A case for government monopoly on energy prices

By Eugene Lee

Higher utility prices, particularly for heating and gas, have hit us all in recent months. And according to the government, it isn't the end of the matter ― there is a plan to increase the prices even further. It is time to cry foul at this administration's acts as examples of administrative incompetence.

The government's intervention in energy prices (including subsidies, taxes and price controls), particularly oil prices, has always been a normal practice in South Korea. South Korea, which is heavily reliant on oil imports, has been hard hit by rising oil prices since the 1970s oil crisis. In response, the government implemented a number of measures to control the prices, including subsidies for oil imports and restrictions on oil use.

In the 1990s, the South Korean government continued to intervene in energy prices, particularly concerning liquefied petroleum gas (LPG), which is widely used for heating and cooking in South Korea. It came in the form of price controls, subsidies for low-income households and a system of price stabilization funds.

More recently, in the 2000s and 2010s, the government continued with its interventions, particularly in oil and gas prices. For example, in 2008, the government attempted a temporary measure to stabilize the price of gasoline, which involved suspending the fuel tax and lowering the price of gasoline by subsidizing the cost.

In 2018, the government also sought to stabilize the price of diesel fuel. The measure involved temporarily suspending the fuel tax and lowering the price of diesel fuel by subsidizing its cost. The most recent intervention was the temporary suspension of the fuel tax on gasoline.

A look at history shows that the government has been very prudent. It was all to protect the economy from the impact of volatile global energy markets. Even if the nature and extent of these interventions have varied over time, they were often driven by economic and political factors, but ultimately worked for the better.

This involvement isn't just a particular case, other developed countries are heavily interfering in energy markets too. The U.S. government has a long history of intervening in energy prices, particularly in oil prices, since the time of President Roosevelt. During the 1970s oil crisis, price controls, import quotas and subsidies for domestic oil production were the norm. In the last two decades, the government has also given tax incentives and subsidies to promote the development of renewable energy sources, such as wind and solar power.

In the wake of the Ukraine-Russia conflict, the EU has implemented a range of policies to control energy prices and reduce dependence on imported fossil fuels. These policies include a cap-and-trade system for carbon emissions, subsidies and tax incentives for renewable energy, and regulations on energy efficiency.

In Japan, the government has intervened in energy prices, particularly concerning nuclear power. In the wake of the 2011 Fukushima nuclear disaster, the government implemented a temporary ban on nuclear power and implemented measures to promote renewable energy and energy efficiency.

Regardless of the size of the state, its resource base or the structure of its economy, the world's most fuel import-reliant states do intervene in the energy market. As we may see, the extent and nature of these interventions have varied over time and it is often driven by economic and political factors. That is not the case for South Korea with its current administration. Beyond the impact of energy, the Yoon Suk Yeol administration's actions (or rather, inaction) are causing unnecessary suffering to the country and its people, rather than reducing the burden on consumers and promoting economic development.

Perhaps the government could have promoted energy conservation and increased the use of domestic energy sources such as coal and nuclear power in the past. Today's world is very different, and energy issues are very global. Energy is one of the core causes of the Ukraine-Russia conflict. Some foresee a looming Cold-War-like rift between China and the U.S., likely tied to access to energy. The global energy scramble has already started. The Yoon administration must take a proactive approach to manage and meet our nation's energy needs.

As I have written earlier, the economy as we know it is not coming back. In the last couple of years, there has been a qualitative change on several levels. The pandemic and rising cost of labor have driven many out of business. Today, other than households, the biggest impact of higher energy prices is on small and medium-sized businesses, the very fabric of the South Korean economy.

To see factories working, cars running and lights lit, the government must consider all options for the foreseeable future. The goal of the last presidential trip to the Middle East was to establish better ties and bring down energy prices. The question, for me at least, is, was this trip even worth it? Why aren't we seeing any results from it? Why are we even considering investments in "mirage cities" and not in our own energy infrastructure? What was the taxpayer's money being spent on? Maybe we need to look into the trip even deeper. I would even go so far as to suggest that the National Assembly audit the tour in order to prevent any further squandering of national resources.

In the coming months, government utility bills are set to rise yet another 4 percent. Our own bills are likely to follow, even with the much-advertised subsidy. And I'm still wondering how bad it can get. Or should it? Let's do something bigger about it.

Eugene Lee (mreulee@gmail.com) is a lecturing professor at the Graduate School of Governance at Sungkyunkwan University in Seoul. Specializing in international relations and governance, his research and teaching focus on national and regional security, international development, government policies and Northeast and Central Asia.