Sin piombo e gazole

That's "unleaded and diesel" in Italian. I just returned from a very enjoyable week on the shores of Lago Maggiore, where I noticed a couple of things about energy prices. "Sin piombo" is selling there for about 1.55 euros a litre. That's equivalent to about 120p at current exchange rates. This morning I filled up my tank here at home for 116.9p. So complaints from UK drivers that they are paying more than everyone else for the precious fluid are not entirely true. (Actually those complaints come not from drivers but from people who describe themselves as "motorists". A driver is someone who drives a car; a motorist is someone who thinks that Jeremy Clarkson is right about everything and should be made Prime Minister. Motorists should be avoided!)

But here's an interesting thing -- in Italy diesel costs exactly the same as unleaded. That's the case in most of Europe too. At my service station this morning, though, it was 130.9p, about 10% more than unleaded. What's going on here?

There are two explanations, neither of which reflects well on the UK oil industry. The more-or-less official explanation is that the industry (collectively, even though of course they never collude) underestimated the growth in demand for diesel. It's true that use of diesel by private motorists has only taken off relatively recently in the UK, but as it delivers something like 10% more calorific content than petrol, should the industry really have been surprised by that?

The industry claims that the higher price for diesel in the UK simply reflects lack of capacity for producing the stuff (i.e. it's their fault), but as these products trade in open markets, shouldn't the price mechanism redirect diesel supplies toward the highest-price market, the UK? Taxes aside, it should not be possible to sustain a much higher differential between diesel and petrol prices in the UK than exists elsewhere in Europe, yet there is no sign of the gap closing: rather the opposite, in truth. Which leads to the second possible explanation: that the UK industry is charging more for diesel because it can -- i.e., whisper it not, it's gouging.

Whichever explanation is true, the outcome is the same: the UK oil industry is in effect using the price mechanism to discourage demand for the more efficient form of motor fuel. How good is that?

Unions and others are calling for an excess profits tax on UK oil companies. As a general rule, I think such things are a bad idea. But if I had to make a case for an excess profits tax right now, the price of diesel would certainly be where I'd start.