Mr Praipol.
Thailand's public debt was at a low of 35% of GDP in 2005, then gradually rose to an average of 41-42% from 2012 to 2019, according to the Public Debt Management Office.
The public debt increased to 49% of GDP in 2020, then to 62.4% by 2023, said the office.
In January of this year, public debt tallied 62.2% of GDP, rising to 63.4% by May.