Europe balks at $8 a gallon gas

Protests have rocked London, Paris, and other cities across the continent this week.

By , Correspondent of The Christian Science Monitor

Trucks blocking a main London highway, fishermen blockading French ports, Dutch drivers petitioning parliament, Spanish and Italian fishermen voting to strike – Europeans are becoming restless at relentlessly high energy costs.

But what can governments do about oil prices that are six times what they were six years ago? Protesters, experts, and officials disagree substantially on which is the most appropriate course of action.

• Tax relief. European drivers pay the highest gas taxes in the world. In Britain, tax accounts for around 65 percent of the pump price for diesel, which recently topped 130 pence a liter or $9.88 per gallon.

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"Within a matter of weeks we could see a large number of British haulage companies go bankrupt," warns Peter Carroll, a truck-business owner whose fuel bill has jumped almost 50 percent since October. "There should be a rebate for essential users. It already applies to bus companies. It would cost money in the short term, but it will keep alive an industry."

Chancellor Alistair Darling has promised to review a fuel tax hike planned for October. But that might be too little too late. "It isn't going to make a great deal of difference," says Jonathan Loynes, an economist. "It's only 2 pence, which pales in significance compared with the rises we have seen."

French president Nicolas Sarkozy has called for European Union (EU) cuts in fuel sales taxes to help consumers, noting that as fuel prices have shot up, so has the tax take. But the EU objects. It argues this would drain public coffers and merely benefit oil producers.

"The European Commission considers this to be extremely dangerous, because it sends a very negative message to producing countries to say they can raise prices because we will counteract that with [lower] taxes," says Ferran Tarradellas, a spokesman for EU energy commissioner Andris Piebalgs.

• Diversify supplies. Mr. Piebalgs recently visited Turkmenistan in a mission to source more gas from the former Soviet republic.

Analysts are skeptical about this. Julian Lee, senior analyst at the Centre for Global Energy Studies in London, says: "With a country like Turkmenistan, the real difficulty is the logistics of getting supplies to Europe – you have to cross Russia, or Iran, or the Caspian Sea."

Europe is also trying to switch to renewable and alternative fuels. "We are trying to diversify sources of energy, trying to use second-generation biofuels, moving towards electric cars for hydrogen," notes Mr. Tarradellas. A sound idea, say analysts. But there's one problem: it won't make a significant difference to supplies for years.

• Increase oil output. Gordon Brown has called on OPEC to open the taps. "There's no sign that OPEC is willing to do that," says Mr. Lee. "And there's no company operating in the North Sea that would be producing below capacity with this level of oil prices."

There are no easy answers, but failure to act will likely unleash more angry protests. French fishermen shot flares Thursday at police while farmers blocked oil terminals. In Britain, Mr. Carroll says truck drivers are ready to block refineries, causing gas shortages. "I'm committed to lawful protest, but some firms don't see the wider picture and we'll be going back to 2000 when you saw people outside oil refineries."

Ultimately, governments may prosper from sitting tight. Some analysts see oil prices falling in the next couple of years, easing conditions for consumers. "We're already seeing the demand side reacting and if we get a deep recession in the US and that has a knock-on effect on Asia, then we will start to see a swing back" away from exorbitant oil prices, says Lee.

Global gas prices

Most expensive places to buy gas, in US dollars per gallon:

1. Eritrea $9.58

2. Norway $8.73

3. Britain $8.38

4. Netherlands $8.37

5. Monaco $8.31

6. Iceland $8.28

7. Belgium $8.22

8. France $8.07

9. Germany $7.86

10. Portugal $7.84

108. United States $3.45

Source: Airinc/CNN, based on surveys of 155 countries between March 17 and April 1, 2008.

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