KUALA LUMPUR: Tiered pricing mechanisms, similar to existing electricity tariffs, will target subsidies more effectively and incentivise fuel efficiency in withdrawing blanketed government subsidies on fuel.

Appearing on the New Straits Times' podcast, Beyond the Headlines, economist Professor Dr Geoffrey Williams said that the tier pricing approach is much more straightforward than other proposed mechanisms such as with the use of fleet cards.

Direct monitoring of fuel consumption under this method would simply be through tracking purchases at petrol stations.

"Well, when you pump (fuel) it into your car at the petrol station, it tells you at the pump.

"If I go there with my motorbike and I want to put RM5 worth of fuel into it, I will get the full value of the subsidy. I would only pay RM2.05 for RON95, for example, right?

"But then if I go there with my big SUV and I want to pump in hundreds of ringgit worth, the first five ringgit, I will get the full subsidy. Then by the time I'm getting up to 20, 30, RM40 worth, or in terms of the number of litres, I'm getting less and less subsidy the more that I'm buying. So it becomes more expensive the more that I'm buying.

"So if you have a normal, small family car where you're putting in, let's say, 20, RM30 a day, you probably would get pretty much the full subsidy on that. But if you have a big gas guzzling SUV or something like that, then you're putting more petrol in and then you will pay more."

He added that it will also have a secondary effect on people to be more fuel efficient as evidenced by the electricity tariffs that have encouraged people to be more energy efficient.

"With the new electricity tariffs, it also goes with the highest industrial uses. Higher and bigger industrial uses have a lower subsidy on the tariff, on the per kilowatt hour charge. And those who are using less, whether they're small businesses or domestic users, also pay less because they use less.

"Domestically, you're going to then be paying more because you're using more. And the people who use the most tend to be the more wealthy which would make the subsidies better targeted.

"So it (tier pricing) does have a secondary effect, which is to have people monitor their use of electricity. And in the case of petrol and diesel, it would encourage people to be more efficient in their use of fuel and diesel and perhaps even move to electric vehicles, depending on the cost."

On Tuesday, Prime Minister Datuk Seri Anwar Ibrahim announced that the government will implement targeted subsidies on fuel starting with diesel.

Anwar, however, did not indicate the implementation date for the subsidy rationalisation.

He said the subsidy rationalisation exercise would only apply to users in peninsula Malaysia first and not those in Sabah and Sarawak for the time being.

He emphasised the government's commitment to preserving the people's welfare amidst rising living costs.

https://www.nst.com.my/news/nation/2024/05/1054653/economist-tiered-pricing-more-effective-fleet-cards-fuel-subsidy