The EU is asking it's members to accept a $60 dollar price cap on Russian oil in an attempt to "squeeze Russia's oil revenues":
EU Asks Members to Set Russia Oil-Price Cap at $60 - WSJ
To me it would make more sense to add a "war tax" on Russian products imported into EU, e.g., 30%. The "war tax" would be put on top of the regular price and all of it would be redirected to Ukraine, for non-military purposes only.
This would both "squeeze Russia's oil revenues" and also, if anything is sold, provide extra financial support to Ukraine. They need a lot of humanitarian aid, as well as rebuilding critical civilian infrastructure.
What would be the downside of adding a "war tax" instead of a price cap? I can't think of any, but I suspect there might be some things?
Many nations essentially have 'war taxes' (Tariffs) in place implemented in months following the February invasion. The US, UK and Australia have implemented a 35% tariff on most/all Russian goods that are not outright banned:
Proclamation 10420—Increasing Duties on Certain Articles From the Russian Federation | The American Presidency Project
https://www.gov.uk/guidance/additional-duties-on-goods-originating-in-russia-and-belarus
https://www.foreignminister.gov.au/minister/marise-payne/media-release/australia-impose-tariff-increases-all-imports-russia
Punitive tariffs have an advantage over a price cap in that they can raise revenue, provide a soft cap that can adjust to dramatically different market conditions, and still have the effect of making trade more difficult and likely less profitable for the targeted nation.
However, when wealthy nations apply punitive tariffs to hydrocarbons or other commodities with inelastic demand, this increases inflation for the nation applying the tariffs, as the companies and citizens of the purchasing country must either:
1. Continue to buy the commodities anyway, paying an additional tax to their government
2. Buy from an alternate supplier, by outbidding market price and paying more in transport/shipping due to sudden market distortions. This will come at a premium and could increase the global market price by a smaller margin. This is the same effect as a ban.
2(a) - The targeted can reduce harm to its economy by selling to other market participants at a discount (EG. India, China.) - doing so reduces inflation in those other market participants. The global inflation caused by distortion has some effect in reducing the impact of having to sell to certain players at a discount. However it too is still harmed.
Applying a price cap would be much less flexible. Depending on where the cap sits in relation to 'market' rate, it can become:
1. An effective ban if the cap is too low. This results in an alternate supplier approach per 2 and 2(a) above.
2. Irrelevant if the cap is too high. If the cap is at or higher than market, there is no effect.
3. A potential forced discount by the seller, if targeted correctly. However this is almost a negotiated discount outcome, similar to the way India and China are already buying Russian energy at a steep discount.
The US and Australia have already banned the import of Russian Oil, and the UK and EU had been in the process of implementing a full ban across December 2022 to Feb 2023.
EU sanctions against Russia explained
If the G7 & EU proceed with a price cap mechanism and give themselves permission to proceed with buying oil at a set limited price, then these nations could take advantage of some of the inflation reducing effects that other buyers have been enjoying;
https://www.washingtonpost.com/business/energy/putins-few-oil-buyers-demand-deep-discounts/2022/11/27/
So the current price cap might not significantly harm Russia, and if the G7 decides to go back to buying Russian oil then Russia's price negotiations actually get stronger. But the change could help Europe, and reduce inflationary impacts across the affected countries.
I was thinking that since the oil market is global, Russia would have to lower the price by approx. 30% to get sales in the countries having the "war tax". Unless Russian oil quality is superior. Nobody would pay a higher price for a product if the quality is the same. I guess the main risk would be if other oil producers decided to increase the price, but my thinking was (again) that the oil market is global and therefore they would find it difficult to increase the price in some markets but not in others.
Of course, one effect of this could be that Russia would strive to sell to countries not having the "war tax" to avoid reducing their prices to stay competitive, probably meaning that less Russian oil would be sold in countries having the "war tax". But that would also be considered not a negative since one wants to reduce purchase of Russian oil anyway.
First 6 months of 2022, 80% of cars sold in Norway were electric. The main reason was that fossil fuel cars were heavily taxed, whereas electric cars are exempt from tax. Meaning that the price difference between electric car and fossil car is quite small in Norway. Throw in a few more incentives and people rush to buy electric cars, even if many of them still have a lower range than what most people find comfortable especially in a cold country like Norway (range drops dramatically when it's cold).
Nybilsalget første halvår 2022: God elbilutvikling kan bremses av bompengeforslag | Norsk elbilforening (ntb.no)
(I myself got a Tesla model 3 and I love it -- great car and annual operating costs much lower than for fossil car.)
You're exactly correct on the effect of taxes on buyer behaviour, where appropriate (though more expensive) replacements exist - in this case reducing the competitiveness and hence profit of the targeted seller.
But essential commodity demand is less elastic. Humans across the globe want to be able to drive to work, heat their homes, and have goods trucked into their supermarkets so they don't starve. And we'll pay anything required to make that happen - meaning prices go up the less efficient the market runs.
Other market players are not interested in supporting the West in correcting for this problem with increased hydrocarbon production:
OPEC+ to consider deeper oil output cuts ahead of Russia sanctions and proposed price cap
Personally I think the price cap plan is partly a way for the West to save face and appear to be doing something 'harsh' while actually backtracking what they have been committing to, realising that the market distortion was going to hurt them more than Russia. This also may allow the west to get in on some of that sweet sweet oil discount the Easterners have been enjoying.
Phew. I hope this helps, and not a Wikipedia link in sight!
