State should urge citizens to learn to conserve energy
Here we go again. Crude oil hit a record high of 75.35 dollars per barrel on April 21, prompting forecasters to raise the average oil price for the year considerably. This is not good news for Greece, one of the most oil-dependent countries in the eurozone, since higher and more volatile oil prices add to inflation, trim economic growth and may delay government plans to raise more revenues via a gradual increase in the consumption tax on fuel. But looking down the road, the higher oil prices may be a blessing in disguise because they may induce the country to become more energy efficient and less oil dependent. A combination of strong demand for oil, supported by a healthy world GDP (gross domestic product) growth and concerns about rising geopolitical risks, centered on Iran and Nigeria, have helped drive crude oil prices more than 30 percent higher than a year ago. The market consensus appears to have moved the average oil price yardstick higher by 5 to 6 dollars, ranging between 65 and 70 dollars per barrel for 2006, an unwelcome development for oil-importing countries such as Greece. Economists have long noticed that there is a positive correlation between higher world oil prices and Greek headline inflation and a negative one between higher fuel prices and GDP growth. Estimates say average inflation would have been lower by about 1.2 percentage points last year if it were not for the higher gasoline and heating oil prices. In addition, GDP growth would have been 0.3 to 0.4 percentage points higher. Headline inflation averaged 3.5 percent in 2005 from 2.9 percent a year earlier while core inflation, which does not include volatile fuel and fresh produce prices, eased to 3.1 percent from 3.3 percent just as the average price of oil went up to 54.4 dollars per barrel from 38.2 dollars in 2004. The economy grew by 3.7 percent in 2005 compared to 4.7 percent in 2004. The effect of higher oil prices on inflation and GDP growth should not have been much different among the EU countries that share the euro as a common currency. However, this is not the case. Although other eurozone countries are also importing oil, Greece appears to be among the most vulnerable because it is less energy efficient and depends more on oil than others. European Commission statistics show the Greek economy is more energy intensive than the EU-25 average and definitely more than most other eurozone countries. The picture improves when energy intensity figures are adjusted for differences in the purchasing power of incomes in the member states. This is not to say that no progress has been made in Greece as well as the rest of the eurozone during the last decade or so. Energy intensity for the whole economy, defined as the ratio of GDP to energy consumption, has decreased. However, this appears to be more the result of faster GDP growth than anything else since economists such as Plato Monokroussos of EFG Eurobank Ergasias point out that almost all Greek economic sectors spend more money on energy in absolute terms than before. Still, higher oil prices cause more damage to the Greek economy compared to its eurozone peers, producing a higher inflation which keeps on undermining its cost competitiveness relative to its main competitors in international markets. It is therefore no coincidence that the country’s international competitiveness was hurt more than others last year when the average price of oil shot up almost 16 dollars to about 55 dollars per barrel. In addition to higher prices, the higher volatility of oil appears to hurt economic growth by creating uncertainty which discourages businesses from undertaking investments in plant and equipment. Nevertheless, this unwelcome development of higher and more volatile oil prices, which is alarming in the short run, could turn into a bonanza into the medium to long term if the state grabs the opportunity to put in place an energy-efficiency policy and embark on a campaign to inform consumers of ways to save energy and elevate their living standards. Given Greece’s higher dependence on oil and its higher energy intensity, these initiatives should have a bigger positive effect than in other eurozone countries. Educating local consumers to correctly use the thermostats in their houses to limit heat loss is one example. Using light bulbs which use less energy for the same brightness, or replacing a house boiler with a new one consuming less energy, are a couple more examples. With more and more people feeling the pinch of higher fuel prices, this information campaign should be a success and may be partly funded by EU money. After all, it is in line with the EU’s objective to reduce greenhouse gas emissions and also fits well with the concept of the security of energy supplies in the future. But a bigger bet for Greece to be less dependence on oil is the encouragement of new investments by private businesses in new, environment-friendly technologies to produce energy. Renewable energy sources should be a priority for a country blessed with a lot of sun and wind. But these investments may not materialize as long as a company needs numerous documents and two or three years to get a license to operate a plant just to discover later that the project has been blocked by a decision of the State Council following a petition by local citizens. So, cutting the red tape and preparing undisputed plans for the use of land in targeted areas for such investments by the Public Works Ministry may be more important than subsidies and other financial incentives offered by the state since a good deal of large foreign and local firms are interested. A recent bill aims to facilitate such investments but industry experts say it still falls short of expectations. Greece should turn its current disadvantage as an oil importer into a medium-term advantage by promoting policies which make it less dependent on oil and more energy efficient.
