There is a popular saying about "forgetting the pain once the wound heals." It aptly describes the goldfish-like memory of policymakers who fail to learn from past mistakes. The Lai administration's recent decision to implement "gradual price increases" for fuel exemplifies this type of fundamentally flawed governance.
As conflicts in theMiddle Eastescalate, global energy prices have soared. Crude oil has surged past$100 per barrel, recently touching $118. Last week, U.S. crude futures jumped 35%—the largest single-week gain since 1983—while global oil prices rose more than 20%. Under Taiwan's weekly fuel pricing formula, domestic fuel prices should have increased by more than NT$3 per liter, according to expert estimates. Instead, the government intervened, capping the increase at just NT$1.50 per liter for gasoline and NT$1.10 for diesel.
The administration justified this "gradual increase" as a necessary measure to stabilize prices and minimize the impact on the public. While this reasoning sounds compassionate, from a long-term macroeconomic perspective, it is a dangerous misstep.
The Illusion of Compassion
Because Taiwan's energy sector operates primarily under state ownership, any price controls—whether branded as "gradual increases" or "price freezes"—are ultimately absorbed by the national treasury. This creates three distinct structural problems.
Most notably, it violates the user-pays principle. In essence, all taxpayers are forced to subsidize energy users, regardless of individual consumption levels.
Secondly, it encourages waste. When prices are artificially suppressed below market realities, the natural economic mechanism that discourages excessive consumption is disabled, removing all incentives for energy conservation.
Finally, it drives regressive wealth redistribution. These subsidies inevitably benefit heavy users the most. Large corporations and wealthy individuals receive far more financial relief than ordinary citizens, violating basic principles of social equity.
A High-Stakes Geopolitical Gamble
Government subsidies of this nature are rarely sustainable. They eventually become financially untenable unless international energy prices decline swiftly. However, the trajectory of the Middle Eastern conflicts triggered by U.S.-Iran tensions remains highly volatile.
In a best-case scenario, hostilities would resolve quickly, the Strait of Hormuz would remain open, and Qatari natural gas exports would normalize. But far worse developments could unfold. If U.S.-Iran hostilities escalate into prolonged ground warfare, draw in neighboring countries, or damage vital energy infrastructure, oil prices could skyrocket toward worst-case predictions of $240 per barrel. By implementing price controls now, the Lai administration is exhausting its fiscal buffers at the very beginning of what could be a prolonged global energy crisis.
Repeating Past Mistakes
Most puzzling is the Democratic Progressive Party (DPP) government's apparent amnesia. Just a few years ago, the Tsai Ing-wen administration implemented similar fuel and electricity price freezes when the Russia-Ukraine war sent energy markets reeling.
Those policies forced Taiwan's state-owned utilities to absorb catastrophic losses. Despite multiple electricity rate adjustments and hundreds of billions in government capital injections since then, Taipower still carries an accumulated deficit of NT$350 billion, while CPC Corporation's losses exceed NT$80 billion. The DPP's misguided price freeze policies blew massive holes in both companies' balance sheets—holes that remain unfilled even as the Lai administration threatens to deepen them.
CPC, which posted NT$9.1 billion in losses last year, had projected a return to profitability this year. That target of NT$8 billion in earnings was based on oil prices remaining between $55 and $65 per barrel. With crude now doubling those projections, continuous price controls guarantee CPC will face another year of massive hemorrhaging.
A Dangerous Precedent for the Power Grid
Even more concerning is the administration's mindset of intervention disguised as public welfare. Today's fuel price controls at CPC will inevitably become tomorrow's demands for the company to absorb rising natural gas costs, forcing Taipower to swallow the international price hikes.
This approach is particularly reckless given the government's broader energy policy, which makes natural gas—the most volatile and price-sensitive fossil fuel on the market—the cornerstone of domestic power generation, targeting 50% of the island's energy mix.
While politicians who implement price freezes often claim to serve the public, they are more frequently serving their own electoral interests. Spikes at the gas pump create immediate public backlash, whereas spending vast, unseen budgets to bail out utility companies remains largely invisible to the average voter. Before doubling down on price controls, the Lai administration should look at the devastated balance sheets of Taiwan's state-owned utilities and seriously consider whether this policy is truly serving the nation's future. （Related： Beijing's Silent Skies: A Strategic Pause Ahead of the Trump-Xi Summit? ｜ Latest ）
Original Article in Chinese
