French fishermen are asking for a cap on gas prices — not more than 40 cents per liter. Imposing a cap on gas prices is costly for taxpayers, inefficient in the long run and it harms the planet. The short-run benefits of such a cap are certainly outweighed by the costs of the policy.
When the government sets a cap on gas prices for the fishing industry, it promises to pay the difference between the actual price and the cap. When the actual price of gas is 60 cents, and the cap is 40 cents, the government is giving fishermen 20 cents per liter. This is the direct cost of gas subsidies, paid by the taxpayer. Another way of setting a cap is to force oil companies to sell at 40 cents. But nothing forces oil companies to offer oil at all. A natural consequence of caps is usually shortages — e.g. Greenspan’s book tells the story of Nixon’s price caps and the resulting national shortages.
And there are other major drawbacks of price caps on gas. Firstly, fishermen should have an incentive to switch to more efficient ways of fishing. Clearly, boats do catch too many fishes — some protected species too — and keeping the price of gas low does not give incentives to improve the accuracy of their techniques. If French fishermen are less efficient than other fishermen — e.g. Spanish — we shouldn’t be subsidizing inefficient fishing techniques.
Secondly, the fishing industry should improve energy consumption and buy more modern and more fuel efficient boats. Carmakers have been developing hybrid cars for a long time. Why shouldn’t boats be fuel efficient? Subsidizing investment in fuel efficient boats is probably a much better way of spending public money. Global warming and CO2 emissions are a major concern, and the fishing industry has to realize the need to curtail emissions.
Finally, gas suppliers can higher their price in reaction to the cap. Their profit would increase — the difference between the actual price and the cap is paid by taxpayers — and fishermen would not consume less gas (they would still pay 40c/litre).
There is a last legal argument: the European commission does not allow sector-specific subsidies. Too bad.
