Malcolm Turnbull may think that cutting petrol excise is bad policy. But he doesn’t mind indulging in yet more petrol-price populism:
Mr Turnbull also signalled the Coalition could move to exclude petrol from the emissions trading scheme, due to start in 2010, which puts a price on carbon emissions.
Instead of placing a carbon tax on petrol the Coalition would support stronger vehicle emissions standards.
“I am very sympathetically inclined to following the precedent in other countries … with liquid fuels used in transportation, we can get a better result by encouraging and driving greater fuel efficiencies,” Mr Turnbull said.
In other words, he’s proposing something akin to the CAFE fuel efficiency scheme in the USA. It’s about as far away from economic orthodoxy as you can get.
The CAFE scheme is better than nothing, but it has myriad flaws as a way of cutting CO2 emissions (not least of which it does nothing about the amount of driving people do). The vast majority of expert economic opinion suggests that if you’re serious about cutting greenhouse emissions, the best way to do it is make emitting carbon costly, and let the market sort out where to make the cuts. Ross Garnaut’s draft emissions trading scheme report lays it out in black and white:
Coverage of an ETS should be as broad as possible, within practical constraints imposed by measurability and transaction costs. This is desirable in order to provide an incentive for emissions reductions in all sectors, maximise market liquidity, to minimise the costs of an ETS, and to avoid distortions that may result from the exclusion of particular gases or sectors.
If Turnbull wants to be seen as serious on greenhouse emissions and committed to “economic credibility” (or at least economic orthodoxy), he might care to pay attention.
Very disappointing. So instead of at least letting market forces work, he would rather micromanage cars. With one hand the State gives (or to be precise, exempts) but it takes away with an even clumsier hand.
Turnbull’s a wanker. We should all buy shares in Gillette. BTW, oil has hit US$130/barrel. It was around US$26/barrel in 2000. The Libtards should start doing the maths re petrol prices.
Of course petrol should be part of the ETS but anything that raises the price of petrol is politically impossible at the moment.
If (when?) oil goes to $300/bbl not only will the politicians abolish all taxes on liquid fuel, they’ll start proposing fuel subsidies as well.
FYI: jane WTI hit $134 overnight, and Tapis crude (where our crude comes from) is just shy of $141 USD.
At $300/bbl you won’t have to worry about carbon emissions from motor vehicles, it’ll be the civil unrest you have to worry about.
I don’t think so. $300/bbl is probably the equivalent of $2.50/L at the pump, given that the AUD will most likely continue to rise against the USD. They’re already paying that in Europe and there’s no rioting on the streets (well not much anyway).
In fact, I really don’t think $2.50/L will change driving habits that much. There will be a lot of hand-wringing, whingeing and complaining, and it will put a rocket under inflation, but we’ll keep driving.
It’s not driving habits to worry about, carbonsink. It’ll be the price of everything you have to buy that’s driven to the shop, and the destruction of every piece of the economy that depends on the price of fuel. You might be able to drive to the bakery, but it’ll be shut.
…then again, on the upside, Peter Garrett won’t have to worry about plastic bag policy any more. Supermarkets will stop using them.
Somethings missing here. The crazy statements of Nelson to cut petrol excise has distracted attention away from the fact that no budget statement I am aware of has clarified the position of compressed natural gas CNG being kept excise free. Pump prices for CNG could reasonably be expected to be 75 cents per liter equivalent which is a clear and simple answer to the current oil price escalation. Discussions of petrol excise are distracting attention away from the fact that Australia is not providing incentives for clean alternatives to petrol and diesel.
There is nothing particularly complex about the transition to CNG or Hydrogen – but it would be helpful if the government showed some leadership on this one sooner rather than later:
http://rosettamoon.copley.org.au/?p=138
Petrol is already $2.50/L in Europe and I think you’ll find the bakeries are still open
As I said, its going to put a rocket under inflation, but never fear, the “inflation targeters” at the RBA will thump us with a few more interest rate rises to keep inflation under control. How they think interest rate rises will help reduce the price of crude I really don’t know.
CNG is a good medium term transport fuel option for Australia: Its clean and we have plenty of it (providing we don’t flog it all to the Chinese). People will lose bit of boot space and they’ll have to get used to different pumps, but that’s a small price to pay to keep motoring. It sure as hell won’t stay at 75c/L though.
Oh except that hydrogen is an energy carrier and not an energy source.
Not to mention extremely tricky to store and handle. I prefer the electric solution myself.
I’m planning on getting one of these or these in the next couple of weeks. I wanted one like this but the importers are having trouble getting it certified under the Australian Design Rules. That’s another thing Kevvy boy needs to fix.
Liam: the cost of fuel makes up a relatively small part of the cost of most consumer products and services – incidentally, one of the reasons why I don’t buy the whole “peak oil means we’re doomed” stuff. John Quiggin has made this point repeatedly over at his blog.
Interestingly, in spite of the very high price of road fuels in Europe (compared to here in Australia), the level of vehicle ownership and the number of vehicle movements are still quite high. What is affected is the nature of those vehicles. Hence, very few European V8s outside the prestige brands, but zillions of genuinely small (rather than Australian small) hatchbacks, many with superb little advanced turbo diesels whose fuel efficiency shows up hybrids like the Prius as the overpriced, over complex dead ends that they are.
Australia is so far behind World’s Best Practice (to use a phrase which I loathe) in vehicle technology, both passenger and commercial, it’s not funny. We’re probably even worse when it comes to transport systems as a whole. This wouldn’t be quite so bad if we realised it at some kind of national level, but we seem to remain blind to our failings and keep slapping ourselves on the back about how good at it all we are.
So our ports and rail system (genuinely efficient means of moving stuff) fall into further and further disrepair, whilst buckets of government money go into propping up car plants whose main products are overweight dinosaurs powered by engines whose basic designs would have been outdated in 1975.
I’m a long time petrol-head. On a visceral level, I love big, thirsty, low-tech, eyeball flattening V8s. But even I can see that the way forward for road transport has to include drastic improvements in efficiency. And that is assuming that individual motorised transport is sustainable in any form, which, long term, is a doubtful proposition.
If higher fuel costs initiate a drive to cut waste, that might be a start.
Just been to the UK, and it’s not just the kind of vehicles that are different, it’s the style of driving. It’s rare to see the hoons that are commonplace on our roads, and who drive as though petrol was 50 cents a litre.
If increased petrol prices serve to moderate the behaviour of these idiots, that’s at least one benefit.
That infrastructure fund better invest in public transport! Do a Google on “trolleybusses” a public transport system that offers huge energy efficiency and a very smooth ride–I used to catch the trolley busses down Port Rd here in Adelaide and I still remember how comfortable they were!
TIB, the hybrid approach is certainly an overly complex and expensive solution compared with the little euro diesel hatches, but it could be your best hope for prolonging the lifespan of petrol head culture – it’s currently the only way of giving large, powerful cars a mileage performance equivalent to smallish, sluggish cars.
I’m told anecdotally that the experimental hybrid Commodore back in 2000 (which is presumably sitting in a crate somewhere at the back of the factory at present) was so powerful it worried the engineers.
Tim, I agree that hybrids can be made to perform very well, with better fuel efficiency than a purely ic powered vehicle of comparable size. However, here in Australia, in the mass market, we’ve really only got the Prius, which doesn’t exactly set the world on fire. I gather that rather more exciting models are available overseas.
However, another problem with hybrids in Australia is that the nature of many of our car journeys does not make best use of a hybrid. Hybrids work best in congested urban environments, with lots of stop start operation. Here they excell because they operate principally on their electric motor and, at a standstill, use no fuel and produce no emissions. Out on the highway and over longer distances, however, they become dependent on their ic engine and deliver fuel economy that, although decent for a petrol engine, really isn’t that outstanding. Outside the city centres, a hybrid in Australia isn’t operating at its best.
Our outer suburban vehicle use is much better suited to the super efficient little turbo diesels that Europe favours. Having driven a few, they’re not in the least sluggish, and given a bit of design flair, can be colossal fun to drive. Certainly more so than the V8s I mentioned, in these days of speed cameras and potential instant licence loss. Not much use if you want to tow a boat or a caravan from Perth to Sydney, but, realistically, the majority of cars spend their working lives shuttling one or, at most, two people over the same 20 or less km of bitumen, day in, day out. Not a task which requires 2 tonnes of metal, a 5 litre engine, or, indeed, the cost and complication of a hybrid.
Now, if you’d mentioned plug-in electrics……..
TIB, I actually have a comment awaiting moderation which does mention plug-ins, as it happens (Robert, the comment just has a couple of links to electric scooter sites. Nothing offensive.)
And I certainly would not object to seeing a few more of the European style small cars on Australian roads.
Er, by far the easiest way to give a large car the fuel economy of a small car is to put a diesel in it. Diesels will give Aussies all the lazy torque they so desire in their family Falcodore. The Europeans don’t just build little diesels you know, they put whopping great 5 litre V10 diesels in 4WDs.
The biggest problem with diesel is it will become too popular and demand will push the price up to a point where there’s no hip pocket advantage at the pump.
We may not be doomed but we’re in for a prolonged period of stagflation, and some serious challenges to conventional economic theory. IMNSHO, Quiggin, and most economists, significantly underplay the importance of oil in our economy.
Carbonsink, it would help a lot if you could point to a writeup of the non-conventional economic theory on which you base your claims. I’ve found it hard to get you to engage in terms of conventional theory, or to express your counterclaims in economic terms, conventional or otherwise.
Presumably if you think we are going to have stagflation, you have some kind of macroeconomic model in mind. After all this is clearly a claim about market economies, and not just a general statement that oil is important.
ok, I’ll have a stab at it (high school economics student bravely takes on economics professor)
Theory says as oil prices rise consumers will economise, producers will search for more and (eventually) substitutes will develop.
Economise: certainly.
Search for more: Sure, but the evidence of the past 40 years suggests they won’t find as much as they have in the past, and the oil they do find will be very expensive to extract.
Substitutes: They exist, but they’re all worse for various reasons (oil sands, CTL, biofuels, shale…) There’s certainly no whale-oil-to-petroleum-oil transition imminent. In other words we’re not about to substitute oil because we found something better, like we did with wood-to-coal and coal-to-oil.
I’m completely open to the possiblity that someone might come up with a fusion engine the size of a basketball next week, but it seems unlikely.
In short, the transition will be slow and very painful and be characterised by high inflation, slow growth rates (or recession) and other unforeseen inconveniences.
We’re already seeing conventional economic wisdom being challenged with the current debate about inflation targeting by central banks. Namely, that raising interest rates in Australia can have no effect on world oil prices, and we’ll senselessly drive ourselves into recession (the non-resources sectors anyway)
Joe Stiglitz: The Failure of Inflation Targeting
Henry Thornton: Should the Reserve drop inflation targeting?
Tim Macknay: as somebody who rides a (petrol) scooter, can I suggest you don’t if your commute goes anywhere near traffic.
As I understand it, these things, like 50cc petrol scooters, are dangerously slow – not just in top speed but, I believe, acceleration. Other road users treat them like motorcycles, but they just can’t keep up with traffic.
My suggestion? If you can afford it (and they’re damned expensive) get a Vectrix. If it’s suitable for your commute, an electric bicycle like the Izip Enlightened range. If not, get yourself a 125cc petrol scooter and buy some carbon offsets to compensate.
Better electric scooters are indeed on the way, but the current ones aren’t up to scratch for Australian urban traffic (some of the fastest in the world).
Oh, I forgot to mention other (non fuel/ICE) substitutes such as electric vehicles, which seems to be the most desirable option from a climate change perspective. The main problem here is we’re trying to decarbonise our stationary electricity generation at the same time which in itself is a massive challenge. At the moment 40% of the world’s energy is supplied by oil, and we’ll need to replace that with some form of zero carbon transportation technology
I don’t know much about the Sink v Quigs stoush, but Stiglitz and Thornton arguments are compelling. Not that they Reserve Bank will change there mind. They have invested heavily in the idea of rates rise as a cure all and institutional inertia will see that the policy continues no matter what happens.
Another interesting argument is whether the oil price rise is a bubble or something that will continue subject to only the odd downward adjustment. The Guardian seems to think so. Forbes sez no.
The bubble explanation is appealing mainly because it promises hope the madness will end with a nice crash. But I still have to side with the conventional idea that supply v demand with a little help of irrational speculators is the main problem.
I’m not a car buff. I drive a 1993 Falcon ute gas guzzler (for work and body shape; I can’t afford a new one) and my wife drives a 1985 Subaru Leone. One of my wife’s rellies will only drive Peugeot and reckons he can compete with the Prius.
Googling their latest reveals this little beauty that went around Australia with two people plus luggage at 3.13 litres per 100km (90.75 mpg). Easily beats the Prius!
They were working on fitting it out as a electric plug-in hybrid for release in 2010 I think in combo with Citroen with French Government help but EU competition law has intervened. So now they are going solo in a higher-end, premium model for release in 2011.
Bugger the EU! We were throwing gold coins into a jar to save up for one and save the environment.
Robert, that only applies when you look at the aggregate of all economic activity. But most economic activity in a country like Australia is discretionary in a very real sense.
Fundamental economic activity to do with food, construction, transportation etc are directly effected by oil price rises.
John Quiggin’s number may make oil look unimportant but horse sense will tell you that it is the foundation stone upon which the edifice of the service and information economy rests. City people require only one county person to feed them in this age. But the city economy is not 99 times more important than farmers output. Food (transformed fertiliser) and its carriage is necessary for all the frippery that follows.
On the same basis you and John could argue that water is not important to the economy.
Carbonsink, there’s a big difference between arguments about inflation targeting and arguments about basic price theory.
Inflation targeting is a way of running monetary policy that’s justified mainly on the basis that it has worked reasonably well for the twenty years or so it’s been widely used and criticised mainly on the basis that it’s not working so well now. Abandoning inflation targeting wouldn’t require any big revisions to the standard macroeconomic model. It’s a judgement call about the details of policy.
By contrast, price theory is basic economics. Suppose, for the sake of argument, that there are absolutely no alternatives to oil except worse ones, which would therefore not emerge under a carbon tax. Then reductions in demand (economising) have to do all the work. That would give you bigger cost numbers than the ones I standardly provide, but standard economics still shows that the cost of a 50 per cent reduction in emissions over a decade or two is very small (1 or 2 per cent of national income), and the cost of bigger reductions is manageable.
But in fact of course, there are alternatives, like wind, solar and geothermal that don’t have the problems you mention (these produce electricity and electricity can displace liquid fuel in all but a handful of uses). Simple economic analysis (given many times on my blog) shows that even if these alternatives remain many times as costly as oil, the cost meeting the remaining demand (after the reductions in demand implied by a big increase in price) is still well below 10 per cent of national income (maybe 5 years economic growth).
In this context, complaints about particular characteristics of these sources (reliability and so on) are irrelevant. The costs of adjusting to different supplies are reflected in the numbers that give us the cost estimates. Bear in mind that even the low estimates are in the tens of billions per year, which gives plenty of scope for adjusting to new patterns of load and supply.
Finally you’re left with a claim about adjustment costs, that the costs of the shift will be too great to handle. These claims need to be assessed in the context of fairly complex models (which support the conclusions I reach). To claim the opposite on the basis of a combination of high school economics and intuition, then say “orthodox economics is wrong on this” is not, I think, a responsible way to argue.
I’m not disputing basic price theory, I put forward the debate about inflation targeting as an example of the challenges to conventional economic wisdom that will emerge during a period of very high oil prices.
Ok, my view is yes, economising will have to do most of the work because the alternatives will fail to deliver, at least in the short to medium term. Two further points: 1. There are non-climate change problems with alternatives; with biofuels its competition with food crops, with CTL, oil sands, shale etc, its poor energy return and large energy requirements. All of the liquid fuel alternatives also have problems increasing production at a rate that can match the rate of decline in conventional crude production. 2. The science is now telling us we need 80% reductions in emissions, and if we allow the developing world to expand emissions, the developed world will have to cut by 90% by mid century.
I didn’t say the costs would be too great to handle, that’s the “peak oil we’re doomed” view, I said the transition will be very difficult, characterised by many years of high inflation and sluggish growth.
Regarding adjustment costs: I’ll give you an example of the kinds of problems I suspect are ahead of us. You say we can go 100% renewables for transportation (we could also reduce our dependence on oil with public transport within cities and improved rail between cities). That’s great, but it would require a massive (unprecedented?) infrastructure build out: Massive solar farms, wind farms, geothermal power stations (which incidentally compete with the oil industry for drilling equipment), nuclear power stations, trans-contintental HVDC powerlines, new railways, subways etc. Unfortunately, the heavy machinery of infrastructure-building runs on diesel, diesel which may become fantastically expensive.
We usually end these arguments in “furious agreement”. We agree on the urgency of the problem and the solutions, the sole point of disagreement is how painful the transition will be. I realise I’m talking out of my ar*e here, but there’s a voice at the back of my high school economics brain screaming: This is not going to be easy!
Economists often argue that primary energy production is in long term decline as a share of national income, and therefore is unimportant, but “horse sense” tells you that if you take it away everything falls over.
Excellent point. Water costs us very little at the moment, and makes up a very small part of the cost of most consumer products and services, but its a fundamental requirement for our civilisation.
Both water and oil fall seem to fall into the same category of being cheap and plentiful (until recently anyway) but absolutely cruicial.
Carbonsink,
I agree with you in part on inflation targetting, because the price of fuels is rising. There is a premium on price at the moment due to scarcity of liquid fuels, perceived or otherwise (and water!!). In any case, it must rise to take on cost externalities by pricing in climate damages, and perhaps this shouldn’t be viewed in the same way as supply and demand driven inflation. If we’d had a carbon price brought in over the past few years with compensation for low income earners, it may have been much better for the (Australian) economy than interest rate rises and tax cuts benefiting high earners.
I don’t agree with your bearish take on substitution. If greenhouse was no issue, coal to oil and tar sands would be Thunderbirds Are Go. The task is to substitute with cleaner fuels. To that end, it seems the biggest blocks are institutional and perceived threats to the existing industrial estate. I agree with Prof Quiggin and think if we would address those types of blockage, the economy would do quite nicely, thank you.
In any case, these costs are comparatively low, and when we compare them to the benefits of avoided damages, look like a great deal in my book.
I agree, and because (thankfully) we haven’t attempted a large scale ramp up in CTL thus far we don’t know how well it will scale. We have however tried to ramp up the tar sands, and climate impacts or not, it has proved very problematic:
Athabasca Oil Sands – Economics
Athabasca Oil Sands – Environmental impacts
The main limitations seem to be lacked of skilled labour, water and natural gas.
The furious agreement is basic to this discussion. The disagreement is only a matter of perspective. Peak oil naysayers main focus is getting to the point beyond oil dependence.
Peak oil mongers are just pointing out that it is going to be pretty hard.
All agree it will happen. It’s a question of timing.
Oil at $200 a barrel will already be hard enough for many people living on the outer fringes. And $200 a barrel will come way before any of the promised alternatives. $300 will too.
Most people in China and India haven’t even started using oil yet. The numbers are important here.
Actually there is a company in Australia that wants to introduce CNG at 45 cents per litre. In Utah USA right now, CNG is 63.9 USD cents per US gallon – about 17 or 18 AUD cents per litre.
a v8 F250 truck drove 330 kms for $7.42 USD…
Heres the site : http://www.cngutah.com/index.html
We sell Natural Gas overseas for only a few cents per litre…So theres no Reason why it should be 75 cents per litre here.
If the Govt is thinking about fuel excise on CNG – it would do well to look at what happened in NZ when this occured – Among other things, Their balance of payments deficit dramaticlly increased due to increased oil imports and created interest rate pressure.
see this here : http://fueltaxinquiry.treasury.gov.au/content/Submissions/Industry/Origin_Sup_341.asp