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May 22, 2008

Time for the price of fuel to rise above politics

Kevin Rudd and Wayne Swan might have picked a seriously bad time to talk about keeping grocery and petrol prices down, writes Bernard Keane.

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Let’s stop kidding ourselves. The price of oil may not definitely be headed over $200 a barrel, as per some of the more pessimistic claims made by analysts, but with 1.3 billion Chinese and 1 billion Indians eager for a western standard of living, demand for everything we consume, and particularly energy, is going to keep rising. We’re already seeing it with food prices. Sooner or later, it will significantly affect all commodities.

Which pretty much suggests prices are going to keep rising, for a long time. At least we can grow more food, if it rains. Last time I checked, they weren’t making new oil quite fast enough to replace what we’re pumping out of the ground.

On reflection, Kevin Rudd and Wayne Swan might conclude that they picked a seriously bad time to talk about keeping grocery and petrol prices down for the beloved worklies.

Don’t blame excise. Yes, sure, argue about the distortionary effects of taxing petrol differently to other goods and services, but based on 2007 figures, Australia has one of the lowest petrol taxation regimes in the world. Most European countries pay twice or thrice what we pay in excise. The Americans, of course, don’t. Virtually nothing interferes with their constitutional right to drive vehicles that, as Thomas Friedman noted, barely make it from one petrol station to the next on a tank of fuel. But even US drivers are jacking up about fuel costs.

Everyone wants to play politics with petrol prices – Oppositions particularly. Having been forced to watch Kevin Rudd effectively exploit rising prices last year in his run to the Lodge, you can’t much blame the Coalition for abandoning good sense and advocating an excise cut. Rudd and Swan, with their bullsh-t Petrol Commissioner and Fuelwatch initiatives, aren’t much better. Sooner or later some clown will suggest we go down the Third World route of having a petrol subsidy. Hell, it works for Mahmoud Ahmadinejad, doesn’t it?

The only really smart politics here is good policy. Many of us can moderate our petrol consumption. But many people, especially if they’ve been forced by housing prices to live in the outer suburbs of our major centres, can’t. Additional public transport is the only solution. It looks boring and earnestly greenie but until serious non-carbon fuel sources arrive, we’re stuck with it as the primary means of dealing with rocketing petrol prices.

The Federal Government’s historic Budget commitment to investing in urban public transport is a significant step forward. The Building Australia fund keeps being called a slush fund by critics, but that call overlooks the fact that any infrastructure expenditure in urban areas stands a far greater chance of yielding significant benefits than the sort of rural and regional boondoggles we’re used to getting from the Coalition. Having Infrastructure Australia involved in project facilitation and selection is also likely to reduce the ongoing problem of incompetent State Governments being unable to develop satisfactory public-private partnership models.

It doesn’t stop at infrastructure policy. Our car manufacturers seem hell bent on churning out big cars when rising petrol prices are driving demand for smaller vehicles. While the Government talks about investing in a local hybrid – partly, we suspect, as cover for protecting the local car industry – a switch to greater fuel efficiency is likely to yield a more quickly moderate the growth in fuel demand.

To say nothing of our housing policy, which seems driven by the twin and incompatible goals of ensuring house prices don’t fall too much, and making housing more affordable for market entrants.

If the Government wants to demonstrate it has real substance, it should stop catering to motorists’ conviction that they are entitled to cheap petrol and start explaining that one of the key parameters in the global economy is undergoing a significant, long-term and probably permanent change, and that we have to change with it. Malcolm Turnbull’s shameful statement yesterday that he wants to see petrol exempted from an emissions trading scheme suggests the Opposition won’t allow this to happen without trying to snare voters unwilling to accept the inevitability of change. But governments are elected to lead, not just manage, and this issue desperately needs leadership.

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20 thoughts on “Time for the price of fuel to rise above politics

  1. Jared

    There are plenty of solutions to guarantee Australia’s energy independence, the government just needs to develop a long-term coherent strategy. Option 1 – Start converting some of our coal to oil. It became profitable at $50 a barrel, though the process produces a lot of greenhouse gas, so that price could go up a lot if carbon taxes were introduced. Option 2 – Encourage the conversion of cars to natural gas. It’s cleaner than oil and we have some of the largest reserves in the world, so why not use them? It would largely insulate us from future oil shocks. Option 3 – Mandate the introduction of electric cars. General Motors (aka Holden) started producing them in the 90s when California introduced laws requiring auto-makers to produce them, but stopped after the laws were revoked. We have the technology to mass produce electric cars today and there are many benefits – 1) Moving the pollution away from cities to power plants in rural areas, which would reduce asthma and grime in our major population areas. 2) It’s far easier to capture carbon dioxide from a single coal power plant than from many thousands of cars. 3) As coal is replaced by renewables you kill two birds with one stone by cleaning up transport as well. 4) Electric cars would mostly recharge at night during off-peak consumption times, balancing out the load placed on power plants. 5) Electric cars could be used to make the power grid more efficient – plug your car in at work, and it can pump electricity back into the grid at peak times like midday.

    The current government talks about strategic long term planning to set up our infrastructure, and it’s no secret that our energy infrastructure is the most important piece in that puzzle. We need a smart power grid that takes advantage of broadband over power lines to communicate with small generators to draw energy out and feed it back in as necessary – people with solar panels, wind turbines, electric cars. We also need a national policy that speeds up the transition from combustion engine vehicles to electric vehicles, to bring about the inevitable convergence of transport with the national power grid.

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