The Times Australia
The Times World News

.

As petrol prices rise, will carbon emissions come down?

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
As petrol prices rise, will carbon emissions come down?

No one likes paying A$1.80[1] per litre for petrol. But amid forecasts of prices climbing to $2.10[2] 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.

Two months ago, at the start of 2022, the typical Sydney and Melbourne unleaded price was $1.60[3] a litre. A year earlier, at the start of 2021, it was $1.20[4].

That increase – from $1.20 to $1.80 in just 14 months – is a jump of 50%.

Estimates of the price elasticity of demand for petrol[5] 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 higher[6].

A price elasticity of 0.3 means that for each 10% a price climbs, demand for the product falls 3%.

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 dent[7] in Australia’s greenhouse gas emissions.

There’s been nothing like such a drop, and what drop there has been can be explained by COVID measures[8] such as lockdowns and working from home.

The high price needs to last to have an effect

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.

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.

Longer term, if 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%.

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.

Petrol prices change what we buy

This is how things have played out. When prices shot up in the 1970s we switched to smaller cars[9], 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 gas-guzzling SUVs[10].

Petrol prices command attention. Ellen Duffy

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.

We spend almost as much on alcohol (2.2% of our budgets) as we do on petrol (2.6%[11]) but we notice petrol prices more. In part this because they are displayed prominently in well-lit letters of a regulated height.

As marketing researcher David Chalke[12] put it, “you have to buy it, and there’s a bloody great big sign always there telling you how much it is”.

In the 1970s and early 1980s, Australia was fairly self-sufficient[13] in petrol. There was a lot of oil in the Bass Strait[14] and Australia refined it locally.

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 imported oil[15].

Russia is one the big three suppliers

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.

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 Saudi Arabia[16] (17% of exported crude oil), Russia (11%) and Iraq (7.7%).

From time to time they break these agreements, as Russia[17] 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.

Australian prices are low

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.

The chief reason is tax, In December taxes (fuel excise plus GST) accounted for only 37%[18] of the price of Australian unleaded petrol, compared to 48% of New Zealand petrol and 60% of German and UK petrol.

Low by international standards

Retail unleaded price (Australian cents per litre) Department of Industry, Science, Energy and Resources[19]

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.

That’s not likely to happen right now – although in 2014[20] 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.

Read more: What Russia's war means for Australian petrol prices: $2.10 a litre[21]

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.

It’ll be a bizarre and largely welcome byproduct of war in Ukraine, perhaps the only welcome one. It’ll increase the value of takeover target AGL[22], 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.

References

  1. ^ A$1.80 (www.aip.com.au)
  2. ^ $2.10 (theconversation.com)
  3. ^ $1.60 (www.aip.com.au)
  4. ^ $1.20 (www.accc.gov.au)
  5. ^ price elasticity of demand for petrol (openresearch-repository.anu.edu.au)
  6. ^ higher (www.researchgate.net)
  7. ^ dent (www.climatecouncil.org.au)
  8. ^ COVID measures (cdn-api.markitdigital.com)
  9. ^ smaller cars (www.rba.gov.au)
  10. ^ gas-guzzling SUVs (theconversation.com)
  11. ^ 2.6% (www.abs.gov.au)
  12. ^ David Chalke (www.smh.com.au)
  13. ^ fairly self-sufficient (www.nytimes.com)
  14. ^ Bass Strait (theconversation.com)
  15. ^ imported oil (www.aph.gov.au)
  16. ^ Saudi Arabia (www.worldstopexports.com)
  17. ^ Russia (www.oxfordenergy.org)
  18. ^ 37% (www.energy.gov.au)
  19. ^ Department of Industry, Science, Energy and Resources (www.energy.gov.au)
  20. ^ 2014 (www.financeminister.gov.au)
  21. ^ What Russia's war means for Australian petrol prices: $2.10 a litre (theconversation.com)
  22. ^ takeover target AGL (theconversation.com)

Read more https://theconversation.com/as-petrol-prices-rise-will-carbon-emissions-come-down-178024

Times Magazine

Headless CMS in Digital Twins and 3D Product Experiences

Image by freepik As the metaverse becomes more advanced and accessible, it's clear that multiple sectors will use digital twins and 3D product experiences to visualize, connect, and streamline efforts better. A digital twin is a virtual replica of ...

The Decline of Hyper-Casual: How Mid-Core Mobile Games Took Over in 2025

In recent years, the mobile gaming landscape has undergone a significant transformation, with mid-core mobile games emerging as the dominant force in app stores by 2025. This shift is underpinned by changing user habits and evolving monetization tr...

Understanding ITIL 4 and PRINCE2 Project Management Synergy

Key Highlights ITIL 4 focuses on IT service management, emphasising continual improvement and value creation through modern digital transformation approaches. PRINCE2 project management supports systematic planning and execution of projects wit...

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Times Features

Prefab’s Second Life: Why Australia’s Backyard Boom Needs a Circular Makeover

The humble granny flat is being reimagined not just as a fix for housing shortages, but as a cornerstone of circular, factory-built architecture. But are our systems ready to s...

Melbourne’s Burglary Boom: Break-Ins Surge Nearly 25%

Victorian homeowners are being warned to act now, as rising break-ins and falling arrest rates paint a worrying picture for suburban safety. Melbourne residents are facing an ...

Exploring the Curriculum at a Modern Junior School in Melbourne

Key Highlights The curriculum at junior schools emphasises whole-person development, catering to children’s physical, emotional, and intellectual needs. It ensures early year...

Distressed by all the bad news? Here’s how to stay informed but still look after yourself

If you’re feeling like the news is particularly bad at the moment, you’re not alone. But many of us can’t look away – and don’t want to. Engaging with news can help us make ...

The Role of Your GP in Creating a Chronic Disease Management Plan That Works

Living with a long-term condition, whether that is diabetes, asthma, arthritis or heart disease, means making hundreds of small decisions every day. You plan your diet against m...

Troubleshooting Flickering Lights: A Comprehensive Guide for Homeowners

Image by rawpixel.com on Freepik Effectively addressing flickering lights in your home is more than just a matter of convenience; it's a pivotal aspect of both home safety and en...