tag:theconversation.com,2011:/africa/topics/petrol-prices-2878/articlesPetrol prices – The Conversation2023-10-25T04:33:04Ztag:theconversation.com,2011:article/2158882023-10-25T04:33:04Z2023-10-25T04:33:04ZPetrol is holding up inflation – the 7 graphs that show what’s happening to prices and what it will mean for interest rates<figure><img src="https://images.theconversation.com/files/555746/original/file-20231025-25-gw57iy.png?ixlib=rb-1.1.0&rect=198%2C754%2C3071%2C1535&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Today’s figures from the Australian Bureau of Statistics show inflation <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/sep-quarter-2023">fell</a> in the September quarter for the third consecutive quarter. </p>
<p>But petrol prices kept it uncomfortably high.</p>
<p>After reaching a 30-year high of 7.8% at the end of 2022, annual inflation as measured by the quarterly index slid to 7% in the March quarter, fell further to 6% in the June quarter and has now slipped to 5.4% in the September quarter.</p>
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<p>These quarterly results are consistent with the more experimental <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release">monthly measure</a> which also shows annual inflation trending down since December.</p>
<p>On that measure annual inflation has been broadly falling since December, but has been climbing since it hit a low of 4.9% in July, hitting 5.6% in September largely in response to higher petrol prices and rents.</p>
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<p>Helping bring down inflation in the September quarter were falls in the price of fruit and vegetables. </p>
<p>The bureau said an unusually warm winter improved yields for salad vegetables such as tomatoes, capsicums and lettuce and increased the supply of berries.</p>
<p>But pushing it up were increases in the price of insurance (14.7% over the year to September), healthcare (5.4%) and petrol (7.9%).</p>
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<p>Holding inflation back were three budget measures Treasurer Jim Chalmers said had a combined effect of knocking 0.5 percentage points off inflation:</p>
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<li><p>measured electricity prices increased 4.2% in the September quarter. The bureau said without the rebates announced in the budget, the increase would have been 18.6%</p></li>
<li><p>measured childcare prices fell 13.2% in the quarter. The bureau said without the subsidies introduced in July they would have climbed 6.7%</p></li>
<li><p>measured rent increased 2.2% in the quarter. The bureau said without the increase in rent assistance announced in the May budget the increase would have been 2.5%. </p></li>
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<p>To get a better idea of what would be happening were it not for unusual and outsized moves, the bureau calculates what it calls a trimmed mean measure of “underlying inflation”.</p>
<p>This excludes the 15% of prices that climbed the most in the quarter (notably petrol) and the 15% of prices that climbed the least or fell. Watched closely by the Reserve Bank, it also shows inflation falling, and down to 5.2%.</p>
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<p>The fall in Australia’s inflation since 2022 is in line with falls in other Western nations including the United States, Canada and the United Kingdom. </p>
<p>Each has been brought about by an easing of supply bottlenecks and slowing economic activity in response to higher interest rates, and each has recently stalled in response to higher oil prices.</p>
<p>(In one nation not graphed – China – there has been almost no increase in prices over the past year, resulting in an inflation rate of <a href="https://tradingeconomics.com/china/inflation-cpi">near zero</a>.)</p>
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<p>Global oil prices climbed sharply in July after Saudi Arabia and Russia <a href="https://www.bbc.com/news/business-65804768">decided to cut production</a>, a year and a half after Russia invaded Ukraine, pushing up oil prices in February 2022.</p>
<p>In the words of the new Reserve Bank governor <a href="https://www.rba.gov.au/speeches/2023/sp-gov-2023-10-18-q-and-a-transcript.html">Michele Bullock</a>, the world keeps getting hit with “shock after shock after shock”. </p>
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<p>What happens from here on in Australia will depend not only on the global oil price, which is expressed in US dollars, but also on the US-Australian dollar exchange rate which has fallen 6% since July, pushing up the price of petrol in Australian dollars.</p>
<p>The good news, so far, is that since the end of September (since the period covered by the inflation figures released today) the price of petrol has <a href="https://theconversation.com/50-years-ago-when-the-middle-east-was-at-war-oil-prices-skyrocketed-but-it-probably-wont-happen-this-time-215523">eased</a>.</p>
<p>Where they go from here will largely depend on whether the Israel-Hamas conflict spreads to countries that produce oil.</p>
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<h2>What’s it mean for rates?</h2>
<p>Petrol prices aside, inflationary pressures appear to be easing in Australia. </p>
<p>The interest rate increases engineered by the Reserve Bank have slowed spending and have yet to have their full impact. </p>
<p>Although the decade-long decline in unemployment appears to have <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/sep-2023">halted</a> there is no sign of an alarming <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">wages break-out</a>. </p>
<p>In the minutes of its October board meeting the Reserve Bank indicated it would be examining today’s inflation numbers closely when it next meets on Melbourne Cup Day November 7, warning it had </p>
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<p>a low tolerance for a slower return of inflation to target than currently expected. </p>
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<p>In her first speech as governor this week Michele Bullock reiterated that the board would “not hesitate to raise the cash rate further” if there was a material upward revision to the outlook for inflation.</p>
<p>Today, Treasurer Jim Chalmers said the view of his department was that the outlook for inflation had not materially changed.</p>
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Read more:
<a href="https://theconversation.com/no-hike-yet-but-what-happens-on-melbourne-cup-day-depends-on-petrol-214738">No hike yet, but what happens on Melbourne Cup Day depends on petrol</a>
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<p>The Bank will release its revised forecasts on November 10. The last lot, in August, <a href="https://www.rba.gov.au/publications/smp/2023/aug/economic-outlook.html">had inflation dropping</a> from 6% in June to a little over 4% in December. </p>
<p>While today’s result of 5.4% is a little bit above this trajectory, the underlying measure, 5.2% is almost on track. </p>
<p>This means while it may make the board members even more anxious, today’s inflation figure probably hasn’t made another interest rate rise more likely.</p>
<p>Of course, what the board does is up to it. It will decide in a fortnight.</p><img src="https://counter.theconversation.com/content/215888/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins is a former economic analyst and forecaster in the Reserve Bank and Australian Treasury.</span></em></p>Inflation has slipped from 6% to 5.4%, but the price of petrol climbed 7.2% in the September quarter. Much depends on what the RBA thinks will happen from here on.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2147382023-10-03T05:19:13Z2023-10-03T05:19:13ZNo hike yet, but what happens on Melbourne Cup Day depends on petrol<p>If the Reserve Bank does push up interest rates again, the most likely next date is its next board meeting, on Melbourne Cup Tuesday.</p>
<p>The November 7 meeting is especially important because it is one of four each year in which the board has the full set of quarterly staff forecasts before it, as well as the latest detailed quarterly breakdown of inflation.</p>
<p>For the moment, in its first meeting with the new governor Michele Bullock in the chair, the board decided on Tuesday to keep rates on hold, pointing to “<a href="https://www.rba.gov.au/media-releases/2023/mr-23-25.html">uncertainty surrounding the economic outlook</a>”.</p>
<p>It’s uncertain about what’s happening to China’s economy; it’s uncertain about the lagged effect of the 12 increases to date; and it’s suddenly less certain about inflation.</p>
<p>When the board last met, the official figures showed inflation falling. Not now. And not only in Australia.</p>
<h2>Inflation has kicked back up</h2>
<p>After sliding throughout the Western world, inflation edged up in the US and Canada in July and August, and in Australia in August. </p>
<p>In the US, annual inflation plummeted from a peak of 9.1% to 3% before edging back up to <a href="https://tradingeconomics.com/united-states/inflation-cpi">3.7%</a>. </p>
<p>In Australia, the monthly measure of annual inflation dived from 8.4% to 4.9% before edging up to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release#data-downloads">5.2%</a>.</p>
<p>This means inflation is moving further away from, rather than closer to, the Reserve Bank’s 2-3% target band. </p>
<p>The bank had been expecting it to keep falling to <a href="https://www.rba.gov.au/publications/smp/2023/aug/forecasts.html">4.1%</a> by the end of this year, then to fall further to 3.3% – within spitting distance of its target – by the end of next year.</p>
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<p>So what will Michele Bullock and her board do next time?</p>
<p>The first thing to consider (and they considered it in the first meeting under Michele Bullock on Tuesday) is what’s caused the uptick in inflation. </p>
<h2>Petrol is fuelling inflation</h2>
<p>Statistically, all of the uptick in inflation (yes, <em>all</em> of the uptick) was caused by an increase in one price – what the Bureau of Statistics calls automotive fuel, and what the rest of us call petrol and diesel.</p>
<p>Had that price not soared an astounding <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release">9.1%</a> in one single month, August, the inflation rate for August would have remained steady at 4.9%.</p>
<p>Absent automotive fuel, in recent months annual increases in the prices of food, clothes and electricity (yes, electricity) have fallen. In the last two months, the monthly increase in rents has inched down, suggesting that, as painful as high rent increases have been, they’ll eventually subside.</p>
<p>The second thing to consider is whether an uptick in inflation, resulting from an increase in the price of one commodity, is reason enough to return to pushing up interest rates.</p>
<h2>Suddenly, petrol’s $2.20 per litre or more</h2>
<p>Oil prices have shot up because in July one of the biggest producers, Saudi Arabia, began <a href="https://www.bbc.com/news/business-65804768">cutting production</a> in what its energy minister said was “a bid to stabilise” the market. </p>
<p><a href="https://www.reuters.com/business/energy/opec-cuts-tighten-oil-market-sharply-fourth-quarter-says-iea-2023-09-13/">Russia</a> has joined in. The result – bolstered by a much lower Australian dollar – has been soaring prices. We’ve even seen new records set in some places, including Brisbane’s record unleaded price of <a href="https://www.theguardian.com/australia-news/2023/sep/27/brisbane-faces-record-high-petrol-prices-as-sydney-and-melbourne-warned-of-looming-spikes">$2.38</a>. </p>
<p>Melbourne’s <em>average</em> price exceeded <a href="https://fuelprice.io/vic/melbourne/">$2.20</a> a few weeks back and is still above $2.10.</p>
<p>Last year, when rocketing petrol and diesel prices were part of a widespread surge in inflation after Russia invaded Ukraine (and Australia temporally <a href="https://theconversation.com/what-will-the-fuel-excise-cut-save-you-not-as-much-as-the-treasurer-says-180330">cut</a> fuel excise to wind them back), what the Reserve Bank should do was clear: push up interest rates to take the heat out of consumer spending.</p>
<p>But it’s different now. Rising inflation isn’t widespread, and spending per consumer is collapsing. </p>
<p>In August, retail spending grew just 0.2%, at a time of rapid population growth and still rapid price growth. Over the year to August, total retail spending climbed just 1.5% at a time when the population grew <a href="https://www.abs.gov.au/statistics/people/population/national-state-and-territory-population/mar-2023">2.2%</a> and prices climbed more than 5%.</p>
<p>It means we are winding back spending, big time. And here’s the thing about the latest increase in petrol prices: it will wind back spending on things other than petrol even further.</p>
<h2>Petrol could be fuelling ‘disinflation’</h2>
<p>AMP chief economist Shane Oliver thinks the latest petrol price rises could be disinflationary. That’s right, “<a href="https://www.amp.com.au/insights-hub/blog/investing/weekly-market-update-15-09-2023">disinflationary</a>”. </p>
<p>Just as a tax increase reduces the free money households have to spend and makes it harder for them to push up prices, an increase in the price of a purchase that’s near compulsory cuts the amount we have to spend on other things.</p>
<p>Offsetting this is the reality that petrol and diesel prices have risen. In time, those higher prices will feed through into higher prices for just about everything that is moved by trucks.</p>
<p>But the two – higher input prices and less price pressure from consumers – should to some extent offset each other, which is a reason for the Reserve Bank board to at least consider taking the latest uptick in inflation in its stride.</p>
<p>The <a href="https://www.rba.gov.au/media-releases/2023/mr-23-25.html">announcement</a> after Tuesday’s meeting postponed this consideration. By deciding to hold rates steady, the board said it could take “further time to assess the impact of the increase in interest rates to date and the economic outlook”.</p>
<p>The Reserve Bank board’s view about whether to treat what’s happening to petrol as inflationary or disinflationary (or neutral) will play an outsized role in the decision it makes about interest rates on November 7.</p>
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Read more:
<a href="https://theconversation.com/australia-is-on-the-brink-of-ending-interest-rate-hikes-and-an-economic-first-beating-inflation-without-a-recession-209877">Australia is on the brink of ending interest rate hikes and an economic first – beating inflation without a recession</a>
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<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Petrol prices have pushed inflation up. At its next meeting, the Reserve Bank board is going to have to decide if that warrants an increase in interest rates.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2108882023-08-21T20:18:14Z2023-08-21T20:18:14ZPrices are up and the supply of things we need is in flux. How did we get here?<figure><img src="https://images.theconversation.com/files/543634/original/file-20230821-15-3qb6yh.png?ixlib=rb-1.1.0&rect=83%2C112%2C1658%2C1020&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>This article is part of The Conversation’s series examining Australia’s cost of living crisis. You can read the other articles in the series <a href="https://theconversation.com/au/topics/cost-of-living-series-144357">here</a>.</em></p>
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<p>Australia is in a cost-of-living crisis. We know that because the prices typical Australians pay for typical products have been climbing much faster than typical wages, as acknowledged in the standard briefing provided to members of parliament by Australia’s <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Library/pubs/BriefingBook47p/CostOfLiving">Parliamentary Library</a>.</p>
<p>For most of the last century, and certainly for most of the past 20 years, wages have consistently climbed faster than prices, with minor exceptions in 2009 and 2014 when the difference between the two was small – less than 1%. </p>
<p>But since March 2021 prices have been climbing faster than wages. </p>
<p>When inflation peaked in late 2022, the annual consumer price index was climbing 4.4 percentage points faster than wages - a gap that has since shrunk, but remained at 2.4 percentage points in the latest figures for the year to June.</p>
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<p>COVID has played an important part. In the beginning, the pandemic brought prices down, and by a lot. Remember paying 80 cents per litre for petrol?</p>
<p>In the first year of COVID, to the June quarter 2020, Australia went through its first year of negative inflation since 1997. That means that, taken together, prices actually fell.</p>
<p>Fast-forward only two years, and the quarterly consumer price index hit 7.8% in December (and the more experimental monthly index hit 8.4%.)</p>
<p>For those born after the 1980s, this was a first. Going from bottom to top at such a speed only increased the pain.</p>
<h2>It began with broken supply chains</h2>
<p>The acceleration in inflation began with a mismatch between supply and demand.</p>
<p>Before COVID, the world experienced more than three decades of stability and high predictability in supply chains, thanks to an intense move towards globalisation.</p>
<p>Countries became more specialised, industries and agriculture moved away from the United States and Europe, and manufacturing became leaner by using the just-in-time production model which ensured they met demand, but didn’t get stuck with inventories. </p>
<p>This prosperity was based on the assumption that goods and people could move freely across the globe. Until COVID. </p>
<p>Overnight, ports, railroads and trucks saw their operations slashed as people isolated. Air travel came close to a complete shutdown. With insufficient availability, transport prices skyrocketed.</p>
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<h2>Then governments sprayed us with money</h2>
<p>Then there was a huge increase in demand for products as governments splashed around money in an effort to keep their economies afloat. </p>
<p>Being unable to travel, dine out or get a proper haircut, people went online to buy bicycles, air fryers and hair dryers like never before. Online shopping accelerated <a href="https://www.oecd.org/coronavirus/policy-responses/e-commerce-in-the-time-of-covid-19-3a2b78e8/">faster than expected</a>, with big waiting lists for items as diverse as cars, video games, pool chlorine and pet food.</p>
<p>And supply was constrained by workers having to stay home. Factories couldn’t operate at capacity. Because different regions were affected at different times, and most businesses work with low inventories, “just-in-time” struggled.</p>
<p>Parts, components and materials suddenly became scarce. For businesses such as abattoirs, health rules in states like Victoria restricted beef, lamb and pork processing to <a href="https://theconversation.com/what-victorias-abattoir-rules-mean-for-the-supply-and-price-of-meat-143895">two-thirds of normal output</a>.</p>
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Read more:
<a href="https://theconversation.com/floods-pandemics-wars-and-the-market-whats-driving-the-price-of-milk-191064">Floods, pandemics, wars and the market: what's driving the price of milk</a>
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<p>Too many people buying, not enough products to sell, and difficulty moving goods created an imbalance between supply and demand, which pushed up prices globally from late 2020 onwards.</p>
<h2>Then Russia invaded Ukraine</h2>
<p>In early 2022 just as the world was preparing to open up, Russia invaded Ukraine. </p>
<p>The war triggered an energy crisis. Russia, a major global supplier of <a href="https://www.iea.org/countries/russia">gas and oil</a>, was driven out of several markets by international sanctions in what is a textbook trigger for inflation. </p>
<p>In the first wave, petrol, gas and electricity skyrocketed. In Australia, petrol stations reflect changes in international markets in a matter of days. We paid $2.50 per litre at the pump.</p>
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<a href="https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="People stand in a square carrying a torn Ukrainian flag" src="https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541423/original/file-20230807-25-24ggu2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">As the world was emerging from lockdowns, Russia invaded Ukraine, triggering an oil supply crisis.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/search/ukraine-russia?image_type=photo">Shutterstock</a></span>
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<p>The second wave came as long-term contracts were renegotiated. Industries lock in prices with energy providers months in advance, meaning an increase in costs today takes time to make its way through the system.</p>
<p>The third wave came as prices for parts, components and materials increased downstream in a domino effect. </p>
<p>As an example, the increase in energy prices in early 2022 led to a rise in steel prices in late 2022, reaching home appliance prices in early 2023, and the price of goods sold in shops only in recent months.</p>
<h2>And climate change accelerated</h2>
<p>The pandemic’s disruptive effects lasted about two years. The war in Ukraine may go for longer, hopefully not. But the time span of both pales when confronted with something that will impact Australians for generations: climate change.</p>
<p>One significant consequence is extreme weather. </p>
<p>The Bureau of Meteorology’s report on the <a href="http://www.bom.gov.au/state-of-the-climate/">State of the Climate 2022</a> highlights the ongoing changes for Australia including amplified storms, floods, droughts, heatwaves and blizzards with “one in a 100 year” events multiplying. </p>
<p>Each brings disruption to supply chains, pushing up prices. </p>
<p>Take the rollercoaster ride of an iceberg lettuce going from $2.50 to $12.50 due to floods in Australia last year. Now it’s back to about $3.90. </p>
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Read more:
<a href="https://theconversation.com/why-is-lettuce-so-expensive-costs-have-shot-up-and-wont-return-184449">Why is lettuce so expensive? Costs have shot up, and won't return</a>
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<p>Or the shortage of frozen chips due to droughts in Europe and floods in New Zealand earlier this year. </p>
<p>Or the recent ban from India on rice exports due to extreme monsoons in South Asia, set to increase international rice prices above the 14% increase already seen in the past year. Supply uncertainty fuels inflation.</p>
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Read more:
<a href="https://theconversation.com/whats-driving-the-potato-chip-shortage-and-when-will-it-pass-198667">What's driving the potato chip shortage and when will it pass?</a>
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<p>The move to renewables, which is fundamental to mitigating climate change, has a price tag attached to it at the moment. Net-zero targets require considerable investment by businesses as they move to green energy and materials. </p>
<p>While there will be a long-term return, there are costs now.</p>
<p>Preparing the factory floor against heatwaves (installing fans), floods (relocating sites), and disruptions (building inventory) drive up prices. On top of that, insurance premiums are on the rise, some becoming <a href="https://theconversation.com/home-insurance-bills-are-soaring-as-climate-risks-grow-the-government-should-step-in-211515">prohibitive</a>. </p>
<h2>Yet there’s a silver lining</h2>
<p>This list of inflation drivers is not exhaustive as there are more forces at play, among them labour shortages, population growth and the housing crisis.</p>
<p>But there is good news. Supply chains are more robust after the pandemic, evidenced by container transport prices going back to what they were in 2020. The world is moving away from fossil fuels faster after the invasion of Ukraine.</p>
<p>Wind and solar energy are becoming cheaper at a remarkable rate, and there is promising news on hydrogen as a fuel. Business continuity plans to minimise disruptions in the face of extreme weather are stronger than before.</p>
<p>Supply and demand should soon find a new lasting equilibrium. </p>
<p>Prices will not go back to what they were, but there is every reason to believe the increases will be tamed sooner rather than later. It will be a welcome relief.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/you-dont-have-to-be-an-economist-to-know-australia-is-in-a-cost-of-living-crisis-what-are-the-signs-and-what-needs-to-change-210373">You don't have to be an economist to know Australia is in a cost of living crisis. What are the signs and what needs to change?</a>
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<img src="https://counter.theconversation.com/content/210888/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Flavio Macau is affiliated with the Australasian Supply Chain Institute (ASCI)</span></em></p>While the pandemic and Ukraine war are key contributors to the cost of living crisis, climate change has also had a role to play.Flavio Macau, Associate Dean - School of Business and Law, Edith Cowan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1910812022-09-28T03:24:51Z2022-09-28T03:24:51ZWhat now for petrol prices? Global doom and gloom makes the outlook surprisingly positive<figure><img src="https://images.theconversation.com/files/486704/original/file-20220927-26-u9kuvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>In early March Russia’s invasion of Ukraine pushed global oil prices up by about 30% and Australians faced paying more than $2.15 a litre for petrol. Contrary to <a href="https://theconversation.com/cut-emissions-not-petrol-tax-what-economists-want-from-the-budget-179837">economists’ advice</a>, the Morrison government decided to halve of the fuel excise for six months, reducing the cost of petrol by 22.1 cents a litre.</p>
<p>That discount period ends at midnight. So what can you expect local fuel prices to do now?</p>
<p>To begin with, the <a href="https://www.ato.gov.au/business/excise-on-fuel-and-petroleum-products/lodging,-paying-and-rates---excisable-fuel/excise-duty-rates-for-fuel-and-petroleum-products/">fuel excise is indexed</a> so it will add 23 cents to a litre of petrol. But not immediately. Your local service station’s tanks are likely to still hold fuel for which the retailer paid the discounted excise. </p>
<p>Federal treasurer Jim Chalmers has <a href="https://www.abc.net.au/news/2022-09-20/fuel-excise-shouldnt-cause-immediate-price-spike/101457614">cited industry estimates</a> of about 700 million litres of discounted fuel still being “in the system”. To put that in perspective, Australians consumed an average of about <a href="https://www.energy.gov.au/government-priorities/energy-data/australian-petroleum-statistics">42.5 million litres</a> of petrol a day in 2021. So it may be one to two weeks, depending on where you live, before you’re paying extra.</p>
<p>But what you will then be paying probably won’t be that different to before Russia invaded Ukraine, with global oil prices dropping due to efforts to increase supply and a deteriorating global economic outlook suppressing demand. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-petrol-excise-and-why-does-australia-have-it-anyway-179373">What is petrol excise, and why does Australia have it anyway?</a>
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<h2>Global prices dictate local prices</h2>
<p>Australia imports about <a href="https://theconversation.com/conflict-in-the-south-china-sea-threatens-90-of-australias-fuel-imports-study-188148">90% of its refined fuel needs</a>, so the main determinants of the price of petrol and diesel in Australia are international oil prices and the value of Australian dollar to the US dollar (because oil prices are determined in US currency). </p>
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Read more:
<a href="https://theconversation.com/conflict-in-the-south-china-sea-threatens-90-of-australias-fuel-imports-study-188148">Conflict in the South China Sea threatens 90% of Australia's fuel imports: study</a>
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<p>Over the past six months the Australian dollar’s buying power has declined from about 75 to 65 US cents (a 13% drop). But that has been offset by oil prices falling more than 30% since June.</p>
<p>There is no single oil price because oil is traded in different markets according to its quality (with names reflecting the historical source of that type of oil). The following graph shows two commonly cited benchmarks – West Texas Intermediate (from Texas) and Brent Crude (from the North Sea). </p>
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<p><iframe id="UwnyX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/UwnyX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>Prices spiked after the invasion of Ukraine due to Russia’s signicance as an oil exporter (the second-biggest after Saudi Arabia, accounting for about <a href="https://www.worldstopexports.com/worlds-top-oil-exports-country/">8% of exports in 2021</a>) and uncertainty about what the conflict would mean for those exports, as well as Russia’s gas exports to Europe and markets generally.</p>
<h2>Increased supply, faltering demand</h2>
<p>The steady decline since June is due to two main reasons. </p>
<p>First, the efforts of the European Union and the United States to increase non-Russian oil supplies. This has been both to ease inflationary pressures on their own economies as well as to drive down the windfall revenue Russia has made from its oil exports (mostly to <a href="https://oilprice.com/Energy/Energy-General/Global-Oil-Flows-Are-Changing-As-Russian-Crude-Moves-East.html">China and India</a>).</p>
<p>The G7 is working on a plan to further choke off those revenues through imposing <a href="https://www.brookings.edu/events/capping-the-price-of-russian-oil-will-it-happen-will-it-succeed/">a price cap</a> on Russian oil exports. Whether this will succeed depends first on finding <a href="https://www.bloomberg.com/news/articles/2022-09-26/eu-countries-plan-to-delay-russian-oil-price-cap-amid-divisions?leadSource=uverify%20wall">agreement in Europe</a>, which is divided over the plan. </p>
<p>The Australian government is <a href="https://indaily.com.au/news/2022/09/20/australia-to-back-g7-russian-oil-price-cap/">supporting the price cap</a> but this is mostly symbolic. At this point I can’t see it having much practical impact on Australian petrol prices.</p>
<p>Second, the global economy is weakening, which is taking the pressure off demand. The OECD’s economic outlook published this month predicts global economic growth will slow to <a href="https://www.oecd.org/economic-outlook/september-2022/#global-outlook">2.2% in 2023</a>.</p>
<p>As a consequence, the International Energy Agency’s <a href="https://www.iea.org/reports/oil-market-report-august-2022">Oil Market Report</a> last month revised upwards its outlook for world oil supply (though it also warned “another price rally cannot be excluded” given disruption risks). </p>
<p>Crude oil prices are now below US$90 a barrel – less than at the start of Russia’s invasion of Ukraine. For the next 12 months oil prices can be expected to decline to below US$80. This will put Australian petrol and diesel prices back to where they were in 2021. Which is good news for motorists, if not the global economy.</p><img src="https://counter.theconversation.com/content/191081/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joaquin Vespignani does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With global oil prices falling, the end of the fuel excise discount will put Australian motorists back in familiar price territory.Joaquin Vespignani, Associate professor, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1893302022-08-29T00:47:38Z2022-08-29T00:47:38ZHave we seen the last of $2 petrol for a while?<figure><img src="https://images.theconversation.com/files/480983/original/file-20220825-20-j7142u.jpg?ixlib=rb-1.1.0&rect=0%2C114%2C5472%2C3522&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Erik Mclean/Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Average fuel prices in Australian capital cities remain well below the peaks seen in March and June. <a href="https://www.drive.com.au/news/fuel-prices-today/">Recent data</a> reveal fuel is around 30-35 cents per litre lower than the highs of two months ago. As of last week, the average price of 95 octane unleaded across eight capitals stood at A$1.90 per litre.</p>
<p>The question on the minds of many motorists and businesses relying on road transport to deliver goods and services is: have we seen the last of $2 petrol for a while? </p>
<p>Given this year’s trends in international oil prices (<a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">a key component</a> of Australia’s petrol prices), the answer would be: “It depends on the fuel excise”.</p>
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<a href="https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480987/original/file-20220825-24-dw2s7a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">In March this year, as Russia’s invasion of Ukraine began to drive international oil prices up.</span>
<span class="attribution"><span class="source">Image by Markus Spiske from Pixabay</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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Read more:
<a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">What Russia's war means for Australian petrol prices: $2.10 a litre</a>
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<h2>A fuel excise cut after Russia invades Ukraine</h2>
<p>A <a href="https://www.accc.gov.au/consumers/petrol-diesel-lpg/about-fuel-prices#:%7E:text=On%2029%20March%202022%20the,per%20litre%20for%20automotive%20LPG.">fuel excise</a> is a tax on fuel levied by the Australian government. </p>
<p>In March this year, as Russia’s invasion of Ukraine began to drive international oil prices up, the previous federal government <a href="https://budget.gov.au/2022-23/content/factsheets/download/factsheet_excise_offpublicroads.pdf">announced</a> a 50% cut in fuel excise for six months. In other words, it would charge less tax on fuel until September (in an effort to soften the impact of soaring international oil prices on Australian consumers). After this decision, the cost of petrol reduced by 22 cents per litre.</p>
<p>While the general trend is downwards in recent months, crude oil <a href="https://www.marketwatch.com/investing/future/brn00?countrycode=uk">prices have ranged</a> between US$92 and US$123 per barrel – much higher than the norm in recent years.</p>
<p>With Australia’s <a href="https://theconversation.com/high-petrol-prices-hurt-but-cutting-excise-would-harm-energy-security-178766">halved fuel excise</a>, this price range translates to average 95 octane unleaded petrol prices across eight capitals of between A$1.90 and A$2.25 per litre. </p>
<p>Globally, crude oil is <a href="https://tradingeconomics.com/commodity/crude-oil">down about 25%</a> from the June high of US$123 per barrel. That’s in part due to growing fears a global economic slowdown would affect consumption, as central banks around the world raise interest rates to combat spiralling inflation.</p>
<p>The potential revival of a <a href="https://finance.yahoo.com/news/oil-prices-plummet-iran-nuclear-200000751.html">deal</a> between Iran and Western countries that could lead to more Iranian oil exports has also helped <a href="https://finance.yahoo.com/news/oil-prices-plummet-iran-nuclear-200000751.html">drive oil prices</a> down. This is generally good news for petrol prices in Australia.</p>
<h2>What next for the fuel excise in Australia?</h2>
<p>However, a lot will depend on what the Australian government does about the fuel excise.</p>
<p>It is uncertain whether the new government will extend the fuel excise cut brought in by their predecessors in March.</p>
<p>The excise cut is set to expire in September, right in the middle of a cost-of-living crisis in Australia.</p>
<p>In July, amid calls to extend the fuel excise, Treasurer Jim Chalmers said <a href="https://www.sbs.com.au/news/article/the-price-of-fuel-is-set-to-rise-heres-why-and-how-much-it-could-cost-you/w2v0xrwpm">an extension is not an option</a>:</p>
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<p>We’ve tried to be upfront with people and say they shouldn’t expect that petrol price relief to continue forever.</p>
</blockquote>
<p>According to the federal budget, the six-month excise cut has resulted in a <a href="https://theconversation.com/josh-frydenbergs-budget-is-an-extraordinary-turnaround-but-leaves-a-40-billion-problem-180123">A$3 billion hit</a> on the economy.</p>
<p>Recent news reports indicated the prime minister was “examining” a fuel excise cut <a href="https://www.crikey.com.au/2022/08/24/pm-examining-fuel-excise-cut-extension/">extension</a>, but remains adamant the cut is a temporary measure.</p>
<p>If the cut is not extended, average petrol prices in Australia will almost certainly return to the above $2 territory by early October.</p>
<p>However, the solution to Australians being held hostage to volatile global prices and geopolitical developments will not come from extending the fuel excise cut. </p>
<p>The solution will come from reducing demand for oil-based fuels through policies promoting local energy generation and switching to low-emissions vehicles.</p>
<h2>The longer-term outlook</h2>
<p>Over the longer term, there is hope oil and petrol prices will not affect the pockets of Australian motorists and the Australian economy to the same extent as they have earlier this year.</p>
<p>The new Australian government <a href="https://www.cnbc.com/2022/08/22/australian-bank-to-scrap-loans-for-new-diesel-and-gasoline-cars-.html">has acknowledged</a> the country is “significantly behind the pack when it comes to electric vehicles.” </p>
<p>Only 2% of cars sold in Australia are electric, <a href="https://www.iea.org/data-and-statistics/data-product/global-ev-outlook-2022">five times lower</a> than the global average.</p>
<p>The government recently released some detail on plans to set up a <a href="https://infrastructuremagazine.com.au/2022/08/22/australias-first-national-electric-vehicle-strategy/">National Electric Vehicle Strategy</a>, with a discussion paper on the matter due to be released soon for consultation.</p>
<p>At the heart of the strategy will be a plan to grow the Australian electric vehicle market, in a bid to improve uptake of electric vehicles and improve affordability and choice. </p>
<p>Australia is <a href="https://theconversation.com/the-road-to-new-fuel-efficiency-rules-is-filled-with-potholes-heres-how-australia-can-avoid-them-188814">the only OECD country</a> to not have, or be in the process of developing, mandatory fuel-efficiency standards for road transport vehicles. </p>
<p>The new government <a href="https://www.cnbc.com/2022/08/19/australia-plans-fuel-efficiency-standards-to-boost-electric-car-supply.html">will seek to introduce</a> vehicle fuel efficiency standards to help increase the supply of electric cars, improve affordability for motorists and drive down emissions.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/high-petrol-prices-hurt-but-cutting-excise-would-harm-energy-security-178766">High petrol prices hurt, but cutting excise would harm energy security</a>
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<img src="https://counter.theconversation.com/content/189330/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vlado Vivoda does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the fuel excise cut is not extended, average petrol prices in Australia will almost certainly return to the above $2 territory by early October. But a different solution is needed.Vlado Vivoda, Honorary Fellow, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1851882022-06-16T13:28:53Z2022-06-16T13:28:53ZPetrol prices are rising, but fuel duty cuts aren’t the answer<figure><img src="https://images.theconversation.com/files/469252/original/file-20220616-18-eegrw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">MagicBones / shutterstock</span></span></figcaption></figure><p>Rising fuel prices are adding pressure on households already struggling to cover basic costs of energy, housing and food. In the face of this there are calls to (further) <a href="https://www.telegraph.co.uk/politics/2022/06/12/ministers-urged-cut-fuel-duty-rural-areas-help-struggling-families/">cut fuel duty</a>, the tax on each litre of diesel and petrol bought in the UK. Current rates are just under £0.53 per litre, or between one third and one quarter of the pump price. Last year this raised the government <a href="https://www.statista.com/statistics/284323/united-kingdom-hmrc-tax-receipts-fuel-duty/">nearly £26 billion</a>.</p>
<p>With fuel poverty rising, few would argue that the current position should be left as it is, but we do not think cutting fuel duty is the answer. </p>
<p>Cutting fuel duty directly conflicts with efforts to reduce the amount we travel by car, further undermining already weak progress in decarbonising transport and reducing air pollution. Despite recognition in government policy of the need to reflect the rising cost of carbon emissions, the UK government has refused to raise duty in every budget for the past 12 years. This corresponds to a real terms reduction in motoring costs estimated to be <a href="https://www.theguardian.com/politics/2021/feb/24/rishi-sunak-freezes-fuel-duty-over-reliance-on-cars-in-pandemic">£50 billion since 2011</a>.</p>
<p>Calls to cut fuel duty look like the latest manifestation of a too common argument that social justice and environmental concerns are incompatible. This argument is a dangerous mistake.</p>
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<a href="https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Retro petrol pumps" src="https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469254/original/file-20220616-18-gkfw0w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">It now costs more than £100 to fill a typical family car in the UK.</span>
<span class="attribution"><span class="source">Alena Veasey / shutterstock</span></span>
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<p>For a start, cutting fuel duty is perhaps one of the worst targeted income support policies that can be imagined. While any cuts give some help to those who are struggling, they provide most benefit to the well-off. In 2019, for example, the highest income group in the UK drove an average of 4,893 miles per year, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1016901/nts0705.ods">more than three times</a> that of the lowest income group. If it is the least well off that the fuel duty cut is aimed at protecting, then the tax system or benefit adjustments would surely be more targeted and effective.</p>
<p>More than this, social justice can – and should – be compatible with tackling environmental problems caused by transport. In our transport system it is far too often difficult for people to manage without access to a car. This means that those without cars can be vulnerable to exclusion from social and economic opportunities, while those with cars are vulnerable to increases in the cost of driving. Effectively tackling social and environmental transport challenges requires concerted effort to remove the barriers to managing without a car wherever that is possible.</p>
<h2>Some progress on public transport</h2>
<p>The fact that public transport remains unaffordable for many is a persistent barrier. Progress towards providing affordable bus or rail tickets which enable the flexibility people need is glacial or stagnant. Indeed, the Confederation of Passenger Transport estimates that the UK’s 12-year fuel duty freeze has resulted in an estimated <a href="https://www.cpt-uk.org/news/cpt-reacts-failing-to-end-the-fuel-duty-freeze/">200 million bus journeys</a> being lost due to the growing cost gap between the bus and the car. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Woman stands at bus stop with bus approaching" src="https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469253/original/file-20220616-26-67cmls.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Capped: Manchester buses.</span>
<span class="attribution"><span class="source">p6foto / shutterstock</span></span>
</figcaption>
</figure>
<p>A few recent moves offer some hope. In the UK, Greater Manchester has brought buses back under public control and will <a href="https://www.manchestereveningnews.co.uk/news/greater-manchester-news/bus-passengers-could-paying-lower-24237462?utm_source=twitter.com&utm_medium=social&utm_campaign=sharebar">cap fares</a>. In Germany, travellers can use all public transport for <a href="https://www.dw.com/en/everything-you-need-to-know-about-germanys-9-euro-ticket/a-61978439">€9 per month</a> for three months this summer, and New Zealand <a href="https://www.stuff.co.nz/national/128512928/halfprice-public-transport-fares-in-nz-could-become-permanent-at-budget">halved public transport prices</a> in response to rising fuel prices. Such moves more effectively target low income groups who tend to be more frequent users, but they are not a panacea as not everyone has good access to public transport, particularly in more rural areas.</p>
<h2>Road building is still the priority</h2>
<p>Fuel duty cuts perpetuate the long-term dependence on the car and from the perspective of social and environmental justice, we cannot afford to do that. As our experiences during COVID-19 showed, we need to start planning our travel so that we are less exposed to the risks which disproportionately affect the least well off – whether that be contagion or fuel price spikes or extreme climate events. This means taking the right decisions on local accessibility on bike and on foot by prioritising safe, continuous walking and cycling networks, and building a stronger public transport network that works for more people when we are not in a crisis.</p>
<p>Of course, this requires investment at a time when the economy is struggling and facing inflationary pressures. However, the UK continues to invest huge sums of money (<a href="https://www.newcivilengineer.com/latest/pressure-mounts-on-shapps-to-reopen-24bn-road-investment-plan-15-03-2022/">£24 billion</a>) in a national road building programme. It is not that the money is not there, it is more a question of what the government chooses to prioritise, as we see from the stark differences with other countries. </p>
<p>If the UK continues to build roads, its addiction to the car will grow, along with its vulnerability to future price spikes. Focusing on the bigger picture of sustainability in transport is essential to reducing car dependence and improving mobility inclusion which is, in turn, critical for long-term social justice.</p><img src="https://counter.theconversation.com/content/185188/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Current funding from:
Economic and Social Research Council (as PI ES/W000547/1; as CoI ES/T000074/1)
Engineering and Physical Sciences Research Council (as CoI EP/R035288/1; as CoI EP/S029575/1)
Previous funding from several organisations, including EU, RCUKs, Depatrment for Transport, CIHT, Friends of the Earth.
Member of Labour Party
</span></em></p><p class="fine-print"><em><span>Greg Marsden receives funding from the Engineering and Physical Science Research Council (EP/R035288/1 and EP/S032002/1)). He is a non-executive board member of the Zemo partnership and a member of the Greener Transport Council. </span></em></p>Social justice really can go hand in hand with environmental policy – here’s how.Caroline Mullen, Senior Research Fellow at Institute for Transport Studies, University of Leeds, University of LeedsGreg Marsden, Professor of Transport Governance, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1787782022-04-07T20:02:25Z2022-04-07T20:02:25ZWhat would it take to get Australians to buy electric cars? Canberra provides a guide<p>Only <a href="https://www.carexpert.com.au/car-news/vfacts-march-2022-car-sales-figures-released">5,532</a> of the 101,233 new cars sold in Australia last month were all-electric.</p>
<p>While that number is an improvement on previous months, it is <a href="https://en.wikipedia.org/wiki/Electric_car_use_by_country">tiny</a> compared to the 25% to 85% of new cars sold that are all-electric in European nations such as Germany, the Netherlands, Denmark and Norway.</p>
<p>A lot has been written about <a href="https://theconversation.com/the-embarrassingly-easy-tax-free-way-for-australia-to-cut-the-cost-of-electric-cars-171919">why that is</a>, but less about what an individual state or territory can do to improve it, in the absence of help from the federal government. </p>
<p>Our team at the <a href="https://www.governanceinstitute.edu.au/centres/national-centre-for-social-and-economic-modelling-natsem">National Centre for Social and Economic Modelling, University of Canberra</a> has examined what the <a href="https://www.environment.act.gov.au/cc/zero-emissions-vehicles">Australian Capital Territory</a> (ACT) is doing, and what effect this is having on electric vehicle take-up by price and type of household. </p>
<p>The ACT offers <a href="https://www.environment.act.gov.au/cc/zero-emissions-vehicles">three incentives</a></p>
<ul>
<li><p>a full exemption from stamp duty on purchase</p></li>
<li><p>two years free registration </p></li>
<li><p>a zero-interest loan of up to A$15,000 for <a href="https://www.climatechoices.act.gov.au/__data/assets/pdf_file/0010/1861570/Sustainable-Household-Scheme-Guidelines-For-Participants.pdf">eligible households</a></p></li>
</ul>
<p>We used Australian Bureau of Statistics census and household expenditure data as well as microsimulations based on a survey of vehicle preferences to examine behaviour before and after the changes. </p>
<p>We simulated the decision to buy electric based on a total cost of ownership, which included the value of the vehicle as well as operational costs including petrol, service and repair. </p>
<h2>Incentives matter</h2>
<p>Our modelling found that with a stamp duty exemption, at an electric vehicle price of A$50,000, around <a href="https://cdn.theconversation.com/static_files/files/2065/Simulating_the_impact_of_ACT_EV_policy.pdf">9%</a> of new vehicles sold would be electric in five years.</p>
<p>The proportion climbs to 11% with zero-interest loan and free registration added. </p>
<p>But even after five years, the proportion of total cars on ACT roads that were electric would be small: just 1.6% with just the stamp duty exemption, and 2.0% with the other measures as well.</p>
<p>This result is much higher than the latest-known proportion of electric vehicles in the ACT, which in 2019 was 0.1%. Nationally, only <a href="https://www.abs.gov.au/statistics/industry/tourism-and-transport/motor-vehicle-census-australia/latest-release#data-download">23,000</a> (0.011%) of the 20.1 million vehicles registered are electric.</p>
<h2>Prices matter</h2>
<p>At a much-lower electric vehicle price of $25,000, an extraordinary <a href="https://cdn.theconversation.com/static_files/files/2065/Simulating_the_impact_of_ACT_EV_policy.pdf">23%</a> of new vehicles sold after five years would be electric, provided they were stamp duty exempt. </p>
<p>If there was also a zero-interest loan of $15,000, the proportion would increase to 27%, and with two years free registration as well, to $30%.</p>
<p>As a proportion of the entire car fleet in the ACT, the figures would be 4.1%, 4.8% and 5.3% respectively, depending on those price, loan and registration factors. That would mean much larger demand than at present, but still small enough to mean the infrastructure for maintaining conventional vehicles would be needed for some time.</p>
<h2>Income matters</h2>
<p>We found that high income households are far more likely to replace their cars within five years and far more likely to switch electric even without incentives – and that for them, the incentives didn’t make much difference.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=861&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=861&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=861&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1082&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1082&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456778/original/file-20220407-10870-xs6i36.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1082&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/2065/Simulating_the_impact_of_ACT_EV_policy.pdf">NATSEM, Impact simulation of ACT EV policy</a></span>
</figcaption>
</figure>
<p>The incentives had their biggest impact, not among the highest earning three-fifths of households, or among the bottom fifth, but in the second-bottom fifth.</p>
<p>For that group, the interest-free loan was found to be more important than the free registration, whereas for higher income households it was the other way around.</p>
<p>In terms of geography, the highest take up is set to be in Canberra’s inner north and south where incomes are high. Nevertheless, our modelling also suggests a high take up in the south of Canberra.</p>
<h2>Petrol matters</h2>
<p>And the take-up rate depends on the price of petrol. The price used in our modelling was the 2018-19 price of around $1.45 per litre for unleaded and diesel.</p>
<p>Our modelling suggests that the recent increase in price to around $2 a litre would lift the purchase of electric vehicles by 0.5 percentage points, while an increase to $3 would increase take-up by around 2.5 percentage points.</p>
<p>Different states are experimenting with different incentives. Victoria, NSW and Queensland are offering $3,000 <a href="https://evcentral.com.au/complete-guide-to-discounts-and-incentives-when-buying-an-ev-in-australia/">rebates</a> on the purchase price, along with a registration discounts in Victoria offset by a road user charge. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-embarrassingly-easy-tax-free-way-for-australia-to-cut-the-cost-of-electric-cars-171919">The embarrassingly easy, tax-free way for Australia to cut the cost of electric cars</a>
</strong>
</em>
</p>
<hr>
<p>What applies to the ACT might not apply elsewhere, especially as average incomes in Canberra are higher than in other cities. But our modelling provides a guide as to how incentive-based policies can work. </p>
<p>Policies that increase the electric vehicle take-up in lower income households are likely to have the greatest effect, and also likely to benefit these households by freeing them from the need to pay for fuel.</p><img src="https://counter.theconversation.com/content/178778/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yogi Vidyattama receives funding from the ACT government to evaluate several policy options regarding electric vehicles before the current policy was announced. The data in this article were produced separately to this prior work.</span></em></p><p class="fine-print"><em><span>Darren Sinclair received funding from the ACT government to evaluate several policy options regarding electric vehicles before the current policy was announced. The data in this article were produced separately to this prior work.</span></em></p><p class="fine-print"><em><span>Jacki Schirmer received funding from the ACT Government to evaluate several policy options regarding electric vehicle before the current policies in place were announced. the data in this article were produced separately to this prior work.</span></em></p><p class="fine-print"><em><span>Robert Tanton received funding from the ACT government to evaluate several policy options regarding electric vehicles before the current policies in place were announced. The data in this article were produced separately to this prior work.</span></em></p>A study commissioned by the ACT government finds zero-interest loans and free registration help – but the price of the car and petrol prices matter most of all.Yogi Vidyattama, Associate Professor, National Centre for Social and Economic Modelling, University of CanberraDarren Sinclair, Professor, University of CanberraJacki Schirmer, Associate Professor, University of CanberraRobert Tanton, Professor, Institute for Governance & Policy Analysis, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1798472022-03-28T00:33:59Z2022-03-28T00:33:59Z5 maps that show why free public transport benefits the affluent most<figure><img src="https://images.theconversation.com/files/454008/original/file-20220324-17-uemn0.jpg?ixlib=rb-1.1.0&rect=0%2C514%2C5632%2C2756&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>As high global oil prices, spurred by Russia’s invasion of Ukraine, drive up the price of fuel and many other things too, there’s pressure on Australian politicians to offer some relief.</p>
<p>There are calls for the federal government to <a href="https://theconversation.com/high-petrol-prices-hurt-but-cutting-excise-would-harm-energy-security-178766">cut the fuel excise</a> (currently 44.2 cents a litre) and for state governments to also respond.</p>
<p>The Tasmanian government is <a href="https://www.abc.net.au/news/2022-03-22/free-buses-to-offset-rocketing-fuel-prices-in-tasmania/100928750">making bus services free</a> for five weeks to offset cost of living increases. In New Zealand the government has halved fares.</p>
<p>But free public transport risks worsening social inequalities in Australian cities by benefiting wealthier households over the less affluent. From an overall welfare perspective, it’s economically regressive policy, contradicting the progressive positioning usually favoured by its proponents.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/high-petrol-prices-hurt-but-cutting-excise-would-harm-energy-security-178766">High petrol prices hurt, but cutting excise would harm energy security</a>
</strong>
</em>
</p>
<hr>
<h2>Mapping transport networks</h2>
<p>On average, about 80% of travel in Australian cities is undertaken by private vehicles, but car dependence differs significantly by area. </p>
<p>People who live in inner and middle suburbs and work in the CBD use public transport at much higher rates than residents and workers in outer and fringe suburban areas. </p>
<p>This is principally because public transport services are generally much better in inner and middle suburbs, and serve CBD-focused journeys well. The further a worker is located from the CBD, the more they are likely to be <a href="https://www.australasiantransportresearchforum.org.au/sites/default/files/2013_currie_delbosc.pdf">forced to rely on private automobiles</a> and travel to dispersed workplaces. </p>
<h2>Public transport service quality</h2>
<p>The <a href="http://www.snamuts.com/melbourne-2018.html">first map</a> shows Melbourne’s public transport network service quality. In the green areas, services are frequent and connected; in the black areas, they are residual.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=503&fit=crop&dpr=1 600w, https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=503&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=503&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=633&fit=crop&dpr=1 754w, https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=633&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/454044/original/file-20220324-17-l2y9zz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=633&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Melbourne’s public transport accessibility.</span>
<span class="attribution"><a class="source" href="http://www.snamuts.com/melbourne-2018.html">Spatial Network Analysis for Multimodal Urban Transport Systems, via http://www.snamuts.com/melbourne-2018.html</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Vulnerability to fuel price increases</h2>
<p>The second map shows the economic vulnerability of households to higher fuel prices as well as inflation and mortgage interest rate rises. The areas of greatest vulnerability almost exactly match the areas with poor public transport service. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=410&fit=crop&dpr=1 600w, https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=410&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=410&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=515&fit=crop&dpr=1 754w, https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=515&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/454021/original/file-20220324-17-8aqrf9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=515&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">‘VAMPIRE score’ refers to the name of the dataset, the Vulnerability Analysis for Mortgage, Petroleum and Inflation Risks and Expenditure, which is available via the AURIN Map portal.</span>
</figcaption>
</figure>
<p>The third map shows the distribution of Melbourne households by weekly income. There are variations but poorer regions tend to poorly serviced by public transport.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Melbourne by household weekly income, calculated by authors using the data from Australian Bureau of Statistics, 2016" src="https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/454494/original/file-20220327-23-1gh86sw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Melbourne by household weekly income, calculated using data from Australian Bureau of Statistics.</span>
<span class="attribution"><span class="source">The authors, ABS</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Occupation, income and transport costs</h2>
<p>These pattern of households in poorer areas being more dependent on private transport generally apply in every major Australian city (with some variance). </p>
<p>Research we’ve done using census data shows the commuting cost burden – the proportion of income spent on transport – for the average service worker in the retail and hospitality sectors is double that of a professional in the scientific and financial sectors.</p>
<p>The following map shows the commuting patterns for retail and hospitality workers who travel by car. These are highly dispersed, and largely in the areas poorly served by public transport. Making inadequate public transport free won’t help them much. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=460&fit=crop&dpr=1 600w, https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=460&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=460&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=578&fit=crop&dpr=1 754w, https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=578&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/454010/original/file-20220324-21-s8yaja.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=578&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Car commuting patterns of retail and hospitality service workers.</span>
<span class="attribution"><span class="source">The authors</span></span>
</figcaption>
</figure>
<p>Now, by contrast, consider the commuting patterns for professional scientific and financial workers commuting by public transport. Free public transport will benefit them greatly.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=473&fit=crop&dpr=1 600w, https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=473&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=473&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=594&fit=crop&dpr=1 754w, https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=594&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/454062/original/file-20220324-25-1tl1rj7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=594&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Public transport commuting patterns of professional scientific and financial workers.</span>
<span class="attribution"><span class="source">The authors</span></span>
</figcaption>
</figure>
<h2>What needs to be done</h2>
<p>So what what would be a less regressive response to higher fuel prices? </p>
<p>In the short term the best response is income assistance, targeted to those who need it most. In the longer term the best response is to reduce dependence on fossil fuels and increase household resilience through greater wage and income equity. </p>
<p>Making public transport cheaper is less important than providing better and more equitably distributed services. This could be funded by cancelling road projects that entrench automobile dependence – such as Melbourne’s A$16 billion North East Link toll tunnel project – and spending the money on outer suburban public transport upgrades. </p>
<p>Another change would be to ensure new suburbs are <a href="https://apo.org.au/node/306555">built with good public transport services</a> at the outset. Currently, plans for new growth areas don’t require an accompanying integrated public transport network plan and rollout program. This should be mandatory so there’s public transport in new suburbs from the outset.</p>
<p>Measures could also include incentives to accelerate the transition to electric vehicles, but these also require care to ensure subsidies do not just benefit wealthier purchasers who can afford a new car while those on lower income driving older cars miss out. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cut-emissions-not-petrol-tax-what-economists-want-from-the-budget-179837">Cut emissions, not petrol tax. What economists want from the budget</a>
</strong>
</em>
</p>
<hr>
<p>While there’s a push now to slash the fuel excise duty, there’s a long term case for actually increasing it, based on <a href="https://doi.org/10.1016/j.enpol.2007.04.017">international evidence</a> showing higher fuel taxes do shift travel behaviour away from cars and reduce reliance on fossil fuels. </p>
<p>A generalised carbon price could have a similar affect and help drive down emissions. However, the regressive aspects of increased taxation would also need to be addressed through income measures and ensuring the extra revenue is used to improve public transport in oil-vulnerable suburbs.</p><img src="https://counter.theconversation.com/content/179847/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors' research presented in this article was supported by funding from the National Environmental Science Program Clean Air and Urban Landscapes Hub and the Australian Urban Infrastructure Research Network. </span></em></p><p class="fine-print"><em><span>Tiebei (Terry) Li receives funding from the National Environmental Science Program Clean Air and Urban Landscapes Hub and the Australian Urban Infrastructure Research Network. </span></em></p>Free public transport risks worsening social inequalities, helping wealthier households who live in areas with good services while those in outer suburbs must still use cars.Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT UniversityTiebei (Terry) Li, Research Fellow, School of Global, Urban and Social Studies, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1791902022-03-24T03:14:37Z2022-03-24T03:14:37ZNo silver lining for climate change: pain at the petrol pump will do little to get us out of our cars<figure><img src="https://images.theconversation.com/files/453986/original/file-20220323-21-1k5859h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GettyImages</span> </figcaption></figure><p>As global petrol prices skyrocket and governments step in to reduce the cost, is there a point when car owners will say enough is enough and opt for a different kind of transport? If history is anything to go by, probably not.</p>
<p>Over the past few weeks, New Zealand drivers received a nasty shock as the price of fuel rose to over NZ$3 a litre, before dropping back to around $2.60 after the government temporarily <a href="https://www.stuff.co.nz/national/politics/300540764/government-cuts-fuel-taxes-by-25c-and-halves-public-transport-fares-for-three-months">cut fuel taxes by 25 cents</a> a litre and the market eased. In Australia, the government has promised to implement some form of <a href="https://www.theguardian.com/australia-news/2022/mar/21/scott-morrison-signals-budget-measures-to-counter-soaring-petrol-prices-and-cost-of-living">cost cutting measures</a> in the upcoming budget. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1503402104060321793"}"></div></p>
<p>Despite these temporary actions, <a href="https://www.nzherald.co.nz/business/aa-says-petrol-to-likely-reach-4-litre-as-car-queues-stretch-at-nz-stations/7WESH4J5365IMZKPO7IEP2PGBA/">greater price volatility</a> has been predicted. And there is no doubt fuel prices are on the community’s radar. But will rising fuel prices change behaviour? Unfortunately, the available data doesn’t tell us much. </p>
<h2>Pain at the pump doesn’t change behaviour</h2>
<p>Fuel prices change on a weekly or daily basis and are reported over the same time frame, while robust fuel consumption statistics are only publicly available for longer time periods. </p>
<p>This makes consumer reaction to sudden price hikes hard to study, unless the price hike is a long-term trend rather than a short-term spike. It’s not yet clear which of these two scenarios is confronting motorists today. </p>
<figure class="align-center ">
<img alt="black and white image of a petrol pump with a closed sign" src="https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=595&fit=crop&dpr=1 600w, https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=595&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=595&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=748&fit=crop&dpr=1 754w, https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=748&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/453989/original/file-20220323-16499-krdu5o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=748&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">During the 1973 oil crisis, prices skyrocketed and supplies of fuel were limited.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/news-photo/superblend-petrol-pump-with-a-closed-sign-on-it-at-a-garage-news-photo/1313295139?adppopup=true">Evening Standard/Getty Images</a></span>
</figcaption>
</figure>
<p>Therefore, in order to study consumer reaction to a long-term rise in fuel prices, one has to go back to the <a href="https://www.stuff.co.nz/motoring/115929541/friday-flashback-remember-the-oil-crisis-and-carless-days">oil crisis of 1973</a> when oil prices abruptly quadrupled and stayed that way for more than a year. </p>
<p>So, what do motorists do when they are confronted with a massive and sustained increase in petrol prices? As seen during the 1973 crisis and beyond, the consistent answer to this question is “not much”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-russian-gas-could-disrupt-germanys-plan-for-a-bolder-climate-agenda-175268">Why Russian gas could disrupt Germany's plan for a bolder climate agenda</a>
</strong>
</em>
</p>
<hr>
<p>In the decades after the oil crisis, the number of cars in New Zealand continued to rise and the country is now ranked fourth in the OECD for <a href="https://www.newsroom.co.nz/whos-to-blame-for-the-energy-crisis">car ownership</a>. </p>
<p>While some reduction occurs over the longer term, petrol consumption appears to be “inelastic” to price changes. In economic parlance, <a href="https://hbr.org/2015/08/a-refresher-on-price-elasticity">an inelastic good</a> is one where price does not significantly affect demand because there are either few good alternatives, as with petrol and tobacco, or the product is necessary, such as medicines.</p>
<figure class="align-center ">
<img alt="People line up to get on a green bus" src="https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/453990/original/file-20220323-15-jzpsxw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The decision to use public transport in New Zealand is influenced by multiple factors, including convenience and speed.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/news-photo/women-in-face-masks-board-a-bus-in-central-wellington-on-31-news-photo/1270138995?adppopup=true">Lynn Grieveson/Getty Images</a></span>
</figcaption>
</figure>
<h2>A complex market driven by petrol</h2>
<p>That said, the general trends in fuel consumption disguise numerous complexities within the market. </p>
<p>Petrol consumers range from millionaire Porsche drivers getting away to their holiday home, to contract cleaners proceeding to their next gig in a rusty Nissan Micra on its last legs. </p>
<p>A <a href="https://scholar.princeton.edu/sites/default/files/maguiar/files/h2m.pdf">US study</a> in 2019 divided this range of households into two groups to study their behaviour separately: “hand to mouth” and “non-hand to mouth” consumers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cramming-cities-full-of-electric-vehicles-means-were-still-depending-on-cars-and-thats-a-huge-problem-163247">Cramming cities full of electric vehicles means we're still depending on cars — and that's a huge problem</a>
</strong>
</em>
</p>
<hr>
<p>Hand-to-mouth households do not reduce fuel consumption because they are simply not able to do so. Their petrol consumption is already reduced to non-discretionary use only, which is usually related to work, and this expenditure cannot be reduced without also reducing income. </p>
<p>Often the “gig” work that such households rely on is inflexible and not public transport friendly. Buying an electric vehicle (EV) in such circumstances is a fiscal impossibility.</p>
<p>Non-hand-to-mouth households do not reduce their expenditure on fuel because it supports activities and benefits that are usually of far higher value than the additional cost imposed by a rise in fuel prices.</p>
<h2>Cheap public transport is not a perfect solution</h2>
<p>For example, I commute 15km to work each day. This might use about three litres of fuel (I’m not really sure, which is a comment in itself). A rise from $2 to $3 increases my fuel cost from $6 to $9 a day. The cost of public transport for this return trip has gone <a href="https://www.1news.co.nz/2022/03/22/government-confirms-transport-subsidies-package">down from $6 to $3</a>. </p>
<p>I could therefore use public transport, which will save me $6 a day. However, a round trip in a car takes 40 minutes, while a public transport round trip takes over three hours. How much does one value two hours and twenty minutes a day? </p>
<p>Even at the minimum wage, it’s worth around $50 to me, which means fuel might well have to rise to more than $15 a litre to get me out of the car. </p>
<p>This analysis and logic can be applied in varying forms to almost any non-hand-to-mouth household. A 2007 government-funded study found public transport usage in New Zealand was influenced less by <a href="https://www.nzta.govt.nz/assets/resources/research/reports/357/docs/357.pdf">price than other factors</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024">As petrol prices rise, will carbon emissions come down?</a>
</strong>
</em>
</p>
<hr>
<p>Given this, it’s a fairly safe bet that increasing fuel costs will not significantly reduce consumption and oil companies are unlikely to face significant consumer backlash. </p>
<p>Instead, household resources will be redirected away from elastic costs, such as food, to pay for the increased cost of fuel. Upmarket cafes that serve the non-hand-to-mouth households may feel a slight chill as a red line is reluctantly drawn through the daily afternoon latte.</p>
<p>However, the food banks that already support hand-to-mouth households are likely to see a far more drastic effect as they are called on to bridge the increasingly unbridgeable gap between non-discretionary expenditure and minimum income within these stressed communities.</p>
<p>It’s a crisis, whatever the prime minister might say.</p><img src="https://counter.theconversation.com/content/179190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Hamlin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Petrol prices have spiked, forcing governments to step in to reduce costs. But will the rising prices actually force drivers out of their cars, reducing consumption and carbon emissions?Robert Hamlin, Senior Lecturer in Marketing , University of OtagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1793362022-03-20T19:01:45Z2022-03-20T19:01:45ZEnergy bills are spiking after the Russian invasion. We should have doubled-down on renewables years ago<figure><img src="https://images.theconversation.com/files/452943/original/file-20220318-25-i7k9kb.jpg?ixlib=rb-1.1.0&rect=0%2C3%2C2121%2C1406&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty</span></span></figcaption></figure><p>Russia’s invasion of Ukraine is happening half a planet away from Australia. </p>
<p>But the ripple effects are plain to see at every petrol station and, potentially soon, your electricity bill. </p>
<p>As a result of the invasion and Western sanctions on Russian exports, energy prices have skyrocketed. </p>
<p>If that makes you think nations should have taken steps to secure alternatives to fossil fuels years ago, you’re not alone. As it is, the much higher energy prices are likely to accelerate the exit of coal – and gas – from our energy grids. </p>
<p>This should be a wake-up call. It doesn’t matter that Australia is far from the battlefield. Everyone in the world will be affected in some way. </p>
<h2>What’s the link between the invasion and Australian energy prices?</h2>
<p>You might think Australia’s domestic supply of coal and gas means we’d be immune to price rises. Not so. </p>
<p>Due to formal sanctions and informal shunning of Russian exports, oil, coal and gas are now extremely expensive on a global scale. Thermal coal prices have increased five-fold to an unprecedented ~$A500 per tonne. Oil is ~$140 a barrel and up 60% year on year. Natural gas in Europe is around 50% higher than last October, but since the invasion, prices have spiked as high as ~200% higher than 2021 levels. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/will-russias-invasion-of-ukraine-push-europe-towards-energy-independence-and-faster-decarbonisation-177914">Will Russia's invasion of Ukraine push Europe towards energy independence and faster decarbonisation?</a>
</strong>
</em>
</p>
<hr>
<p>Coal buyers are locking in supply, concerned that Russian sanctions will continue. Russia is the <a href="https://www.spglobal.com/commodity-insights/en/market-insights/latest-news/metals/030722-factbox-russian-metals-industrys-reliance-on-china-set-to-rise-as-sanctions-disrupt-supplies">third largest exporter of coal</a> and its existing customers are now under pressure to find alternative supplies. </p>
<p>Russia’s aggression is not just resulting in a major humanitarian and political crisis. It is also causing pain at the bowser for Australian consumers due to the surge in oil pricing and may soon result in higher electricity bills. </p>
<p>Australia’s east-coast electricity market is still heavily reliant upon coal. While many coal-fired power stations have existing supply contracts, the much higher global coal price may increase the cost of any extra coal purchases by existing power stations. </p>
<p>Not only that, but our gas-fired power stations are facing potential increases in operating costs due to much higher global gas prices. </p>
<p>Unfortunately, we may see the result in rising power bills. The price of future contracts for wholesale electricity next year in NSW are now twice what they were a year ago. Assuming this flows through to end-users, prices for residential customers could increase by as much as 10–15%. </p>
<h2>So what should Australia do?</h2>
<p>While it’s too late to dodge this bullet, we can prepare for future shocks by doubling down on firmed renewables. The faster we move, the less we’ll be hit by the price and reliability risks of coal. </p>
<p>Already under pressure from cheaper renewable technologies, coal power station operators now find themselves potentially facing much higher costs in the short-term. There’s no relief for coal in the long term either, with the rapid rise of renewables and other zero-carbon technologies.</p>
<p>Not only that, but most of our coal power stations are near the end of their lives, and industry doesn’t want to build new ones. That means coal will become more and more expensive, as the plants become <a href="https://www.aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/inputs-assumptions-methodologies/2020/aep-elical-assessment-of-ageing-coal-fired-generation-reliability.pdf">increasingly unreliable</a>. </p>
<p>Wind and solar technologies are now much cheaper per unit of energy generated and can be integrated with energy storage to provide dispatchable “firmed” energy. The faster we transition to renewables firmed by storage, the better. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Wind solar and battery farm" src="https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452948/original/file-20220318-36080-1ywlot9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Renewables firmed by storage now offer a cheaper, more reliable alternative.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>If we do this, our new grid will also be more reliable. Continuing to rely upon coal is like relying upon a 1970s car to travel from Sydney to Melbourne on the hottest day of the year. </p>
<p>State governments around the nation are already embracing this approach, with the New South Wales government moving ahead with plans for 12 gigawatts (GW) of new renewables and storage and the Victorian government announcing plans for 9GW of offshore windfarms. </p>
<p>Governments must carefully design policies to avoid guaranteeing profits for private sector players while socialising any losses across taxpayers and energy consumers. In NSW, <a href="https://econpapers.repec.org/article/blaajarec/v_3a66_3ay_3a2022_3ai_3a1_3ap_3a136-163.htm">alternatives</a> are being considered.</p>
<p>As European and many other nations scramble to reduce their dependency on Russian coal, oil and gas, Australia now has a once in a generation opportunity to become a leading exporter of new clean energy. </p>
<p>We have truly enormous clean energy resources in the form of free sunlight and wind. To export it, we can either run underseas cables to neighbouring countries, or convert cheap renewable power into <a href="https://theconversation.com/green-hydrogen-is-coming-and-these-australian-regions-are-well-placed-to-build-our-new-export-industry-174466">green hydrogen</a> and ship this to the world just as we currently do with LNG. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Workers installing solar" src="https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452947/original/file-20220318-17-cyct81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Renewables draw energy from sources unaffected by war.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>What else can we expect to see?</h2>
<p>Surging fossil fuel prices has supercharged the existing disruption to an already rapidly changing domestic energy industry. In the past month, Origin announced it would abandon coal more rapidly, with the closure of its NSW coal-fired power station, Eraring, in 2025. </p>
<p>Meanwhile, AGL has been pursuing a “demerger” with a view to splitting off its coal assets and pursuing new energy technologies. This comes as Australian tech billionaire Mike Cannon-Brookes and Canadian asset fund Brookfield <a href="https://www.abc.net.au/news/2022-03-06/brt-agl-brookfield-bid-rejected/100887042">offered to buy AGL</a> for $8.25 a share, though they were not successful. Their plan was to accelerate the closure of AGL’s coal assets, which would move AGL from the <a href="https://www.greenpeace.org.au/news/new-government-data-reveals-agl-as-australias-biggest-climate-polluter/">highest carbon emitter in Australia</a> to a clean energy company. The age of coal power is ending, and much faster than most of us realise. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/green-hydrogen-is-coming-and-these-australian-regions-are-well-placed-to-build-our-new-export-industry-174466">Green hydrogen is coming – and these Australian regions are well placed to build our new export industry</a>
</strong>
</em>
</p>
<hr>
<p>This crisis should spur us to build a future-proofed fleet of “firmed” and well-distributed renewables with a known cost structure. </p>
<p>By doing this, we will protect ourselves from the pain of geopolitically driven fossil fuel prices. And we will have a platform ready if we want to provide clean energy to the world in the form of green hydrogen.</p>
<p>We have had decades to make full use of our wealth of renewable energy resources. We haven’t embraced this as fully as we should have. </p>
<p>It turns out localised clean energy production is not just necessary to tackle climate change. It will prove a vital resource as we navigate the highly turbulent decade we have found ourselves in.</p><img src="https://counter.theconversation.com/content/179336/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, that develops renewable projects and batteries.</span></em></p><p class="fine-print"><em><span>Joel Gilmore is an Associate Professor at Griffith University and the GM, Energy Policy & Planning at Iberdrola Australia, that develops renewable projects and firming assets.</span></em></p>Australia might be a long way away, but fossil fuel price spikes triggered by the Russian invasion of Ukraine are hitting households hard. We could have avoided this pain.Tim Nelson, Associate Professor of Economics, Griffith UniversityJoel Gilmore, Associate Professor, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1792722022-03-15T04:06:47Z2022-03-15T04:06:47ZIt’s hard to find a case for a cut in petrol tax – there are other things the budget can do<p>Cutting petrol tax to bring down the cost of living used to be the political version of a joke. Failed US presidential candidates John McCain and Hillary Clinton both tried it in 2008. Their bipartisan advocacy of a “<a href="https://www.reuters.com/article/us-usa-politics-gastax-economists-idUSN3038243520080430">summer gas tax holiday</a>” was derided as <a href="https://www.nytimes.com/2008/04/30/opinion/30friedman.html">dumb</a>, a <a href="https://www.economist.com/free-exchange/2008/05/02/how-do-i-hate-thee-gas-tax-holiday">turkey</a> and a “<a href="https://www.motherjones.com/politics/2008/05/gas-tax-follies-obama-and-clinton-camps-spar/">metaphor for the entire campaign</a>”. </p>
<p>When <a href="http://voices.washingtonpost.com/44/2008/05/05/economists_release_letter_oppo.html">230</a> economists released a letter opposing it in 2008, Clinton said: “I’ll tell you what, I’m not going to <a href="https://chicago.suntimes.com/news/2008/5/4/18595932/clinton-talks-about-gas-tax-holiday-on-abc-s-this-week-transcript-may-4-2008-show">put my lot in with economists</a>”.</p>
<p>Her opponent for her party’s nomination, Barack Obama, labelled it a <a href="http://archive.boston.com/news/nation/articles/2008/04/30/obama_assails_lifting_of_gas_tax_as_gimmick/">gimmick</a> and went on to win both the nomination and the presidency.</p>
<p>But it isn’t a joke now. There’s talk about it in the <a href="https://www.forbes.com/sites/lisakim/2022/02/15/democrats-propose-federal-gas-tax-holiday-to-combat-rising-prices-heres-what-you-need-to-know/?sh=55e779e71001">US</a>, New Zealand has just cut in its fuel excise <a href="https://www.beehive.govt.nz/release/government-cuts-25c-litre-fuel-excise-cost-living-relief-package">25 cents</a> to ease cost of living pressures, and Australia is considering a budget measure <a href="https://www.smh.com.au/politics/federal/scott-morrison-flags-tax-relief-as-petrol-hits-record-highs-20220314-p5a4cr.html">along the same lines</a>.</p>
<p>What has happened to the price of petrol is shocking. In capital cities the unleaded price is about <a href="https://motormouth.com.au/">A$2.18</a>, up from <a href="https://www.aip.com.au/pricing/pump-prices">$1.60</a> at the start of the year. That means that whereas it might have cost $80 to fill up a Toyota Corolla at the start of the year, it now costs one third as much again – $109.</p>
<p>If you fill up fortnightly, as many people do, the extra impost is greater than if the Reserve Bank lifted its cash rate by <a href="https://www.mortgagechoice.com.au/home-loan-calculators/">0.25%</a> and pushed up the cost of payments on your mortgage.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024">As petrol prices rise, will carbon emissions come down?</a>
</strong>
</em>
</p>
<hr>
<p>If you own an SUV, by now Australia’s <a href="https://www.fcai.com.au/news/index/view/news/753">biggest selling</a> type of new car, the extra impost will be greater. And (as with interest rates) there’s every chance petrol prices will climb further.</p>
<p>In New Zealand, where petrol costs more than <a href="https://www.globalpetrolprices.com/New-Zealand/gasoline_prices/">NZ$3 per litre</a> (A$2.80) the government has cut petrol excise by <a href="https://www.beehive.govt.nz/release/government-cuts-25c-litre-fuel-excise-cost-living-relief-package">25 cents per litre</a> for three months, in the hope that by then the worst effects of the Russia-Ukraine war will have passed.</p>
<h2>Australia taxes petrol lightly</h2>
<p>Eagle-eyed readers will have noticed that even with the cut, New Zealand petrol prices will still be way above Australia’s. That’s because, like <a href="https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024">most</a> developed nations, New Zealand charges more in tax for using roads than does Australia.</p>
<p>Until the cut on Tuesday, New Zealand petrol excise was a touch over <a href="https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-generation-and-markets/liquid-fuel-market/duties-taxes-and-direct-levies-on-motor-fuels-in-new-zealand/">NZ$0.77</a> per litre (A$0.72) compared to around <a href="https://www.ato.gov.au/Business/Excise-on-fuel-and-petroleum-products/Lodging,-paying-and-rates---excisable-fuel/Excise-duty-rates-for-fuel-and-petroleum-products/">A$0.43</a> in
Australia.</p>
<hr>
<p><strong>Low by international standards</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=304&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=304&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=304&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Retail unleaded price (Australian cents per litre)</span>
<span class="attribution"><a class="source" href="https://www.energy.gov.au/publications/australian-petroleum-statistics-2021">Department of Industry, Science, Energy and Resources</a></span>
</figcaption>
</figure>
<hr>
<p>The goods and services tax charged on top of that in both nations brings the NZ excise to about NZ$0.89 per litre (A$0.83) compared to Australia’s A$0.48.</p>
<p>If these figures sound low, it’s because the price of petrol has soared. One of the peculiarities of taxes that are set in cents per litre (climbing only with inflation) is that when the petrol price jumps, the tax as a proportion of the total price shrinks. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452121/original/file-20220315-27-1me4yn2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">New Zealand prices exceed NZ$3 per litre.</span>
<span class="attribution"><span class="source">Benjamin McKay/AAP</span></span>
</figcaption>
</figure>
<p>A year ago fuel excises accounted for 40% of the cost of New Zealand petrol, and 35% of the cost of Australian petrol. At 28% and 22%, they’ve become self-cutting.</p>
<p>If we abolished fuel excise altogether, cutting the Australian unleaded price 22%, we would only bring the price back to where it was <a href="https://www.accc.gov.au/consumers/petrol-diesel-lpg/about-fuel-prices">five weeks ago</a>.</p>
<p>And then (as I imagine will happen in New Zealand after three months) the government would find it hard to reintroduce it. </p>
<p>It is finding it difficult to end the $1,080 low and middle earner tax break that was meant to finish <a href="https://theconversation.com/this-pointless-1-080-tax-break-should-have-ended-years-ago-but-has-become-hard-to-stop-177546">two years ago</a>.</p>
<p>The mess it has got itself in to both by hinting that it will <a href="https://www.smh.com.au/politics/federal/scott-morrison-flags-tax-relief-as-petrol-hits-record-highs-20220314-p5a4cr.html">cut the excise</a> and by not ending the A$7.8 billion per year low and middle earner offset hints at a way out.</p>
<p>The offset is poorly designed. It is paid out as a tax refund after the end of each financial year, making it the opposite of the “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/budget-speech-2021-22">stimulus measure</a>” Treasurer Josh Frydenberg said it was when he last extended it. If he extends it again for the coming financial year, it won’t get paid out until the second half of 2023.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/this-pointless-1-080-tax-break-should-have-ended-years-ago-but-has-become-hard-to-stop-177546">This pointless $1,080 tax break should have ended years ago – but has become hard to stop</a>
</strong>
</em>
</p>
<hr>
<p>The petrol component of the fuel excise brings in <a href="https://budget.gov.au/2021-22/content/bp1/download/bp1_bs5.pdf">A$5.8 billion</a> per year. The government might be able to hang on to that and use the <a href="https://budget.gov.au/2021-22/content/bp2/index.htm">A$7.8 billion</a> that would have been spent on the offset to support people now when they need it and when petrol prices are high, rather than a year into the future when they might not be.</p>
<p>The A$7.8 billion would be directed to Australia’s lowest earners, the ones who are being hit hardest by the horrendous petrol prices. Low earners (the bottom 40%) on average spend more than <a href="https://www.abs.gov.au/statistics/economy/finance/household-expenditure-survey-australia-summary-results/latest-release#">3%</a> of their income on petrol. High earners spend less than 2%.</p>
<h2>Support shouldn’t be tied to petrol use</h2>
<p>The support to low earners should be delivered in cash rather than as a subsidy to petrol prices. Recipients would be able to spend it on petrol should they need to, but would be able to spend it on other things.</p>
<p>If it was delivered as a petrol subsidy it would go disproportionately to the highest earning households for whom high petrol prices are a mere annoyance. High income households spend more on petrol in absolute terms (on average <a href="https://www.abs.gov.au/statistics/economy/finance/household-expenditure-survey-australia-summary-results/latest-release#">50%</a> more) than low income households.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/high-petrol-prices-hurt-but-cutting-excise-would-harm-energy-security-178766">High petrol prices hurt, but cutting excise would harm energy security</a>
</strong>
</em>
</p>
<hr>
<p>If it is delivered as cash rather than a petrol subsidy it won’t blunt the push that high prices give for people will switch to <a href="https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024">more efficient cars</a> and use petrol less by doing things such as working more from home.</p>
<p>It’s hard to find a case for a cut in Australia’s petrol tax, but it is easy to create a mechanism to help the people high prices are hurting. The budget is due in a fortnight.</p><img src="https://counter.theconversation.com/content/179272/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government has held out the promise of a cut in petrol tax, and New Zealand has delivered one. There are better ways to help.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1787662022-03-09T19:08:12Z2022-03-09T19:08:12ZHigh petrol prices hurt, but cutting excise would harm energy security<figure><img src="https://images.theconversation.com/files/450867/original/file-20220309-23-1m7r3df.jpg?ixlib=rb-1.1.0&rect=108%2C954%2C5067%2C2491&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Australian petrol prices are rising as Russia’s invasion of Ukraine pushes up global oil prices. It’s likely motorists will be paying more than $2.15 a litre for unleaded petrol within a few weeks.</p>
<p>In response, independent South Australian senator <a href="https://www.theaustralian.com.au/nation/politics/calls-for-cut-to-fuel-excise-to-address-high-cost-of-living/video/49c978114efa5cfaf12b80ae8ac75aa2">Rex Patrick</a> has called on the federal government to halve the fuel excise on petrol for 12 months. “Extreme petrol prices are an economic boa constrictor throttling household budgets,” <a href="https://www.rexpatrick.com.au/50_cut_in_fuel_excise_required">he said</a> this week. “We have to take the pressure off.” </p>
<p>The fuel excise is a fixed amount, currently set at 44.2 cents a litre. Halving it would therefore knock 22.1 cents off the price of petrol. </p>
<p>That would certainly offer some relief at the bowser, and to the economy. It would not, however, serve Australia’s economic and national interests in the longer term.</p>
<p>At a time when world events underline the importance of greater energy security, it would prolong our already alarming dependence on oil-based imports and undermine policies to shift the nation away from fossil fuels.</p>
<p>Calls to cut fuel tax arise whenever Australian petrol prices rise. This is despite Australian taxes – the fuel excise plus 10% GST – being among the lowest rates in the OECD and making little contribution to price increases. </p>
<p>All GST revenue is distributed to state and territory governments. The fuel excise is (theoretically) levied to pay for Australia’s road infrastructure. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">What Russia's war means for Australian petrol prices: $2.10 a litre</a>
</strong>
</em>
</p>
<hr>
<p>In 2019-20 the government collected A$5.6 billion from petrol and about $11.8 billion from diesel (much of which was reimbursed through diesel tax rebates). </p>
<p>The net revenue from all fuel excises, according to the Australian Automobile Association, is about <a href="https://www.aaa.asn.au/fuel-excise-explained/">$11 billion</a>, a figure that hasn’t changed much for a decade. </p>
<h2>Undermining decarbonisation</h2>
<p>While making energy prices as cheap as possible does have some short-term economic logic, cutting the fuel excise would undermine the government’s longer term strategic goal to decarbonise the economy. </p>
<p>This is important both for Australia to meet its international obligations to take action on climate change and to look after the narrower national interest of preparing the Australian economy to compete in a carbon-constrained world.</p>
<p>Shifting away from fossil fuels to electric (and some hydrogen fuel-cell) vehicles is a key part of this. The Morrison government has acknowledged this with a target of 30% of all new car sales being electric by 2030. (Electric vehicles made up just under <a href="https://www.theguardian.com/environment/2022/jan/31/new-electric-vehicle-sales-triple-in-australia-with-tesla-outstripping-other-makers">2% of new car sales</a> in 2021.) </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024">As petrol prices rise, will carbon emissions come down?</a>
</strong>
</em>
</p>
<hr>
<p>While the government has committed $250 million to its <a href="https://www.industry.gov.au/data-and-publications/future-fuels-and-vehicles-strategy">Future Fuels and Vehicles Strategy</a> to help achieve the target, its policy mostly depends on low-emissions vehicles achieving “<a href="https://www.industry.gov.au/sites/default/files/November%202021/document/future-fuels-and-vehicles-strategy.pdf">pricing parity</a>” with internal combustion engines by mid-decade, and for market forces to do the rest.</p>
<p>Slashing the fuel excise won’t do anything to help this plan become reality. It would also undermine state and territory government spending on policies to encourage the uptake of electric vehicles, <a href="https://www.theguardian.com/environment/2021/nov/13/thinking-of-buying-an-electric-car-heres-what-you-need-to-know-about-models-costs-and-rebates">through incentives</a> such as stamp-duty waivers, free registration and rebates.</p>
<h2>Taking energy security seriously</h2>
<p>Moving away from fossil fuels is critical for addressing Australia’s growing energy insecurity. This entails two things: uninterrupted availability and affordability. </p>
<p>They are issues Senator Patrick cares about. </p>
<p>In <a href="https://www.news.com.au/technology/environment/sustainability/bob-katter-joins-forces-with-greens-crossbench-mps-and-senators-to-fight-for-fuel-security/news-story/3b037d43292b5ca4607aceadcef805ab">mid-Febuary</a> with Greens leader Adam Bandt and independentrs Andrew Wilkie and Bob Katter he hopped aboard an Australian-built electric bus for a photo opp in front of Old Parliament House.</p>
<p>Energy security doesn’t get much attention during normal times, but current events have underlined the dangers of being dependent on foreign supplies. </p>
<p>As Prime Minister Scott Morrison said this week, the world has entered a period of “<a href="https://www.afr.com/policy/foreign-affairs/scott-morrison-is-in-his-political-element-20220307-p5a2ji">profound strategic challenge and disruption</a>”. </p>
<p>It is at the mercy of the international market and global supply chains for our supply security and fuel affordability.</p>
<p>Australia’s dependence on oil imports has been growing for <a href="https://theconversation.com/australias-growing-oil-imports-are-an-energy-security-issue-7749">at least a decade</a>. </p>
<p>Closure of oil refineries along with declining oil production means we now import more than 90% of our needs. Yet we have abundant renewable resources to generate electricity and power low-emissions vehicles. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-what-is-energy-security-and-how-has-it-changed-102476">Explainer: what is energy security, and how has it changed?</a>
</strong>
</em>
</p>
<hr>
<p>The solution to consumers being hostage to foreign oil supplies and volatile global prices will not come from slashing the fuel excise. </p>
<p>It will come from reducing demand for oil-based fuels through policies that promote local energy generation and switching to low-emissions vehicles – like the electric bus that Patrick sat in a just few weeks ago.</p><img src="https://counter.theconversation.com/content/178766/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vlado Vivoda does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Proposals to cut Australia’s fuel excise will prolong an already alarming dependence on oil-based imports and undermine policies to shift the nation away from fossil fuels.Vlado Vivoda, Senior Lecturer in Strategic Studies (Australian War College), Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1780242022-03-01T05:01:19Z2022-03-01T05:01:19ZAs petrol prices rise, will carbon emissions come down?<figure><img src="https://images.theconversation.com/files/449107/original/file-20220301-19-vomwjn.png?ixlib=rb-1.1.0&rect=868%2C475%2C5767%2C3317&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Bianca de Marchi/AAP</span></span></figcaption></figure><p>No one likes paying <a href="https://www.aip.com.au/pricing/ulp/national/5-Capital-City-Average">A$1.80</a> per litre for petrol. But amid forecasts of prices climbing to <a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">$2.10</a> as Russian’s invasion of Ukraine drags on, it’s possible some good could come of that pain – including greater energy independence and a faster path to net-zero emissions.</p>
<p>Two months ago, at the start of 2022, the typical Sydney and Melbourne unleaded price was <a href="https://www.aip.com.au/pricing?search=sydney">$1.60</a> a litre. A year earlier, at the start of 2021, it was <a href="https://www.accc.gov.au/system/files/Petrol%20Quarterly%20Report%20-%20September%202021.pdf">$1.20</a>.</p>
<p>That increase – from $1.20 to $1.80 in just 14 months – is a jump of 50%.</p>
<p>Estimates of the <a href="https://openresearch-repository.anu.edu.au/bitstream/1885/13690/4/01%20Burke%20Paul%20J%20and%20Nishitateno%20S%20Gasoline%20prices%20and%202014.pdf">price elasticity of demand for petrol</a> prepared by Paul Burke of the Australian National University and Shuhei Nishitateno of Kwansei Gakuin University in Japan come up with the number 0.3. Other estimates are <a href="https://www.researchgate.net/publication/32885803_Elasticities_of_Road_Traffic_and_Fuel_Consumption_with_Respect_to_Price_and_Income_A_Review">higher</a>.</p>
<p>A price elasticity of 0.3 means that for each 10% a price climbs, demand for the product falls 3%. </p>
<p>In the case of petrol, where the price has climbed a phenomenal 50% in the past 14 months, demand for it should fall 15%, a fall big enough to make a <a href="https://www.climatecouncil.org.au/wp-content/uploads/2017/09/FactSheet-Transport.pdf">dent</a> in Australia’s greenhouse gas emissions.</p>
<p>There’s been nothing like such a drop, and what drop there has been can be explained by <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02488823-2A1357669?access_token=83ff96335c2d45a094df02a206a39ff4">COVID measures</a> such as lockdowns and working from home.</p>
<h2>The high price needs to last to have an effect</h2>
<p>There hasn’t been a big drop because the elasticity estimates are long term. Those of us who drive cars don’t (and often can’t) react straight away. </p>
<p>Sure, we can delay filling up if the price is high, or drive from one station to another, but in the short term we have no choice but to buy petrol.</p>
<p>Longer term, <em>if</em> we think the price is going to stay high, we will change our behaviour. Burke and Nishitateno’s calculations suggest that each 10% increase in the price of petrol that lasts boosts the average fuel efficiency of new cars by 2%. </p>
<p>It’s an average figure. Some of us will go electric altogether, and be freed of petrol bills, others will do nothing, and others will buy smaller cars or hybrids.</p>
<h2>Petrol prices change what we buy</h2>
<p>This is how things have played out. When prices shot up in the 1970s we switched to <a href="https://www.rba.gov.au/publications/bulletin/2008/sep/pdf/bu-0908-1.pdf">smaller cars</a>, most of which weren’t made in Australia, and helped trigger the decline of the Australian car industry. When prices fell after a spike around 2008 we moved to <a href="https://theconversation.com/gas-guzzlers-fuelled-by-shrinking-petrol-tax-12552">gas-guzzling SUVs</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=967&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=967&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=967&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1215&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1215&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449097/original/file-20220301-23-v3ez7k.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1215&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Petrol prices command attention.</span>
<span class="attribution"><span class="source">Ellen Duffy</span></span>
</figcaption>
</figure>
<p>So what will matter for our demand for petrol (and our emissions) is whether the higher prices last. There’s no doubt we are paying attention.</p>
<p>We spend almost as much on alcohol (2.2% of our budgets) as we do on petrol (<a href="https://www.abs.gov.au/statistics/economy/finance/household-expenditure-survey-australia-summary-results/latest-release">2.6%</a>) but we notice petrol prices more. In part this because they are displayed prominently in well-lit letters of a regulated height.</p>
<p>As marketing researcher <a href="https://www.smh.com.au/business/dont-worry-line-on-petrol-price-isnt-sinking-in-20051112-gdmfhv.html">David Chalke</a> put it, “you have to buy it, and there’s a bloody great big sign always there telling you how much it is”.</p>
<p>In the 1970s and early 1980s, Australia was <a href="https://www.nytimes.com/1974/04/07/archives/australia-with-no-fuel-crisis-remains-an-autooriented-society.html">fairly self-sufficient</a> in petrol. There was a lot of oil in the <a href="https://theconversation.com/running-on-empty-australias-risky-approach-to-oil-supplies-23619">Bass Strait</a> and Australia refined it locally. </p>
<p>Then the wells ran low. These days 60% of our petrol is imported and most of the 40% that is made here is made from <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1920/Quick_Guides/LiquidFuelSecurity">imported oil</a>.</p>
<h2>Russia is one the big three suppliers</h2>
<p>It means our prices move with international prices, which are determined by how much is needed (COVID and the rise of China have big effects) and how much is supplied. </p>
<p>Supply is partly determined by big oil exporting nations that get together and strike agreements with the aim of keeping prices high, but not so high that buyers buy less. The biggest are <a href="https://www.worldstopexports.com/worlds-top-oil-exports-country/">Saudi Arabia</a> (17% of exported crude oil), Russia (11%) and Iraq (7.7%).</p>
<p>From time to time they break these agreements, as <a href="https://www.oxfordenergy.org/wpcms/wp-content/uploads/2016/02/Russia-and-OPEC-Uneasy-Partners.pdf?v=7516fd43adaa">Russia</a> seemed to in 2009 when it sent far more oil into the market than was expected and helped bring about the biggest price collapse on record, pushing down the price from US$140 per barrel to US$40 per barrel, and helping usher in the era of the SUV.</p>
<h2>Australian prices are low</h2>
<p>Australian petrol prices are at record highs, but by international standards they are still unusually low; the fourth-lowest among the 33 OECD nations graphed by Australia’s Bureau of Resource & Energy Economics – above only Turkey, the United States and Columbia. </p>
<p>The chief reason is tax, In December taxes (fuel excise plus GST) accounted for only <a href="https://www.energy.gov.au/publications/australian-petroleum-statistics-2021">37%</a> of the price of Australian unleaded petrol, compared to 48% of New Zealand petrol and 60% of German and UK petrol.</p>
<hr>
<p><strong>Low by international standards</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=304&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=304&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=304&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449337/original/file-20220301-13-1rqa8js.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Retail unleaded price (Australian cents per litre)</span>
<span class="attribution"><a class="source" href="https://www.energy.gov.au/publications/australian-petroleum-statistics-2021">Department of Industry, Science, Energy and Resources</a></span>
</figcaption>
</figure>
<hr>
<p>There are good reasons for taxing Australian motorists more. Higher taxes would better reflect the cost of roads and road repair and the environmental damage wrought by cars. </p>
<p>That’s not likely to happen right now – although in <a href="https://www.financeminister.gov.au/media-release/2014/10/28/implementation-arrangements-fuel-excise-indexation-over-next-12-months">2014</a> the Coalition reintroduced indexation in the face of surprising opposition from the Greens, ensuring fuel tax at least increased in line with prices. But it suggests there’s little room to cut taxes.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-russias-war-means-for-australian-petrol-prices-2-10-a-litre-177719">What Russia's war means for Australian petrol prices: $2.10 a litre</a>
</strong>
</em>
</p>
<hr>
<p>If access to Russian oil remains difficult and prices don’t return to where they were, we will move away from using petrol faster, either by making adjustments such as working more from home or by buying cars that are more efficient or more electric.</p>
<p>It’ll be a bizarre and largely welcome byproduct of war in Ukraine, perhaps the only welcome one. It’ll increase the value of <a href="https://theconversation.com/the-battle-for-agl-heralds-a-new-dawn-for-australian-electricity-177530">takeover target AGL</a>, Australia’s largest electricity supplier, and speed us on our path to zero emissions and energy independence. It’ll get us where we are going sooner.</p><img src="https://counter.theconversation.com/content/178024/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Estimates suggest a 10% jump in the price of petrol pushes down demand for petrol 3%. In the past 14 months, the price has jumped 50%.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1777192022-02-23T19:14:35Z2022-02-23T19:14:35ZWhat Russia’s war means for Australian petrol prices: $2.10 a litre<figure><img src="https://images.theconversation.com/files/447964/original/file-20220223-13-1nv1xo5.png?ixlib=rb-1.1.0&rect=35%2C251%2C1336%2C869&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Petrol prices Wednesday morning.</span> <span class="attribution"><span class="source">Ellen Duffy/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Global crude oil prices have already reached their highest levels since 2014 in response to Russia’s military incursion into Ukraine. </p>
<p>With Russia being the world’s second-largest exporter of crude oil and refined petrol, as well the world’s largest exporter of natural gas, we can expect prices to go even higher as the conflict deepens. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-russias-recognition-of-breakaway-parts-of-ukraine-breached-international-law-and-set-the-stage-for-invasion-177623">How Russia’s recognition of breakaway parts of Ukraine breached international law – and set the stage for invasion</a>
</strong>
</em>
</p>
<hr>
<p>Skittish global energy markets are now factoring in disruptions to Russia’s supply through Western sanctions as well as Russia cutting off to supplies to Europe, its <a href="https://www.eia.gov/international/analysis/country/RUS">main market</a> for both oil and gas.</p>
<p>Australians will feel these market anxieties too, with changes in retail prices largely determined by international price benchmarks for refined petrol.</p>
<p>It typically takes <a href="https://www.accc.gov.au/system/files/Fuel%20facts%20-%20Unleaded%20petrol.pdf">more than a week</a> for changes in international prices to flow through to retail prices in Australian cities, and longer in regional areas. </p>
<p>But based on what is happening internationally we can expect petrol prices in Australia to soon reach an average of $2.10 a litre. </p>
<h2>How are petrol prices set?</h2>
<p>Australia meets its petrol needs through either refining <a href="https://theconversation.com/australia-imports-almost-all-of-its-oil-and-there-are-pitfalls-all-over-the-globe-97070">crude oil</a> locally or (increasingly) importing refined petrol. </p>
<p>Two decades ago, eight local refineries were able to supply most of Australia’s petrol demand. Now there <a href="https://www.abc.net.au/news/2021-02-11/australia-loses-another-oil-refinery-risking-fuel-supply/13139648">are just two</a>, producing less than 10% of Australia’s petrol needs. This means 90% of refined petrol is imported – principally from Korea, Singapore, Japan, Malaysia and China.</p>
<p>As in other importing countries, the price Australians pay at the petrol pump therefore has three main components: </p>
<ul>
<li>the international price of refined petrol </li>
<li>government taxes</li>
<li>other transportation, marketing and retail costs, including a profit margin. </li>
</ul>
<p>The Australian Competition & Consumer Commission, which <a href="https://www.accc.gov.au/media-release/petrol-prices-rise-on-the-back-of-higher-international-crude-oil-prices">closely scrutinises</a> petrol prices, says the international price is the main determinant of price changes. </p>
<p>The following chart shows the relationship between average retail prices in Australian cities and the benchmark price for 95-octane unleaded petroleum in Singapore, the largest oil trading exchange in our region. (The fuel is called Singapore Mogas 95 – “mogas” meaning motor gasoline.)</p>
<hr>
<p><strong>Monthly average retail petrol prices in the 5 largest cities and Mogas 95 prices in real terms: October 2001 to
November 2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Movements in monthly average retail petrol prices in the 5 largest cities and Mogas 95 prices in Australian cents per litre" src="https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=284&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=284&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=284&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=357&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=357&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447994/original/file-20220223-21-h34t6m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=357&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/publications/quarterly-reports-on-the-australian-petroleum-industry/quarterly-report-on-the-australian-petroleum-market-%E2%80%93-september-quarter-2021">ACCC</a></span>
</figcaption>
</figure>
<hr>
<p>Taxes are the second-biggest component. These consist of an excise and the goods and services tax. GST is 10% of the retail price (or 1/11 of the total price paid). <a href="https://www.accc.gov.au/consumers/petrol-diesel-lpg/about-fuel-prices#:%7E:text=storage%20and%20transportation.-,Other%20costs%20and%20taxes,of%20the%20total%20price%20paid">As of February 2022</a>, the excise was fixed at 44.2 cents a litre, so it doesn’t change with the retail price.</p>
<p>Assuming a petrol price of $1.90/litre, taxes would comprise about a third of the cost. The tax Australians pay on petrol is among <a href="https://www.aip.com.au/pricing/international-prices/international-price-comparisons">the lowest</a> in the OECD group of advanced economies.</p>
<p>The remainder of the retail price includes supply chain costs and profit margins for refiners, wholesalers, distributors and retailers. The amount motorists pay as profit is less than 10 cents a litre.</p>
<h2>Global ripples</h2>
<p>Australia may not import crude oil or petrol from Russia. But the world oil market behaves as one great pool, where changes in market conditions in one area quickly affect other geographic areas. </p>
<p>More than half of Russia’s oil exports and most of its natural gas exports go to Europe. Russia provides about 30% of Europe’s crude oil and refined petrol imports and 40% of it natural gas imports.</p>
<p>In response to Russia’s actions against Ukraine, Germany has already moved to <a href="https://www.latimes.com/world-nation/story/2022-02-22/germany-moves-halt-nord-stream-2-gas-pipeline-russia">halt</a> a new gas pipeline being laid in the Baltic Sea between Russia and Germany. </p>
<p>Market watchers worry the Russian gas that flows across Ukraine to Europe could also be shut off. This would lead to severe shortages in some countries and drive up the price of gas as well as other fuels, such as oil. </p>
<p>There is also considerable pressure to ensure economic sanctions imposed on Russia are not undermined by Moscow continuing to profit from its oil and gas trade. Analysts from the <a href="https://www.brookings.edu/blog/order-from-chaos/2022/01/26/if-russia-invades-sanction-its-oil-and-gas/">Brookings Institution</a>, for example, have argued for sanctions on Russian energy exports. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-vladimir-putin-is-so-confident-in-his-ukraine-strategy-he-has-a-trump-card-in-china-177534">Why Vladimir Putin is so confident in his Ukraine strategy – he has a trump card in China</a>
</strong>
</em>
</p>
<hr>
<h2>What we can expect</h2>
<p>Two weeks ago, when the global benchmark oil price was just above US$90 a barrel, JP Morgan predicted the price would reach <a href="https://www.cnbc.com/2022/02/16/oil-could-vault-as-high-as-150-a-barrel-veteran-analyst-warns.html">US$125 a barrel</a>. </p>
<p>This week Goldman Sachs analysts tipped that “outright conflict” coupled with “punitive sanctions” will increase oil prices by <a href="https://fortune.com/2022/02/21/russia-ukraine-conflict-stock-market-equities-oil-price-ruble-euro-usd-goldman-sachs/">13%</a>. </p>
<p>The five-city average Australian petrol price was near <a href="https://www.aip.com.au/pricing/ulp/national/5-Capital-City-Average">A$1.70</a> per litre when the benchhmark oil price was US$90 per barrel. This suggests an increase to US$125 a barrel would lift average Australian city prices to as much as $2.10 per litre.</p><img src="https://counter.theconversation.com/content/177719/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vlado Vivoda does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia may not import crude oil or petrol from Russia. But the world oil market behaves as one great pool.Vlado Vivoda, Senior Lecturer in Strategic Studies (Australian War College), Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1745722022-01-12T14:26:19Z2022-01-12T14:26:19ZWhy haven’t petrol prices gone back down yet? A new business model might explain why<figure><img src="https://images.theconversation.com/files/440441/original/file-20220112-17-1mm8787.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Petrol prices reflect lots of elements not just crude oil wholesale cost.</span> <span class="attribution"><span class="source">Tomas K/Shutterstock</span></span></figcaption></figure><p>Across the UK the cost of filling up cars shot up in November when wholesale oil prices rose. But when crude oil prices <a href="https://oilprice.com/">went down</a> again, costs at the pump did not drop back to previous levels. This has prompted UK motoring organisation, the RAC, <a href="https://www.rac.co.uk/drive/news/fuel-prices/rac-urges-fuel-retailers-to-cut-petrol-prices-as-financial-burden-mounts-on/">to complain</a> that drivers are being overcharged. So, what is going on?</p>
<p>Traditionally UK petrol prices have a strong relationship <a href="https://www.tandfonline.com/doi/abs/10.1080/00036849100000206">to the price of oil</a>, but there has always been an asymmetry in how price changes are applied. While a rise in crude prices is passed on to the consumer within a month, cost reductions usually take somewhat longer to feed through to <a href="https://www.sciencedirect.com/science/article/pii/S0140988397000248?casa_token=v9Ijzn-CVUgAAAAA:u72T2c7aLpHSgpfQivpm4JjdIsCb_R27tVo6ngaf6DO0CzUz2V158DhgHT780cpZN090Aq9ZHN8">pump prices</a>.</p>
<p>Although the average pump price has slowly <a href="https://www.rac.co.uk/drive/advice/fuel-watch">inched down</a> since late November, the decrease has not been as large as expected based upon the wholesale price. So, on this basis, it would appear that petrol station owners are taking advantage of the consumer. But is that the whole story?</p>
<h2>How is the petrol price calculated?</h2>
<p>The price that is paid for petrol at the pump is made of a number of factors. The largest portion is fuel duty (which is set at 57.95 pence a litre), this is followed by the cost of petrol itself, which includes the cost of the raw element (crude oil) and its refinement. Tax in the form of VAT (20%) is applied to petrol purchases. These are all built in to the cost of petrol by the retailer. Profit has been traditionally about 5% of the total price. Finally, the cost of delivery and distribution accounts for just under 2% of the total cost.</p>
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Read more:
<a href="https://theconversation.com/how-rising-wholesale-electricity-prices-will-affect-the-switch-to-electric-vehicles-168304">How rising wholesale electricity prices will affect the switch to electric vehicles</a>
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<p>If the cost of the petrol was the only factor in determining its price, then pump prices would track the wholesale price, but there is more to the business than that.</p>
<p>What is not included in the cost breakdown for petrol is the cost of running a petrol station, including wages for staff, electricity costs, rates and property costs. All of these have <a href="https://www.ukpra.co.uk/en/bulletins/134">risen recently</a>. The increase in the cost of operating a petrol station has also been exacerbated by a decrease in consumption.</p>
<p><a href="https://www.racfoundation.org/motoring-faqs/mobility#a28">Estimates</a> show motor vehicles travelled about 16% less than pre-pandemic levels. Miles driven went from around 9,200 miles in 2002 to 6,800 miles in 2020. </p>
<p>This is supported by data from the government’s business energy and <a href="https://data.gov.uk/dataset/9003012e-4564-4a6b-b5f0-8765ccb23a03/average-road-fuel-sales-and-stock-levels">industrial strategy</a>, which reported that for most of December <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1038255/BEIS_experimental_statistics_release_-_Quarterly_forecourts_statistics.pdf">petrol sales volumes </a> were running at 90% of pre-pandemic levels and – for the week ending January 6 – were at 60%. Irrespective of the exact numbers, it is clear that less miles and therefore less fuel is being consumed.</p>
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<img alt="A person filling their car up at a petrol station." src="https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/440443/original/file-20220112-17-sd4iu6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Prices may stay higher as petrol stations adjust to growing electric vehicle use.</span>
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<p>There are other factors. Supplying just petrol to a motorist paying by credit card for example, can mean that the petrol station can also lose money on the transaction due to card charges. As a consequence, the majority of profit at a petrol station is not from the fuel but from the attached shop where the retail operation can generate a decent profit. The overall profitability of a retail petrol station is dependant more on the shop than petrol. So pump prices could stay higher to make up for decreasing income from the shop.</p>
<p>As a consequence, with less foot traffic to the stores connected to petrol stations, but with certain fixed (and possibly increasing) costs such as <a href="https://www.ukpra.co.uk/en/bulletins/134">electricity and wages</a>, petrol retailers may have been forced to adjust pricing to ensure an overall profit.</p>
<h2>A future for petrol stations?</h2>
<p>So the apparent decoupling of the wholesale and pump prices may signal an end to the <a href="https://doi.org/10.1108/10610429910267002">pricing peculiarities</a> that evolved in the UK due to price competition – going forward price changes may be more affected by profit margins. Whether this is just a kneejerk reaction or whether it’s going to be the new norm, only time will tell.</p>
<p>Nevertheless, these issues around profitability for petrol stations will be further tested with the ever-increasing percentage of electric vehicles (EVs) on UK roads. After all, if you “fill up” with electricity at home or work why do you need to stop at a small speciality store for supplies. You may just as well stop at a traditional grocery store or a smaller supermarket that will have a wider range of produce.</p>
<p>Those drivers not using EVs over the next few years are going to find changes in the cost of petrol since they will have to shoulder an increasing burden of the current business model for old-style petrol stations.</p><img src="https://counter.theconversation.com/content/174572/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Barron receives funding from Welsh Government, WEFO/ERDF, EPSRC, and Innovate UK. Andrew Barron is the Chair of the Network for Energy Technology and Director of MiDAS Green Innovations, Ltd, a environemntal technology consulting company. </span></em></p>Petrol prices might not drop back to previous levels as stations look to recoup increasing business costs.Andrew Barron, Sêr Cymru Chair of Low Carbon Energy and Environment, Swansea UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1709662021-11-04T15:52:10Z2021-11-04T15:52:10ZFuel subsidies in Nigeria: they’re bad for the economy, but the lifeblood of politicians<figure><img src="https://images.theconversation.com/files/429566/original/file-20211101-21-1bvvygm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A January 2012 demonstration against the removal of petroleum subsidies in the northern Nigerian city of Kano
LPhoto credit should read </span> <span class="attribution"><span class="source">Pius Utomi E/kpeiAFP via Getty Images)</span></span></figcaption></figure><p><em>Nigeria, Africa’s biggest oil producer, has <a href="https://www.reuters.com/world/africa/nigerias-renewed-use-fuel-subsidies-concern-imf-says-2021-06-17/">come under fire from the International Monetary Fund as well as World Bank</a> for the heavy financial burden it carries in providing subsidies for fuel and kerosene. The criticism is rooted in the belief that the money could be better spent on other essential services, such as healthcare and education. The Conversation Africa’s Wale Fatade asks Steve Onyeiwu about fuel subsidies in Nigeria.</em> </p>
<h2>How long have subsidies been in place?</h2>
<p>Fuel subsidies have been in place in Nigeria <a href="https://www.ictd.ac/publication/fuel-subsidy-social-contract-microeconomic-analysis-nigeria-rib/#:%7E:text=Subsidies%20exist%20because%20the%20government,oil%20price%20shock%20in%201973">since the 1970s</a>. It began with the government routinely selling petrol to Nigerians at below cost. But most Nigerians were unaware that this was being done. </p>
<p>Fuel subsidies became institutionalised in 1977, following the promulgation of the <a href="https://gazettes.africa/archive/ng/1977/ng-government-gazette-supplement-dated-1977-01-13-no-2-part-a.pdf">Price Control Act</a> which made it illegal for some products (including petrol) to be sold above the regulated price. This law was introduced by the General Olusegun Obasanjo regime in order to cushion the effects of the global <a href="https://www.npr.org/2021/05/29/1001023637/think-inflation-is-bad-now-lets-take-a-step-back-to-the-1970s">“Great Inflation”</a> era of the 1970s, caused by a world-wide increase in energy prices. </p>
<p>Between 2006-2018 Nigeria spent about <a href="https://www.reuters.com/article/us-nigeria-oil-gasoline/nigeria-pays-14-million-for-fuel-in-june-despite-subsidy-removal-nnpc-idUSKBN25R1DO">10 trillion Naira</a> (or US$24.5 billion at the current official exchange rate of 411 Naira = US$1) on petroleum subsidies. </p>
<p>In <a href="https://www.vanguardngr.com/2020/04/n1-5trn-spent-on-fuel-subsidy-in-2019-fg/">2019 and 2020</a> about 3 trillion Naira ($7 billion) was spent on subsidies. The number is expected to go up <a href="https://www.bloombergquint.com/markets/nigeria-s-annual-spending-on-subsidy-could-exceed-eurobond-raise">this year and next</a>. </p>
<p>It means that Nigeria has spent over $30 billion on fuel subsidies over the past 16 years or so. In 2018, it spent 722 billion ($2.4 billion at that year’s official exchange rate of $1 = 306 Naira), but spent only <a href="https://data.worldbank.org/indicator/SH.XPD.CHEX.PP.CD">$1.5 billion</a> on health. Nigeria’s growing fuel subsidy may have contributed to the country’s <a href="https://www.devex.com/news/sponsored/2-decades-on-nigeria-falls-short-of-landmark-health-pledge-99555">health-financing gap</a>. </p>
<p>Although the absolute amount spent on fuel subsidies has increased over time, the relative sum spent has decreased. </p>
<p>In 1970, about 72% of the cost of a litre of petrol was paid by the government, but that figure fell to <a href="https://www.jstor.org/stable/40761059">43%</a> in 2011. This means that Nigerians are increasingly bearing the burden of fuel price increases. This may explain why they vehemently oppose, through <a href="https://www.bbc.com/news/world-africa-16390183">protests</a> and disruption of traffic, attempts at reducing or eliminating subsidies. </p>
<h2>Why are the subsidies there?</h2>
<p>The official reason for introducing oil subsidies was to minimise the impact of rising global oil prices on Nigerians. But other factors played an important role. </p>
<p>The period 1970-1979 was an era of subsidies in Nigeria. Virtually everything in Nigeria was heavily subsidised – education, health, electricity, water supply, air travel and even provisions or “essential commodities” such as milk, sugar, rice, wheat and beverages. </p>
<p>In the 1970s, Nigerians coined the phrase<a href="https://www.researchgate.net/publication/280131102_The_concept_of_national_cake_in_Nigerian_political_system_Implications_for_national_development"> “national cake,”</a> to depict a phenomenon whereby they felt entitled to government largesse. </p>
<p>Subsidies were sustained by the oil boom Nigeria enjoyed, thanks to the oil-shock caused by the <a href="https://www.brookings.edu/blog/markaz/2017/06/05/the-1967-war-and-the-oil-weapon/">Arab-Israeli conflict </a> that saw global oil prices skyrocket. </p>
<p>As part of the subsidy jamboree, public-sector workers received a big boost in their wages in 1975, under the <a href="https://www.nytimes.com/1974/12/22/archives/nigerians-awaiting-a-payrise-decision.html">“Udoji awards.”</a> The country’s state-owned National Electric Power Authority did not even bother to collect electricity tariffs, while the national carrier, Nigeria Airways, sold tickets at below market-clearing prices. </p>
<p>But this jamboree was short lived, as the government was unable to sustain subsidies, following steep drops in oil price <a href="https://energyfuse.org/opecs-history-of-oil-market-management-its-complicated/">in the 1980s</a>. The scarcity of foreign exchange made it difficult for the government to finance imports of essential commodities, which led to shortages.</p>
<h2>Has the government tried to remove them?</h2>
<p>Various administrations have unsuccessfully tried to remove fuel subsidies since the transition to civilian rule in 1979. </p>
<p>President Shehu Shagari’s <a href="https://www.britannica.com/biography/Shehu-Shagari">government</a> – from 1979 to 1983 – <a href="https://www.jstor.org/stable/40761059">increased</a> the price of petrol in 1982, from 15.3 kobo a litre to 20 kobo. This happened without the government making reference to easing subsidies.</p>
<p>Then in 1986 President Ibrahim Babangida <a href="https://www.jstor.org/stable/40761059">announced</a> a partial removal of oil subsidies, which saw petrol price rise from 20 kobo to 39 kobo per litre. This followed his implementation of the Structural Adjustment Program as set out by the International Monetary Fund. </p>
<p>There was a huge uproar against the decision, which reached a crescendo when workers, students and civil society groups embarked on <a href="https://www.nytimes.com/1989/06/04/world/economic-riots-are-spreading-in-nigeria.html">massive demonstrations</a> across the country. Massive and sustained protests against Babangida’s economic policies <a href="https://www.latimes.com/archives/la-xpm-1993-08-27-mn-28537-story.html">played</a> a big role in his hurried exit from power. The administrations that followed left subsidies in place.</p>
<p>It wasn’t until 2012 that action was taken again. President Goodluck Jonathan <a href="https://www.aljazeera.com/economy/2012/1/1/nigeria-ends-fuel-subsidies">parred down fuel subsides</a> and used the savings to invest in education and infrastructure. But he encountered <a href="https://www.reuters.com/article/ozatp-nigeria-strike-20120110-idAFJOE80900A20120110">virulent pushbacks</a> from labour unions, students, and civil society groups. He was subsequently forced to <a href="https://www.reuters.com/article/ozatp-nigeria-strike-20120116-idAFJOE80F00A20120116">cut the fuel price</a> by 30%. </p>
<p>Last year in June, President Muhammadu Buhari’s administration <a href="https://www.spglobal.com/platts/en/market-insights/latest-news/oil/060520-nigerias-president-confirms-removal-of-gasoline-subsidies">announced</a> it was eliminating fuel subsidies. It said it had <a href="https://www.vanguardngr.com/2020/06/fg-removes-fuel-price-cap-gives-marketers-freedom-to-fix-price/">granted approval</a> to the Petroleum Products Pricing Regulatory Agency to remove the price cap that was in place for petrol.</p>
<p>But by March of this year, the government <a href="https://www.bloomberg.com/news/articles/2021-03-01/nigeria-s-nnpc-won-t-increase-fuel-prices-in-march">announced</a> it was keeping the pump price of petrol unchanged despite increasing crude costs. This effectively marked <a href="https://www.bloomberg.com/news/articles/2021-03-01/nigeria-s-nnpc-won-t-increase-fuel-prices-in-march">a return to subsidies</a>. </p>
<h2>Why are the fuel subsidies difficult to remove?</h2>
<p>First, oil subsidies have survived when other subsidies have been removed because those benefiting from them are very powerful. They cut across a broad segment of the upper echelons of the government and political elites. </p>
<p>A host of players <a href="https://www.reuters.com/article/us-nigeria-fuel-scam/nigeria-investigates-4-billion-fuel-subsidy-fraud-idUSTRE80I1R220120119">benefit</a> from subsidies by inflating figures for oil imports, and over-invoicing the government for the cost of imports. They have used their political connections and influence to scuttle attempts to remove them. These include politicians, high-ranking government officials, business tycoons, officials at the state-owned <a href="https://nnpcgroup.com/Pages/Home.aspx">Nigerian National Petroleum Corporation</a>, the <a href="https://nigerianports.gov.ng/">Nigerian Ports Authority</a> and Customs. </p>
<p>A second reason is that Nigerians tend to use oil subsidy removal protests as a rallying point for many of their grouses against the government. This explains why the government prefers to borrow to finance the budget rather than scrap subsidies.</p>
<p>Third, some politicians deliberately miscommunicate the economics around subsidies. They <a href="https://www.vanguardngr.com/2020/04/buharis-subsidy-regime-a-monumental-fraud-pdp/">tell</a> Nigerians that the government intends to divert funds meant for fuel subsidies to private coffers.</p>
<p>Nigerians have come to believe that the removal of fuel subsidies will inflict untold hardships. They have lost faith in government initiatives, no matter how well-intentioned.</p>
<p>Lastly, various administrations have not had the political will or courage to jettison the subsidies because of their failure to uplift Nigerians’ economic conditions. It would have been politically easier to remove fuel subsidies if the government had provided jobs, entrepreneurial opportunities, and other forms of economic empowerment. </p>
<h2>Why are oil subsidies bad economics?</h2>
<p>Every year, the Nigerian government runs huge <a href="https://www.reuters.com/world/africa/nigeria-unveils-record-398-bln-budget-2022-spending-up-25-2021-10-07/">budget deficits</a> that could have been avoided if money budgeted for oil subsidies was allocated to other critical projects. </p>
<p>Subsidies should be used to spur investment in activities that raise the productive capacities of an economy (such as education, health, entrepreneurship, and infrastructure). They should be targeted at strategic sectors of the economy. They should not be used to finance non-durable consumption items like petrol. </p>
<p>Oil subsidies are inequitable, as they transfer the national wealth to those who own several cars and add little or no value to the national economy. </p>
<p>In lieu of subsidies, the government should invest massively in public transportation and boost the transport allowances of public-sector workers. </p>
<p>Removing fuel subsidies would also be good for the environment and safety on Nigerian roads. When motorists pay the full economic price for petrol, they will drive less, emit less pollution and reduce the incidence of road accidents.</p>
<p>There should be a clear communication to Nigerians that the removal of fuel subsidies favours the poor, and eliminates one of the several perks that the Nigerian elites undeservedly enjoy.</p><img src="https://counter.theconversation.com/content/170966/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria must remove fuel subsidies and channel the funds to critical sectors of its economy.Stephen Onyeiwu, Andrew Wells Robertson Professor of Economics, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1098902019-01-15T15:10:32Z2019-01-15T15:10:32ZBold steps Mnangagwa should be taking instead of fiddling with the petrol price<figure><img src="https://images.theconversation.com/files/253840/original/file-20190115-152986-1z00z45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Zimbabwe erupted in violent protest after the government doubled the price of petrol. </span> <span class="attribution"><span class="source">EPA-EFE/Aaron Ufumeli</span></span></figcaption></figure><p>When economically challenged rulers try to run nations, especially fragile ones, they can easily make mistakes. </p>
<p>In the past few weeks demonstrators have taken to the streets of Khartoum and Omdurman to protest Sudanese President Omar al-Bashir’s removal of subsidies that have long kept <a href="https://www.aljazeera.com/news/2019/01/sudan-official-death-toll-protests-rises-24-190113065645372.html">bread and fuel affordable</a>. </p>
<p>Now it’s Zimbabwe’s turn. Just before flying off to Russia last weekend, President Emmerson Mnangagwa <a href="https://www.news24.com/Africa/Zimbabwe/zimbabwes-president-hikes-fuel-prices-to-tackle-shortages-20190113">doubled the price of petrol</a>. Doing so brought already impoverished urban Zimbabweans out onto the streets of the capital Harare as well as Bulawayo and a dozen other cities and towns. Protesters blocked roads with tyres, trees and rocks, stopped bus transport, attacked the police, threw canisters of tear gas back at security forces and <a href="https://www.news24.com/Africa/Zimbabwe/deaths-in-zimbabwe-fuel-protests-says-security-minister-20190115">generally ran amok</a>. </p>
<p>At least five people <a href="https://www.washingtonpost.com/world/africa/military-deploys-in-zimbabwe-fuel-hike-protests-5-killed/2019/01/15/d44875f6-18aa-11e9-b8e6-567190c2fd08_story.html?utm_term=.2af9f13b1349">were reported</a> to have been killed. Flights into Harare <a href="https://www.timeslive.co.za/news/africa/2019-01-14-fastjet-cancels-flights-as-zimbabwe-unrest-continues-countrywide/">were cancelled</a> and the government <a href="https://www.techzim.co.zw/2019/01/econet-and-telone-shut-down-the-internet-completely-now-its-darkeness/amp/?__twitter_impression=true">closed down the internet</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1085088020640997376"}"></div></p>
<p>Mnangagwa’s excuse for raising prices so abruptly is not clear. Possibly he thinks that more costly petrol will bring more cash into national coffers that are mostly bare. Or perhaps he believes that more petrol will pour into the country via the pipeline from Beira in Mozambique if it is more valuable. Both ideas are barmy. </p>
<p>Before flying off to Russia, Mnangagwa said that the fuel price rise was intended to reduce shortages of fuel that, he indicated, were caused by rises in the use of fuel and what he called <a href="https://www.news24.com/Africa/Zimbabwe/anger-as-mnangagwa-raises-gas-prices-in-zimbabwe-20190113-2">“rampant” illegal trading</a> – accusations that make no sense whatsoever. Making petrol purchasing more expensive for poor Zimbabweans – the majority of the nation’s people – simply adds to their hardship and further slows an already crippled economy.</p>
<p>Instead Mnangagwa should do everything his government can to reduce the shortage of real (rather than fake) cash that is crippling the local economy, reducing local production and corporate and consumer cash flows, and driving an already weakened economy <a href="https://ewn.co.za/2019/01/12/zimbabwe-plans-new-currency-as-dollar-shortage-bites-finance-minister">further into recession</a>.</p>
<p>He should also be focused on taking a number of other bold steps to try and reverse the collapse of the country’s economy. Among them are bringing state looting to a halt.</p>
<h2>The cash crisis</h2>
<p>The US dollar is the official currency of commerce. But because Zimbabwe’s economy has essentially ground to a halt, it has few means of bringing new dollars into the country. That, and the steady money laundering of real dollars by high-level officials of the ruling Zanu-PF party, has drained the country of <a href="https://www.newsday.co.zw/2018/10/looting-of-state-resources-to-blame-for-economic-crisis/">currency</a>. </p>
<p>The government has printed $1 bond notes — known as <a href="https://businesstimes.co.zw/dollars-vs-zollars-zim-puts-accounting-standards-to-test/">zollars</a> – for Zimbabweans to use instead of real dollars. They are supposed to be exchangeable at par, but in 2019 they are worth as little as a third of a paper dollar. Many merchants refuse to accept zollars at all.</p>
<p>Bond notes now trade on the black market at 3.2 per dollar, <a href="https://www.bloomberg.com/news/articles/2019-01-14/no-currency-just-a-currency-crisis-zimbabwe-s-woes-deepen">according</a> to the Harare-based ZimBollar Research Institute.</p>
<p>The stress has also spread to financial markets, with locals piling into equities to hedge against price increases. </p>
<p>Mnangagwa may be <a href="https://www.bloomberg.com/news/articles/2019-01-15/with-president-mnangagwa-in-russia-zimbabwe-descends-into-chaos">attempting to obtain loans</a> from Russia and from shady Central Asian countries <a href="https://carnegieendowment.org/2016/02/04/kazakhstan-at-twenty-five-stable-but-tense-pub-62642">like Kazakhstan</a>. But what the president should be doing is prosecuting and imprisoning his corrupt cronies. That could limit the flight of dollars from Zimbabwe. </p>
<p>He also needs to trim the bloated civil service of excessive patronage appointments. Most of all, if he dared, he should be cutting military expenditures. Zimbabwe has no imaginable need for its large and well equipped a security establishment.</p>
<p>Such bold measures could return confidence to the country’s corporate and agri-business sectors. If coupled with reduced military and other expenditures, and bolstered by funds no longer being transferred overseas, Zimbabwe’s long repressed economy could take off from a very low base.</p>
<h2>Poor leadership</h2>
<p>Raising petrol prices in a land where but a few months ago supplies of petrol were short and motorists <a href="https://www.abc.net.au/news/2018-10-27/zimbabwe-suffering-worst-economic-crisis-in-a-decade/10433028">queued for hours and days</a> outside stations is neither politically nor economically wise. The newly aroused protesters will not readily melt away. Putting such a hefty extra charge on an essential commodity, and doing so just when Zimbabwe’s parlous economy was beginning to show signs of stability, shows few leadership skills and little common sense.</p>
<p>Inflation has soared since the national election in July, almost reaching the <a href="https://www.google.com/search?q=sudan+70%25+inflation&rlz=1C1NHXL_enZA711ZA711&tbm=isch&tbo=u&source=univ&sa=X&ved=2ahUKEwiwn7u4oO_fAhVMUBUIHVJzAKEQsAR6BAgEEAE&biw=1283&bih=638">Sudanese level of 70% a year</a>. Foreign capital and domestically reinvested capital is avoiding the country. </p>
<p>On top of this, exporters are struggling under draconian Reserve Bank regulations. Only Chinese purchases of ferrochrome, other metals and tobacco, keep the economy ticking over, albeit in an increasingly dilatory manner.</p>
<p>A further drain on confidence and economic rational thinking is the Reserve Bank’s allocation of whatever hard currency there is to politically prominent backers of the president. That is how arbitrage during President Robert Mugabe’s benighted era helped to enrich his entourage while sinking the Zimbabwean economy and impoverishing its peoples.</p>
<h2>Work that needs to be done</h2>
<p>Mnangagwa’s regime has much more work to do to stimulate sustainable economic growth. He will need to restore the rule of law, badly eroded in Mugabe’s time, put some true meaning into his <a href="https://www.timeslive.co.za/news/africa/2018-11-20-socialites-laying-low-as-zimbabwes-government-cracks-down-on-big-spenders/">“back to honest business”</a> promise, and widely open up the economy. That would mean eliminating most Reserve Bank restrictions on the free flow of currency and allowing the entire Zimbabwean economy once again to float.</p>
<p>Most of all, Mnangagwa needs to rush home from Russia and Asia and rescind or greatly reduce the price of petrol. After so many years of repression and hardship, Zimbabweans are out of patience.</p><img src="https://counter.theconversation.com/content/109890/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Rotberg does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>President Emmerson Mnangagwa’s decision to double the price of petrol shows very poor judgement and bad leadership.Robert Rotberg, Founding Director of Program on Intrastate Conflict, Harvard Kennedy SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/727922017-02-12T19:10:57Z2017-02-12T19:10:57ZNew research shows how petrol retailers pushed prices up in Perth<p>Big petrol retailers are pushing the price of petrol up by communicating through prices and while this is technically legal, it should be receiving more scrutiny from regulators because it’s what researchers call tacit collusion (also known as price leadership). New analysis of retailers in Perth over a period of five years shows this inflated the price motorists are paying to fill up their tanks, and retailers are making 50% higher profit margins as a result.</p>
<p>My research with Associate Professor Nicolas de Roos at The University of Sydney, has analysed more than 1.7 million unique petrol price data points from 771 petrol stations, examining the evolution of competitive conduct and tacit collusion over a 15-year period. We took into account the retailer’s costs, including tax, to work out how much they made of this behaviour.</p>
<p>While we’re not suggesting that the petrol retailers are engaged in explicit collusion, the findings present an urgent new challenge for policymakers and the Australian Competition and Consumer Commission in dealing with markets that are dominated by just a few big players among many small ones. </p>
<p>What this means is that any change in the structure of markets that gives way to a few dominant players yields a setting that is ripe for dominant players to engage in price leadership and initiate tacit collusion, which we know is already happening in the petrol market. Big players can act like conductors, and smaller players can act like the orchestra, in coordinating on tacitly collusive pricing behaviour. </p>
<p>Australian motorists might have already noticed that petrol prices move in cycles. In Perth, the petrol price cycles work like clockwork - every Thursday prices jump by 15-20 cents per litre and then are progressively cut back by 2 cents per litre per day until the next Thursday price jump when the cycle repeats itself. </p>
<p>Before 2010, all major petrol retailers in Perth – BP, Caltex, Woolworths, and Coles – as well as the smaller independent retailers like Gull, engaged in price jumps on all days of the week. But after 2010, we see a change. </p>
<p>BP, the market leader, introduced Thursday price jumps. At first the price jumps were limited to the majority of its own stations, but soon we saw BP’s competitors conform to the Thursday jumps at different rates. After only two years, Thursday jumps were solidified as a focal point for setting market prices. </p>
<p>This price setting tactic softened price competition, resulting in higher profits for all petrol retailers involved, and higher prices for consumers. We found that between 2010 and 2015, retailers saw profit gains of up to 57% at the top of the price cycle; from 11.39 cents per litre to 17.87 cents per litre. That means consumers were paying up to 57% more to fill their car than five years earlier.</p>
<p>Profit increases seen at the bottom of the price cycle were even more stark. Before 2010, companies would compete profits away to near 0.71 cents per litre at the bottom of the cycle. However after 2010 the coordination led to profits rising to 5.73 cents per litre at the bottom of the cycle, a near 700% increase in profits. The deals that once existed at the bottom of the cycle eventually disappeared as the companies were able to coordinate on higher profit margins over time.</p>
<p>These changes in profits imply roughly a 7 cents per litre transfer from the average consumer to the companies. If you own a Toyota Camry with a 70 litre fuel tank, then because of this tacit collusion pricing, you are paying about A$4.90 each time you fill up. If you fill up your tank twice a month, you are paying roughly A$120 more per year in petrol costs, a substantial increase for most Australian families.</p>
<p>Our study has provided evidence of the ways through which tacit collusion, without any form of explicit communication, is possible. As a dominant firm, BP is able to use its pricing to communicate with its rivals in a way that leads to higher prices and profits. </p>
<p>It’s not all bad news. The data that can be gathered from these types of markets (or “big data” environments) like the one we study potentially present new opportunities for competition authorities to detect and investigate collusive behaviour.</p>
<p>Historically, policymakers have used screens for collusion that detect cartels that have already formed. Our research provides new insight into the patterns to look for in data rich environments, namely price leadership and price experiments, to identify cartels during their incubation stage, not after they are already formed.</p>
<hr>
<p><em>This piece has been corrected since publication for errors in the amount originally stated on a price jump on Thursdays and profit gains of retailers.</em></p><img src="https://counter.theconversation.com/content/72792/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Byrne receives funding from Australian Research Council and the Hodern Project. </span></em></p>New analysis of the behaviour of petrol retailers in Perth over a period of five years shows how tacit collusion caused prices to increase by up to 50%.David Byrne, Lecturer, Department of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/369862015-02-02T03:59:10Z2015-02-02T03:59:10ZBlack oil, red budgets: how long can Gulf states endure low prices?<p>In his <a href="http://english.alarabiya.net/en/News/middle-east/2015/01/29/Saudi-Arabia-to-announce-royal-orders-by-King-Salman.html">first royal decree</a>, Saudi Arabia’s newly crowned King Salman announced two-month bonuses for state employees, pensioners, students, and recipients of social service programs (that is, everyone in the country with a Saudi passport). </p>
<p>It adds billions of dollars’ worth of spending to a budget already hit hard by <a href="https://theconversation.com/dont-panic-what-you-need-to-know-about-oil-price-volatility-36065">falling oil prices</a>. How far, and for how long, will Saudi Arabia short-sell its main source of revenue?</p>
<p>When the Organization of the Petroleum Exporting Countries (OPEC) initiated its “price war” last year, Saudi Arabia’s resources minister Ali Al-Naimi suggested that lower crude prices would help spur demand in a still-fragile global economy. Of primary concern, however, was the long-term economic security of the Saudi state. Gulf monarchies are funded by hydrocarbon receipts that comprise upwards of 80% of government revenue. None is more dependent on oil than Saudi Arabia, particularly in the long term given that extensive oil reserves are anticipated to see the kingdom through to 2050.</p>
<p>It is clear that OPEC, under Saudi leadership, is not committed to low prices for any longer than it will take to push out other players and restore global market share. Thus moves to slash global oil prices are not so much an altruistic gift to global economic growth, but a clever short-term strategy to <a href="https://theconversation.com/opec-v-oil-prices-how-the-worlds-biggest-oil-cartel-lost-its-power-34923">recover market share</a> from private energy players in North America who are operating on tight margins and require high prices.</p>
<h2>How low can oil go?</h2>
<p>Predictions of a US$60 (A$77) and even a US$50 floor for oil prices have come and gone. Al-Naimi has remained adamant that OPEC will not cut production <a href="http://www.ft.com/cms/s/0/63c7786c-89bc-11e4-8daa-00144feabdc0.html#axzz3QHKsBEZg">even if oil plummets to US$20 a barrel</a>.</p>
<p>However, a decrease of more than 80% from 2014’s peak price of US$115 a barrel would hit the Saudi bottom line hard. Khalid al-Fahil, president of the state-owned oil firm Saudi Aramco, says the current price of US$45 is already <a href="http://www.theaustralian.com.au/business/latest/oil-price-too-low-saudi-aramco/story-e6frg90f-1227198671224">too low</a>.</p>
<p>It is certainly too low and too late to balance Saudi’s budget, which is projected to reach a <a href="http://www.nytimes.com/2015/01/24/world/middleeast/king-abdullah-saudi-arabia-funeral.html?_r=0">record deficit of US$38.6 billion this year</a> (and that’s before we factor in the royal generosity of granting everyone a 14-month salary).</p>
<p>The deficit is a reflection not only of low oil prices but of systemic spending increases over the past four years. After the wave of regional protests known as the <a href="https://theconversation.com/au/topics/arab-spring">Arab Spring</a>, the late King Abdullah increased public salaries by 15% and dedicated US$66 billion for the construction of low-cost housing. </p>
<p>Similarly, neighbouring Oman increased its unemployment benefit by 40% (which temporarily surpassed the minimum wage until this too was raised) and promised to create 40,000 new public-sector jobs. In the United Arab Emirates, wage increases in 2011 and 2012 nearly doubled salaries in some health, judiciary and education sectors. Qatar <a href="http://gulfnews.com/news/gulf/qatar/public-sector-in-qatar-to-get-60-per-cent-pay-rise-1.862595">rewarded its government employees with a 60% pay rise, and its military personnel with a 120% increase</a>. </p>
<p>While some forms of state expenditure to quell unrest were temporary – such as cash, bonuses, and loan amnesties – others such as public-sector expansion have permanently enlarged state budgets. This is significant given that more than half the working-age population in the Gulf is employed in the public sector (compared with 10% in the OECD). As part of the rentier state social contract, employment provision comes on top of already hefty state expenditure on health, education and housing, as well as subsidised petrol, electricity, water and food. Consequently, Gulf countries such as Oman have seen their budgets increase by 122% between 2010 and 2013.</p>
<p>As a result of these measures, all Gulf oil states need far higher oil prices than they did just five years ago. Saudi Arabia requires around US$95 a barrel to balance its budget, while Kuwait and Qatar need about US$71 to break even. Oman requires US$105 (up from US$59 in 2010) and, as a non-OPEC member, has <a href="http://www.thenational.ae/business/energy/oman-oil-minister-slams-saudi-led-oil-policy">expressed frustration with the policy</a>.</p>
<h2>In it for the long haul</h2>
<p>Perhaps the question should not be how low can the price go, but for how long?</p>
<p>The International Monetary Fund <a href="http://www.ft.com/intl/cms/s/0/a763aeba-a0b9-11e4-9aee-00144feab7de.html#axzz3QHKsBEZg">recently predicted</a> that most Gulf states could sustain sizable deficits for at least the next five years. Saudi Arabia, for instance, has a vast sovereign wealth fund of more than US$750 billion which should provide something of a cushion. However, these figures may be revised downwards given that energy investments <a href="http://www.theaustralian.com.au/business/latest/oil-price-too-low-saudi-aramco/story-e6frg90f-1227198671224">have tumbled</a>. </p>
<p>In the interim, the greatest loss could be foreign direct investment (FDI), which Gulf countries court with great enthusiasm in an effort to diversify their economies. FDI in Saudi Arabia had been in decline since the Arab Spring, reaching only <a href="http://www.saudibrit.com/2015/01/28/for-the-record-gcf-2015-fdi">US$9 billion in 2013</a>, down from US$29 billion in 2010. It was expected to rebound, until now.</p>
<p>In the <a href="http://www.bbc.com/news/world-middle-east-31052071">second of his royal decrees</a>, Saudi King Salman announced the retention of key ministers in finance, labour, oil, and national defence posts. As Al-Naimi is continuing in his role as petroleum and minerals minister, the strategy to maintain high production and low prices seems set to remain in place too. The next OPEC meeting is scheduled for June. By then, Saudi Arabia may have lost almost US$80 billion relative to its 2013 oil export receipts. </p>
<p>Government employees could be waiting a while for the next bonus. Meanwhile, motorists around the world are still enjoying theirs.</p><img src="https://counter.theconversation.com/content/36986/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer S. Hunt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In his first royal decree, Saudi Arabia’s newly crowned King Salman announced two-month bonuses for state employees, pensioners, students, and recipients of social service programs (that is, everyone in…Jennifer S. Hunt, Lecturer, Centre for International Security Studies, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/362602015-01-22T19:02:03Z2015-01-22T19:02:03ZCan you save money at the bowser by only half-filling the fuel tank?<figure><img src="https://images.theconversation.com/files/69690/original/image-20150121-29751-757gck.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Can you save time and money with a half-filled fuel tank?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/mikecogh/4752088660">Flickr/Michael Coghlan</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Fuel prices may be at <a href="http://www.news.com.au/national/sydney-fuel-prices-the-lowest-in-10-years-as-one-service-station-drops-its-price-to-just-889c-per-litre/story-e6frfkp9-1227189594517">historic lows</a> at the moment but when they rise again, what is the best strategy to save money at the bowser?</p>
<p>There are <a href="http://www.racq.com.au/cars-and-driving/cars/owning-and-maintaining-a-car/fuel-saving-tips">many suggestions</a> for saving money such as when and where to fill up, what time and day of the week and how to predict the highs and lows of the <a href="https://www.accc.gov.au/consumers/petrol-diesel-and-lpg/petrol-price-cycles">price cycle</a>.</p>
<p>One theory on how to conserve fuel is to put less of it in your tank. The thinking is that you carry around less weight in the car, which means the engine does not have to work as much, which means a saving on fuel.</p>
<h2>Does less save more?</h2>
<p>But how much of a saving? And is this worth your while? This question has been asked (see <a href="http://www.utsandiego.com/uniontrib/20080105/news_lz1dd5click.html">here</a> and <a href="https://answers.yahoo.com/question/index?qid=20100507043855AAFaauR">here</a> as typical examples), but not satisfactorily answered.</p>
<p>To answer this we need to look at the fuel economy of the car. This is often quoted as litres per 100km, say, 6L/100km (typical for a small car running basic unleaded petrol). This means that under some given conditions, on average the car will use 6L of petrol to drive 100km.</p>
<p>The conditions (sometimes stated in the quote, but often not) could be for: city driving, highway driving, two people in the car, etc. The more weight in the car, the harder the engine has to work to move the car at the same speed, and hence the worse (or higher) the fuel economy.</p>
<p>One <a href="http://www.drivealuminum.org/research-resources/PDF/Research/2008/2008-Ricardo-Study.pdf">study</a> by consultants Ricardo Inc examined the effect of extra weight on fuel economy.</p>
<p>Roughly, it found the fuel economy increases by between 1% and 2% for every 100 pounds (43.5 kg) of weight added inside the car. This figure does not factor in any extra weight outside of the car, such as roof racks, trailers or sidecars.</p>
<p>Suppose we took the upper limit, 2%, and assumed a full tank of 60L in a car that is rated at 8L/100km (a typical family car).</p>
<h2>Crunching the numbers</h2>
<p>Since petrol has a density of roughly 720 grams/L the weight of the full tank of fuel is about 43.2kg. So, roughly, your fuel efficiency will drop to 8 x (1 + 0.02 x 43.2/43.5), which is roughly 8.16L/100km.</p>
<p>As you drive, you use up some fuel, and hence carry less weight in the car. When you have used half a tank your fuel efficiency is now roughly 8.08L/100km: the car is travelling more efficiently than it was with a full tank.</p>
<p>Suppose that we fill up the tank and see how far we can drive until we run out of fuel. Call this full-once: we have filled the tank with fuel once.</p>
<p>Consider our filling the tank half-way, driving until we run out of fuel, then filling the tank half-way again, and driving once more until we run out of fuel. Call this half-twice: we have filled the tank half-way, twice.</p>
<p>We will certainly travel further in the half-twice scenario. Why? We have used the same amount of fuel, but in the full-once scenario we had to suffer poor fuel efficiency (8.16 L/100km) at the start of our journey.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=365&fit=crop&dpr=1 600w, https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=365&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=365&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=459&fit=crop&dpr=1 754w, https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=459&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/69698/original/image-20150122-29857-q2poxc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=459&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The half-tank theory means more trips to fill up at the bowser.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/115938778@N06/12257631073">Flickr/Stefano Campolo</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<h2>But how much do we save?</h2>
<p>The actual price of fuel does not matter; the question is how much further will we travel in the half-twice scenario? This is not a simple high-school algebra calculation.</p>
<p>The rate at which we are consuming fuel decreases as the weight of the fuel decreases. We can use some first- or second-year university mathematics and solve a differential equation to find the total distance covered.</p>
<p>Assuming a fuel efficiency of 8L/100km, density of petrol at 720g/L, a loss of 2% of efficiency per 43.5kg, and a 60L tank, we find that we cover roughly 3.5km more in the half-twice scenario: not a lot by anyone’s standards.</p>
<p>This is all well and good, but there is one obvious drawback to the half-twice scenario: we have to make an extra visit the fuel station and this costs us time.</p>
<p>So, rather than figure out the distance we save in the half-twice scenario, we should figure out the time we save.</p>
<p>Suppose we were driving at an average of 40kmh – this is lower than the urban speed limit owing to traffic congestion, slowing down, stopping at lights etc.</p>
<p>Under the same assumptions as above (that gave us the extra 3.5km), this means we save a little over five minutes in the half-twice scenario. Again, not very much.</p>
<p>The situation changes slightly for diesel cars. A tank of diesel weighs more than a tank of petrol (and so the savings should be increased), but according to the Ricardo study, the affect of weight on fuel economy is less pronounced. </p>
<p>Diesel engines are also more efficient, but even with small fuel efficient diesel cars, such as <a href="http://rac.com.au/news-community/news-and-reports/publications/rac-enews/rac-enews-2010/top-%2020-most-fuel-efficient-cars">those suggested</a> by the Royal Automobile Club of Western Australia, you cannot save more than five minutes.</p>
<h2>Bigger is better</h2>
<p>We can demonstrate a significant saving if we look at larger vehicles. Take a Toyota <a href="http://www.toyota.com.au/landcruiser-70-series/specifications/troop-carrier-gxl">Landcruiser 70 Troop Carrier GXL</a>: this is a diesel engine with an urban fuel economy of 14.3L/100km.</p>
<p>You make a saving here, not because the car is inherently efficient, but because its fuel tanks are enormous: it comes with two 90L tanks.</p>
<p>Filling both tanks means an awful lot more fuel is carried around, and hence a more pronounced saving. Assuming an average speed of 40kmh, you would save nearly 14 minutes by filling up half as much, twice as often. </p>
<p>If time is important to you then you can achieve savings of between five and 14 minutes – depending on the size of your vehicle – by only filling your tank to the half-full mark. If not, then you will need to find another strategy to save on your fuel costs. Happy hunting.</p>
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<p class="fine-print"><em><span>Tim Trudgian receives funding from the Australian Research Council.</span></em></p>Fuel prices may be at historic lows at the moment but when they rise again, what is the best strategy to save money at the bowser? There are many suggestions for saving money such as when and where to…Tim Trudgian, Research Fellow in Mathematics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/332392014-11-13T01:17:25Z2014-11-13T01:17:25ZIncreasing fuel taxes could save thousands of lives worldwide<figure><img src="https://images.theconversation.com/files/62931/original/ygtrzznn-1414456441.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Economic modelling suggests raising fuel taxes could get cars off the road - and therefore save lives. </span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/index-in.mhtml">Khongkit Wiriyachan/Shutterstock</a></span></figcaption></figure><p>Road safety is a seriously important public policy issue. Around <a href="http://www.who.int/mediacentre/factsheets/fs310/en/">1.3 million</a> people die in road crashes around the world each year. Among teenagers and young adults, road crashes are the <a href="http://www.who.int/mediacentre/factsheets/fs358/en/">number-one</a> cause of death. </p>
<p>As many as <a href="http://www.who.int/violence_injury_prevention/publications/road_traffic/world_report/en/">50 million</a> people a year also suffer non-fatal road injuries.</p>
<p>As economists, <a href="https://researchers.anu.edu.au/researchers/nishitateno-s">Shuhei Nishitateno</a> and I felt that economics is perhaps more useful in understanding road safety than it is often given credit for.</p>
<p>We collected data for 144 countries over the period 1991-2010 to answer one question: do higher petrol prices reduce road death rates?</p>
<p>Our <a href="http://onlinelibrary.wiley.com/doi/10.1111/ecin.12171/abstract">study</a>, just published, finds strong evidence that the answer is “yes”, with a 10% increase in petrol prices typically reducing road deaths by between 3% and 6%. The effect is largely a result of a reduction in driving. We’ve previously found that higher fuel prices lead to people
substituting away from “<a href="http://theconversation.com/gas-guzzlers-fuelled-by-shrinking-petrol-tax-12552">gas guzzlers</a>” — also part of the story.</p>
<p>Ours is the first comprehensive international study on the topic.</p>
<h2>Subsidising road risks</h2>
<p>Our findings are of most relevance to fuel-subsidising countries such as Venezuela, where petrol is sold for only <a href="http://data.worldbank.org/indicator/EP.PMP.SGAS.CD">2 cents per litre</a>. Other countries with discount fuel include the oil-rich nations of Iran and Saudi Arabia.</p>
<p>These countries’ roads are among the world’s most dangerous. The World Health Organisation reports that <a href="http://apps.who.int/gho/data/node.main.A997">37 people per 100,000 population</a> die in road crashes in Venezuela each year, <a href="http://www.who.int/violence_injury_prevention/road_safety_status/2013/en/">double the global rate</a>.</p>
<p>We calculate that, globally, around 35,000 road deaths per year could be avoided by the removal of fuel subsidies. This is a football stadium of people, annually. The bulk would be in Iran, Venezuela, Indonesia, and Nigeria.</p>
<p>In Indonesia, subsidies for vehicle fuel account for <a href="http://www.tandfonline.com/doi/full/10.1080/00074918.2014.938403#.VC4uJldpdAs">around 15%</a> of all central government expenditures. We estimate that these result in several thousand additional road deaths each year, one of the many reasons subsidising fuel is such poor policy. Subsidy reform is <a href="http://www.reuters.com/article/2014/09/18/indonesia-fuel-subsidies-idUSL3N0RJ1VF20140918">a key priority</a> of Indonesia’s new President Joko Widodo.</p>
<h2>Global action on road safety</h2>
<p>We are at the middle of the United Nations’ Decade of Action for <a href="http://www.who.int/roadsafety/decade_of_action/en/">Road Safety 2011-2020</a>, which has the goal of stabilising and then reducing the number of global road deaths.</p>
<p>The <a href="http://www.who.int/roadsafety/decade_of_action/plan/en/">Global Plan</a> for the Decade of Action is silent on the potential role of fuel subsidy reductions and taxes in reducing road death rates. Our findings suggest more attention should be paid to the idea.</p>
<h2>Implications for Australia</h2>
<p><a href="https://www.bitre.gov.au/publications/ongoing/road_deaths_australia_annual_summaries.aspx">1,193</a> people lost their lives in road crashes in Australia in 2013. Australia’s road death toll has <a href="http://www.bitre.gov.au/publications/2010/is_038.aspx">fallen by almost 70% since its peak in 1970</a>, but our per-capita road death rate remains <a href="https://www.bitre.gov.au/publications/ongoing/international_road_safety_comparisons.aspx">stuck above</a> the rates of some other developed countries. Australia has among the <a href="http://theconversation.com/factcheck-do-australians-pay-high-petrol-taxes-29264">lowest petrol taxes in the OECD</a>. </p>
<p>The government has <a href="https://theconversation.com/government-gets-round-senate-on-fuel-33538">just reindexed</a> Australia’s fuel excise to the rate of inflation. One outcome will likely be slightly fewer deaths on Australia’s roads.</p>
<p>It is interesting to consider by how much Australia’s road death toll would fall if we had a more radical increase in our fuel excise. We estimate that an excise hike that brought Australia’s average gasoline price to the level of the United Kingdom (a huge increase of 71 Australian cents per litre, analysing year-2010 data) would reduce Australia’s annual road deaths by 200-300 per year.</p>
<h2>Falling global oil price</h2>
<p>Our results suggest that the <a href="https://theconversation.com/why-an-80-barrel-of-oil-is-bad-33147">more-than-20% fall in the world oil price</a> since June 2014 will unfortunately flow on to more casualties on the world’s roads.</p>
<p>But, like Australia, other countries have the potential to achieve sizeable reductions in road deaths from fuel tax increases. Our estimates imply that a tax increase that brought fuel prices in the United States up to the United Kingdom average would reduce the annual road toll in the United States by more than a quarter (around 10,000 lives per year as of 2010). </p>
<p>There are of course other factors to consider in setting fuel taxes. And one day vehicles may be <a href="https://theconversation.com/boys-and-their-toys-a-crash-course-in-driverless-cars-2319">so safe</a> that road deaths diminish as a policy issue. But, for the moment, that’s a lot of lives.</p>
<p><em>“Gasoline Prices and Road Fatalities: International Evidence” has been published by Economic Inquiry. The paper and data can be accessed from <a href="https://crawford.anu.edu.au/people/academic/paul-burke">Paul Burke’s website</a>. An open-access version is available <a href="https://ideas.repec.org/p/pas/papers/2014-18.html">here</a>.</em></p><img src="https://counter.theconversation.com/content/33239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Burke does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Road safety is a seriously important public policy issue. Around 1.3 million people die in road crashes around the world each year. Among teenagers and young adults, road crashes are the number-one cause…Paul Burke, Fellow, Crawford School, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/336022014-10-30T06:28:44Z2014-10-30T06:28:44ZWhy reducing energy consumption through a recession doesn’t really count<figure><img src="https://images.theconversation.com/files/63179/original/sp274mzd-1414582725.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">We're using less petrol – there's a recession on, you know ...</span> <span class="attribution"><span class="source">Antony</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Readers of the Financial Times would have recently encountered a story that encompasses the <a href="http://www.ft.com/cms/s/32aa240c-5558-11e4-89e8-00144feab7de,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F32aa240c-5558-11e4-89e8-00144feab7de.html%3Fsiteedition%3Duk&siteedition=uk&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Ddaniel%2Byergin%2Boil#axzz3HX1BCn5G">paper’s version of bad/good news</a> when it comes to the oil business. According to the author Daniel Yergin, the bad news is that several major oil exporters are suffering from insurrection and civil war, which threatens global supplies. But, there is also good news: </p>
<blockquote>
<p>The sum of these risks is trumped by the old-fashioned forces of supply and demand. While there may be a surplus of geopolitical risk in the world, there is an even greater surplus of oil. </p>
</blockquote>
<p>To deconstruct these sentences, I set aside the glaring misuse of “supply and demand” (be it “old-fashioned” or up-to-date, these so-called forces apply only in an imaginary world of perfect competition, which the petroleum market is not). Readers discover that the trump card in question comes out of the US deck of energy cards. To be specific: “US crude oil is up almost 80% from 2008” and this year US production exceeded that of Saudi Arabia, making the Land of the Free the world’s largest source of black gold.</p>
<p>So, to paraphrase: a lot of bad stuff is happening in the parts of the world where we used to get our oil, but that’s ok because there’s a new kid on the energy producing block, and it’s one of our friends.</p>
<h2>US takes over the oil race</h2>
<p>The chart below shows this US race to first place through 2013, when the Saudis were still number one with 13.1% of world output, and the US hot on Saudi heels with 10.8% (Saudi Arabia and the US are measured on the left axis, world output is on the right). According to Yergin, the increase in US production will more than compensate for any declines in conflict-affected oil producing countries.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=537&fit=crop&dpr=1 754w, https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=537&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/63163/original/3qqf6xy8-1414574273.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=537&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Crude Petroleum Production, USA, Saudi Arabia & the World 1990-2013
(millions of barrels per day with global share for 2013 in legend)</span>
<span class="attribution"><span class="source">BP Statistical Review of World Energy June 2014.</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Energy prices</h2>
<p>As if to verify the cliche that there is nothing as old as yesterday’s newspaper, just three days later the FT ran another article with the title: “<a href="http://www.ft.com/cms/s/0/5f482c9a-5619-11e4-bbd6-00144feab7de.html">Crude oil rallies sharply after near four-year low</a>”. In fairness to Yergin and his “good news” about an oil glut, petroleum prices are notoriously variable – and evidence suggests that he might be correct over the medium term.</p>
<p>The chart below shows the prices of petroleum (based on the “West Texas Intermediate”, a crude oil grade used as a benchmark in oil pricing), natural gas (the average price for OECD countries), and coal (US central Appalachia – again a benchmark for pricing), all divided by the US producer price index to give a measure of “real” energy prices. </p>
<p>Essentially, the result measures whether energy prices go up or down compared to other goods and services. Since 2010, the annual price of all three major energy sources of greenhouse emissions have either declined (coal substantially, natural gas slightly) or flat-lined (petroleum).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/63164/original/7fzpwmpq-1414576286.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Index of Real Global Prices of Petroleum, Natural Gas & Coal, 1990-2013.
(deflated by the US wholesale price index, 2007 = 100)</span>
<span class="attribution"><span class="source">BP Statistical Review of World Energy June 2014.</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The evidence further shows that petrol prices at the pump have declined for the past two-and-a-half years from a cross-national average of 141p per litre in April 2012 to 125p now – down by about 13% (see chart below). If the pump price were deflated by the cost of other goods and services bought by households, the decline would be close to 20%.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/63166/original/k9r5p646-1414578297.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">UK retail petrol price, weekly June 2003 - October 2014 (pence/litre)</span>
<span class="attribution"><span class="source">BP Statistical Review of World Energy June 2014</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Either way, a cheaper price at the pump has to be good news, right? It certainly is for all those readers who are eagerly looking forward to the end of civilisation as we know it, but not so great for those of us hoping that the planet might achieve environmental sustainability. This is because how much of a commodity households buy depends on their incomes and the price of that commodity.</p>
<h2>Energy consumption</h2>
<p>In the chart below we see that from 1990 up until the financial crisis in 2007-2008, UK consumption of petroleum hardly changed. Meanwhile, from 1990 to the end of the century natural gas replaced coal, for both for heating households and in factories and offices. After 2007, coal consumption increased, primarily due to businesses using more as coal prices declined substantially compared to prices for oil and gas. </p>
<p>As worrisome as this increase in use of coal is, the lower consumption of oil and gas (12% and 20%, respectively) did not result from conservation policies. It was instead because of a failure of household income and manufacturing production to recover since 2008. In other words, if the Great Recession had not occurred, it is a safe bet that consumption of hydrocarbons would today be much greater than in 2007. Needless to say, reducing energy use by a massive recession is not the best approach to conservation.</p>
<p>On the chance that the consequence of increased use of solid fuels is not obvious, an Environmental UK pamphlet reminds us: </p>
<blockquote>
<p>Using coal and other mineral solid fuels for home heating will usually result in higher emissions of both local air pollutants (such as particles and sulphur dioxide) and carbon dioxide (the greenhouse gas) than an equivalent natural gas-fired system, and therefore coal fired heating will normally have a higher environmental impact than gas.</p>
</blockquote>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=537&fit=crop&dpr=1 754w, https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=537&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/63167/original/4m7vc7f4-1414578353.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=537&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Index of UK consumption of petroleum, natural gas & coal, 1990-2013.
(2007 = 100)</span>
<span class="attribution"><span class="source">BP Statistical Review of World Energy June 2014.</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>A 2013 report from the <a href="http://uk-air.defra.gov.uk/library/annualreport/viewonline?year=2013_issue_1">Department for Environmental, Food and Rural Affairs</a> warned that after substantial reductions in emissions of air pollutants during the 1990s and early 2000s the “rate of reduction has slowed”. In the specific case of sulphur dioxide, an 11% increase in 2012 wiped out the decline of the previous two years.</p>
<p>It is ironic that the only substantial reduction in UK consumption of fossil fuels came during the severe economic downturn after 2007. If the chancellor had not pursued policies to depress recovery, which I have <a href="https://theconversation.com/profiles/john-weeks-125574">discussed in detail in previous articles</a> , Britain would be considerably more polluted than it is now.</p>
<p>In a grand scheme to destroy the environment, a lower price of petrol is a minor matter. However, its impact on consumption is significant – and more for business users than households. Perhaps the greatest importance of low energy prices lies in the message they send – business as usual in face of the greatest threat to the planet.</p><img src="https://counter.theconversation.com/content/33602/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Weeks does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Readers of the Financial Times would have recently encountered a story that encompasses the paper’s version of bad/good news when it comes to the oil business. According to the author Daniel Yergin, the…John Weeks, Professor Emeritus, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/309072014-08-27T06:03:25Z2014-08-27T06:03:25ZFixing the fixers of petrol prices is no easy task<figure><img src="https://images.theconversation.com/files/57371/original/hfpg9dkp-1409033170.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australia's corporate regulator wants to tackle what it believes is collusion in the petrol industry, but court action to date hasn't really succeeded. </span> <span class="attribution"><span class="source">AAP/Lukas Coch</span></span></figcaption></figure><p>The Australian Competition and Consumer Commission’s latest foray into the difficult and politically charged arena of petrol pricing is just the latest in a long running saga that is unlikely to be resolved by the <a href="http://accc.gov.au/media-release/accc-takes-action-against-informed-sources-and-petrol-retailers-for-price-information-sharing">regulator’s Federal Court move last week</a> on industry pricing website, Informed Sources. </p>
<p>The ACCC is alleging the website, on which petrol retailers share their prices, has the effect of substantially lessening competition.</p>
<p>The saga is in part about petrol prices and the consumer hip pocket. But it is just as much, if not more, about whether it should be illegal for competitors generally to share information – information about future prices especially.</p>
<h2>Long battle</h2>
<p>The ACCC’s concerns about collusion in the petrol sector are longstanding. It has brought several proceedings alleging price fixing against petrol retailers over the years and has generally failed to convince the courts of its case.</p>
<p>Following high profile losses against independent service stations in Ballarat and Geelong in 2007, the ACCC tried to convince the government to change the law to make it easier to prove a cartel. While the Commission’s concerns were legitimate, the changes it suggested were not well formulated, and it failed to persuade the politicians.</p>
<p>Some years later, inspired by politics surrounding competition in the banking sector, the law was amended to ban bank executives from disclosing price and other commercially sensitive information to each other. That law has been heavily criticised, not least because of its single sector focus, and the ACCC has been trying to get the government to extend it economy-wide. It is an issue that will occupy the minds of the Competition Policy Review review panel, headed by Ian Harper.</p>
<p>The nub of the problem is that those setting out to collude and fix prices need no longer meet in smoke-filled rooms or talk in code on pre-paid mobile phones, and competition authorities do not need to use covert listening devices or wire taps to catch them in the act. There are many and varied ways in which businesses can coordinate their behaviour, and reduce the uncertainty of competition, including through the exchange of information. And, as illustrated by subscription websites of the kind used by Informed Sources, technology is making this even easier.</p>
<h2>Testing legal boundaries</h2>
<p>In other parts of the world, such as the European Union, information sharing between competitors is known as a “concerted practice”. In certain circumstances such practices are against the law and attract severe penalties. Competition authorities do not need to prove that the information exchange is anti-competitive. It is generally assumed to be so. </p>
<p>But in Australia, unless you are a bank executive, communicating with a competitor without actually committing to raise prices is perfectly legal. The only exception is where the ACCC can prove that there was an information sharing arrangement and it had the purpose, effect or likely effect of substantially lessening competition. That is what the ACCC is setting out to do in the Informed Sources case and, in legal terms, it is a tall order.</p>
<p>When he was appointed, ACCC Chairman Rod Sims promised that he would bring difficult cases that would test the boundaries of the law. He is doing that with this case. The ACCC litigation launched earlier this year alleging unconscionable conduct by Coles in its treatment of 200 suppliers is another example. Any attempt by the ACCC to clarify the many grey areas of competition law and assist businesses in complying with their legal obligations should be welcomed. However, the petrol case should also prompt policymakers to revisit the general issue of how collusion is defined and whether Australia should follow the European lead in broadening the definition of a cartel.</p>
<h2>Rethink Fuelwatch scheme</h2>
<p>The case should also prompt a rethink of the national Fuelwatch scheme that was proposed but abandoned in 2008. The national scheme was to be modelled on the scheme that operates in Western Australia. The WA policy requires petrol stations to report their prices to the state government 24 hours in advance of when they are set. The government then publishes these station-level prices online. In addition, stations are required to keep their prices at their reported levels for 24 hours until they report their next daily price to the government.</p>
<p>Preliminary results of ground breaking research at the University of Melbourne show that WA Fuelwatch is having a positive impact on competition and consumers are benefiting from lower prices at the fuel pump. The website information is enabling consumers to search actively for the lowest price on any given day and to stock up on low priced fuel when it is available. </p>
<p>What’s more, contrary to concerns that jettisoned the national scheme, the early research results show that WA’s petrol prices have not increased as a result of the scheme. They are in fact lower than prices in other states where Fuelwatch does not operate. This finding contradicts the concern voiced in relation to the national scheme that forcing petrol stations to keep prices constant for 24 hour periods would lead to consumers paying more.</p>
<p>The research highlights the importance of considering dynamics on both the demand and supply sides of a market in regulating its competitiveness. It also shows that enhanced information sharing through the use of technology need not have anti-competitive effects. Technology can also be harnessed to improve competitiveness, by using it to provide consumers as well as suppliers with more information. </p>
<p>In short, sometimes the more effective and less expensive way to activate competition is to empower consumers rather than to sue suppliers. This will come as no surprise to the ACCC.</p><img src="https://counter.theconversation.com/content/30907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Fuelwatch research referred to in the piece is being funded by the University of Melbourne School of Government.</span></em></p><p class="fine-print"><em><span>David Byrne receives funding from the Australian Research Council.</span></em></p>The Australian Competition and Consumer Commission’s latest foray into the difficult and politically charged arena of petrol pricing is just the latest in a long running saga that is unlikely to be resolved…Caron Beaton-Wells, Professor, Melbourne Law School, The University of MelbourneDavid Byrne, Lecturer, Department of Economics , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/292642014-07-17T19:59:47Z2014-07-17T19:59:47ZFactCheck: do Australians pay high petrol taxes?<p><em>UPDATED ON TUESDAY 22 JULY: See editor’s note below for details on the updates.</em></p>
<p>In this year’s federal budget, the Abbott government moved to <a href="http://www.abc.net.au/news/2014-05-11/fuel-excise-to-increase-in-line-with-inflation/5445170">restart automatically increasing the fuel excise</a> in line with inflation twice each year, hoping to start from August 1 this year. </p>
<p>For motorists, that would have meant a slight rise of just over 1 cent a litre (in Australian currency) in the first year.</p>
<p>The <a href="http://www.abc.net.au/news/2014-07-16/hockey-appeals-for-compromise-on-budget-cuts/5600064">proposed petrol tax increase isn’t going ahead</a> for now, because the government doesn’t have enough senators onside to pass its plan. <a href="http://www.abc.net.au/worldtoday/content/2014/s4031852.htm">To many people’s surprise, three weeks ago the Greens</a> declared they wouldn’t even try to negotiate a deal over the fuel tax hike – worth A$2.2 billion over the next four years – because the government had signalled all of the money raised would go to roads, with nothing for public transport.</p>
<p>But <a href="http://www.afr.com/p/national/fuel_excise_delay_keeps_greens_on_OTMCsFwRhvZsAljbxL5XVP">the government isn’t giving up on the Greens</a> changing their minds, amid renewed <a href="https://theconversation.com/greens-miss-the-chance-of-a-victory-on-fuel-policy-28401">reports of internal tensions</a> over the issue.</p>
<p>So when it comes to petrol taxes, what are the facts? When ranked against other nations, do Australians pay high, low or average petrol taxes?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/53943/original/m5hxp2cm-1405472295.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">How much tax motorists around the world pay per litre of fuel. Prices shown are in US dollars.</span>
<span class="attribution"><a class="source" href="http://www.iea.org/newsroomandevents/graphics/2014-07-15-unleaded-gasoline-prices-and-taxes-1q2014.html">International Energy Agency quarterly Energy Prices & Taxes report</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The International Energy Agency publishes quarterly reports on unleaded petrol prices and taxes. The latest report surveyed petrol prices in the first quarter of 2014 in 32 countries. As you can see above, the report found that only three countries – Mexico, the United States and Canada – have lower petrol taxes than Australia.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=721&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=721&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=721&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=906&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=906&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54067/original/xtcx2pvz-1405564250.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=906&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Bureau of Resource & Energy Economics (Australian Petroleum Statistics) and the International Energy Agency (IEA) figures, compiled by the Australian Institute of Petroleum. Prices shown are in Australian dollars.</span>
<span class="attribution"><a class="source" href="http://www.aip.com.au/pricing/internationalprices.htm">Australian Institute of Petroleum</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In fact, Australia is one of only ten countries surveyed where taxes make up less than 50% of the price. While the figure for Australia stands at 34%, in some European countries taxes account for 60% of the cost of petrol at the bowser.</p>
<p>Australia’s fuel excise has been frozen at <a href="http://law.ato.gov.au/atolaw/view.htm?Docid=PAC/BL030002/1&PiT=99991231235958">A38.143 cents per litre</a> since 2001, when John Howard’s Coalition government ditched indexation to offset the price hike caused by the introduction of the goods and services tax (GST).</p>
<p>If the excise had remained indexed to the annual inflation rate, by 2013 it would have stood at approximately A52.9 cents per litre. (Note: I calculated this using <a href="http://www.rba.gov.au/calculator/annualDecimal.html">the Reserve Bank of Australia’s calculator</a>). Without the fuel excise freeze, taxes in 2013 would have accounted for about 40% of the petrol price – which would have meant Australia’s petrol taxes were still among the lowest in the developed world.</p>
<p>As <a href="https://theconversation.com/petrol-prices-are-on-the-way-up-but-dont-blame-the-fuel-excise-26494">I have explained on The Conversation before, other factors</a> including the value of the Australian dollar and global oil prices will matter far more to how much you pay, rather than the fuel excise.</p>
<h2>Verdict</h2>
<p>Australians are not paying high petrol taxes when compared to other developed countries. <strong>– Vlado Vivoda</strong></p>
<hr>
<h2>Review</h2>
<p>The author’s analysis is on the money: most other developed countries have higher taxes on their gasoline.</p>
<p>Alternative data sources could be used for this exercise. The international gasoline pump-price data of <a href="http://www.giz.de/expertise/html/4317.html">GIZ</a> also indicate that Australia’s petrol prices are lower than those in most developed countries. <strong>– Paul Burke</strong></p>
<p><div class="callout"> Have you ever seen a “fact” that doesn’t look quite right? The Conversation’s FactCheck asks academic experts to test claims and see how true they really are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p>
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<p><em>Editor’s note: The verdict and review in this article have not changed. However, it previously began with a quote from the Australian Automobile Association, drawn from this <a href="http://www.abc.net.au/worldtoday/content/2014/s4000385.htm">ABC Radio story “Motorists’ fury at petrol tax rise”</a>, stating: “There’s no justification for an increase in tax on motorists in this budget. Motorists are already paying too much tax and they’re not getting fair value for the money that they currently pay.” The AAA has since clarified that their position is that while motorists do pay too much tax, they were referring to all taxes, not fuel taxes specifically. Plus, following a question from reader Ron Purss below, we have also put in additional petrol and diesel charts showing international tax comparisons in Australian dollars.</em></p><img src="https://counter.theconversation.com/content/29264/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vlado Vivoda receives Australian Research Council funding.</span></em></p><p class="fine-print"><em><span>Paul Burke does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>UPDATED ON TUESDAY 22 JULY: See editor’s note below for details on the updates. In this year’s federal budget, the Abbott government moved to restart automatically increasing the fuel excise in line with…Vlado Vivoda, Research Fellow DECRA, Centre for Social Responsibility in Mining, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/266602014-05-13T10:14:02Z2014-05-13T10:14:02ZInfographic: the promises vs budget measures<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1894&fit=crop&dpr=1 600w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1894&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1894&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=2380&fit=crop&dpr=1 754w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=2380&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=2380&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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</figure><img src="https://counter.theconversation.com/content/26660/count.gif" alt="The Conversation" width="1" height="1" />
Charis Palmer, Deputy Editor/Chief of StaffEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.