Gas Prices in Costa Rica Reach Record Highs in 2022
March 25, 2022, update: ARESEP approved RECOPE’s request to increase fuel prices. Once the adjustment was published in the official gazette, regular gasoline would cost ₡899 per liter, super gasoline ₡909 per liter, and diesel ₡845 per liter.
Gas prices in Costa Rica were reaching extraordinary levels in March 2022, and there was considerable concern that they could continue climbing as international oil markets reacted to Russia’s invasion of Ukraine. The country had already reached its highest gasoline prices on record at the time, with fuel costing between ₡724 and ₡822 per liter.
The international market is particularly important because Costa Rica imports the petroleum products it consumes. Fuel prices in the country respond to several variables, including the cost at which RECOPE acquires fuel internationally, the exchange rate, the single fuel tax, transportation costs and the commercial margins established for RECOPE and service stations. ARESEP maintains historical information on these components through its fuel-price database.
The price then in force had been established at the beginning of March. RECOPE had justified the increase by pointing to growing international tensions surrounding Russia and Ukraine, even before Russian forces entered Ukraine. The conflict subsequently created substantial disruption and uncertainty in international energy markets.
Regular gasoline, or Plus 91, was priced at ₡804 per liter, while super gasoline had reached ₡822 and diesel ₡724. Those were unprecedented nominal prices for Costa Rican motorists at the time. The last comparable gasoline spike had occurred in 2014, when regular gasoline approached ₡788 per liter.
Another Increase in Gas Prices in Costa Rica
In 2014, instability in international oil markets had contributed to a major gasoline-price spike. In 2022, another international conflict was again placing pressure on the world’s energy markets.
It did not particularly matter whether the fuel Costa Rica purchased came directly from Russia. Petroleum and refined fuels trade in international markets, so a disruption involving one of the world’s major energy producers can affect prices far beyond the countries directly buying Russian fuel.
That was why RECOPE proposed another significant increase to ARESEP, the country’s public-service regulator.
The proposal would take regular gasoline to ₡899 per liter, super gasoline to ₡909, and diesel to ₡845. These prices would establish another record for Costa Rica.
ARESEP is the institution ultimately responsible for setting regulated fuel prices. Its methodology incorporates changes in the cost of fuel as well as other variables such as exchange rates and domestic components of the final pump price. ARESEP’s historical fuel database also allows consumers to review how gasoline and diesel prices have changed over time. (ARESEP fuel-price data)
If approved, the increase would make gasoline approximately 20% more expensive than it had been in February 2022.
That mattered well beyond the amount drivers paid to fill their cars.
Fuel is woven into almost every part of the economy. Trucks transport food and merchandise. Buses carry workers. Agricultural producers operate machinery and move products. Companies pay for deliveries. Consumers ultimately absorb at least some of those additional costs.
With consumer prices already increasing, higher gas prices in Costa Rica threatened to add further pressure to the country’s cost of living.
Why Fuel Prices Affect the Cost of Living
The connection between petroleum and inflation is relatively straightforward.
When diesel becomes more expensive, transporting food from farms and distribution centers becomes more expensive. When gasoline rises, taxis, delivery services and other transportation businesses face higher operating costs. Companies can absorb some of those costs temporarily, but eventually at least part of the increase tends to work its way into consumer prices.
This was particularly significant in early 2022 because fuel was not the only item becoming more expensive.
International transportation, commodities and food prices were already placing pressure on household budgets after the disruptions created by the COVID-19 pandemic. The energy shock caused by the war in Ukraine added another source of uncertainty.
ARESEP itself recognizes international acquisition costs as one of the principal variables affecting what Costa Rican consumers ultimately pay for fuel. Taxes are another major component, along with transportation and commercial margins.
RECOPE submitted its request on March 11, and ARESEP subsequently approved the adjustment.
At the time the request was filed, there was at least some hope that international oil prices could begin falling. Oil markets had already experienced a pullback following the initial spike generated by the conflict. But international petroleum prices are volatile, particularly during major geopolitical events, and predicting whether those decreases would continue was difficult.
What Do RECOPE and ARESEP Actually Do?
The distinction between RECOPE and ARESEP is important because the two institutions have different roles.
RECOPE is responsible for importing and supplying the petroleum products required by the Costa Rican market. ARESEP, however, is the regulatory authority responsible for establishing the prices consumers pay for regulated fuels.
In later explanations of the system, ARESEP emphasized that it—not RECOPE—is the entity legally authorized to establish fuel tariffs. RECOPE provides the information concerning fuel acquisition costs that forms part of the regulatory calculation.
In practical terms, RECOPE’s cost of obtaining fuel is a fundamental input, but RECOPE does not simply decide what gasoline should cost at the pump.
The final regulated price incorporates several components.
That distinction matters whenever there is public controversy about gasoline prices because it is tempting to describe RECOPE as simply “raising the price.” The reality is that Costa Rica uses a regulated pricing system in which international costs, taxes, margins and other variables feed into a tariff established by ARESEP.
Government Proposals to Ease Fuel Prices
The rapid increase also raised concerns about public transportation.
Costa Rica’s Public Transport Council warned that another major fuel increase could place substantial financial pressure on public-transport operators. The concern extended well beyond private motorists because hundreds of thousands of Costa Ricans depend on buses and other forms of public transportation.
The government consequently presented measures intended to reduce the impact of rising fuel prices.
One proposal involved freezing adjustments to Costa Rica’s single fuel tax for a period of one year.
The fuel tax represented a substantial portion of the price motorists paid at the pump. ARESEP later reported in May 2022 that the tax accounted for approximately 28% of regular gasoline, 29% of super gasoline and 17% of diesel prices at that point in the year.
The exact percentage changes as the other components of the fuel price move, but the broader point is important: international petroleum prices are not the only reason gasoline costs what it does in Costa Rica.
The final price also incorporates the tax, RECOPE’s commercial margin, the margins associated with service stations and transportation, and other regulated components.
The government was also considering reductions in some RECOPE operating and reinvestment costs as well as changes to the margins associated with transportation and fuel sales.
Another proposal involved temporary tax relief for sectors particularly exposed to rising fuel costs, including cargo transportation, public transportation and agricultural activities.
The objective was to prevent the international energy shock from being transferred entirely to some of the industries most dependent on fuel.
Rising Fuel Prices Become a Political Issue
Not surprisingly, gasoline prices also became an issue during Costa Rica’s 2022 presidential campaign.
The runoff election was scheduled for April 3, only days after the latest fuel increase. Both presidential candidates were therefore being asked how they would respond to the rising cost of gasoline and diesel.
José María Figueres, the National Liberation Party candidate, proposed reducing the single fuel tax by ₡100 per liter.
Rodrigo Chaves, the Social Democratic Progress Party candidate and former finance minister, criticized that proposal on fiscal grounds, arguing that a large reduction in fuel-tax revenue would need to be reconciled with Costa Rica’s existing public-finance situation.
The disagreement illustrated the difficult policy tradeoff created by fuel prices.
Reducing taxes can provide immediate relief to motorists and transportation businesses. But fuel taxes also produce significant public revenue. Cutting them therefore creates another question: whether the government reduces spending, replaces the revenue elsewhere or accepts a larger fiscal deficit.
In March 2022, that debate was particularly sensitive because Costa Rica was simultaneously attempting to stabilize its public finances after years of large deficits and rising debt.
Why Costa Rica Is Vulnerable to International Oil Prices
Costa Rica has an unusual relationship with energy.
The country is internationally known for generating most of its electricity from renewable sources, including hydropower, geothermal, wind and other renewable generation.
But that does not mean Costa Rica is independent from petroleum.
Transportation remains heavily dependent on gasoline and diesel.
Costa Rica therefore can generate electricity largely from domestic renewable resources while still being highly exposed to international petroleum markets whenever people drive cars, trucks transport goods or buses carry passengers.
That is why an international oil shock can have such an immediate effect on the country’s economy.
The price of fuel is not simply an energy story.
It becomes a transportation story, a food-price story, an inflation story and ultimately a cost-of-living story.
The March 2022 Price Increase
By March 25, the uncertainty surrounding RECOPE’s request had been resolved.
ARESEP approved the increase.
Regular gasoline was set to rise to ₡899 per liter, super gasoline to ₡909, and diesel to ₡845 once the new prices became effective following publication.
The figures represented another historic milestone for gas prices in Costa Rica and illustrated how quickly international events could reach Costa Rican consumers.
The country did not have to be directly involved in the war.
It did not have to buy all of its fuel from Russia.
It only had to participate in a global market suddenly experiencing extraordinary uncertainty.
For Costa Ricans and foreign residents alike, the consequences were visible every time the numbers changed on a gas-station pump.
