Fuel Prices are on the Rise in Portugal

According to the Regulatory Entity of Energetic Services (ERSE), prices of gasoline have risen on average 17 cents per litter while those of diesel 20 cents per litter (Público, 2022). To a Portuguese citizen, this means gasoline and diesel prices were, at the end of the last year respectively, 17 and 7 cents above the European Union (EU) average (Público, 2022).

To analyze this real effort for the Portuguese families compared to the EU counterparts, we must take into consideration the median equivalized net income (the result obtained by dividing the income of each household by its size in terms of equivalent adults): the Portuguese people, according to the Eurostat, have 56% of the European Union average. (Eurostat, 2022). This means that the impact of gasoline and diesel expenses for families that depend heavily on cars to commute regularly takes on a larger portion of the average Portuguese household income when compared to the average European Union household.

In the last semester of 2021, the taxes on gasoline amounted to 57% in Portugal compared to 53% of the EU, on average. Other countries such as the Portuguese neighbor, Spain, have gasoline taxes amounting to 49%. Despite Spain having an average final price of gasoline 16 cents below the Portuguese one, before taxes, the price of gasoline in Portugal is 1.3 cents per litter below the Spanish one. Concerning Diesel, at the end of 2021, the taxes in Portugal amounted to 52% compared to the EU average of 48% and Spain 45% (Público, 2022).

The impacts that this growth in prices of gasoline and diesel have on the consumption of both products can be measured in economic terms with the price elasticity of both products, with a more elastic good meaning that its consumption is more affected by price changes than a less elastic one. It’s quite consensual between economists that gasoline and diesel are quite inelastic goods. According to the U.S. Energy Information Administration, in the U.S., “the price elasticity of motor gasoline is currently estimated to be in the range of -0.02 to -0.04 in the short term, meaning it takes a 25% to 50% decrease in the price of gasoline to raise automobile travel 1%” (EIA, 2014) and this is rather expectable. If, for example, a person depends on the car to commute daily for work or school that otherwise would take hours to do, it’s reasonable to say that the person will continue to use the car daily even if the prices of gasoline (or diesel) increase. This small elasticity is also partly what explains the large burden of taxes these goods are subject to, since governments can raise funds by taxing those products without the decrease of their consumption.

In the end, Portuguese families will have a larger burden on their household incomes with the increases in prices of gasoline and diesel, so it’s important to look for alternatives and measures to alleviate this burden and reduce negative externalities (such as climate change) both in the short-term and in the future. 

References:

Eurostat (2022). Mean and median income by household type – EU-SILC and ECHP surveys. [online] Available at: <https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_di04> [Accessed 18 February 2022].

Morris, M., (2022). Gasoline prices tend to have little effect on demand for car travel. [online] Eia.gov. Available at: <https://www.eia.gov/todayinenergy/detail.php?id=19191> [Accessed 18 February 2022].

PÚBLICO (2022). Gasolina sobe 17 cêntimos e gasóleo 20 cêntimos ao longo de 2021. [online] Available at: <https://www.publico.pt/2022/02/09/economia/noticia/gasolina-sobe-17-centimos-gasoleo-20-centimos-longo-2021-1994796> [Accessed 18 February 2022].

PÚBLICO (2022). Litro de gasolina em Portugal ficou 17 cêntimos acima da média da UE no final de 2021. [online] Available at: <https://www.publico.pt/2022/02/07/economia/noticia/litro-gasolina-portugal-ficou-17-centimos-acima-media-ue-final-2021-1994545> [Accessed 18 February 2022].