In response to speculation that climate change policy will mean a 20 percent tax on fuel, the Opposition climate change spokesperson reacted thus:

Mr Hunt called on the Government to explain how “whacking a great new 20-cent tax” on petrol would decrease emissions.

“We have serious reservations and scepticism about petrol tax, given that prices have increased four-fold in the last decade and petrol volume hasn’t changed at all,” he said.

“Can they explain how a 20-cent tax will decrease emissions?”

Petrol volume hasn’t changed? Let’s do a quick search and we get to this data. In June 1998, quarterly petrol consumption in Australia was 4437 mega litres and in March 2007 it was 4819. It has been pretty steady although if you include diesel and aviation you get a rise from 8555 to 10451 (an increase of 22 percent). And in the same period of time our population has gone from 18.8 million to 21 million (an increase of 11 percent). So per capita consumption of petrol has fallen while per capita consumption of all fuels has risen (driven by a steady increase in diesel). Factor into all of this, the booming economy and it would be hard to conclude that people haven’t reacted to the steady rise in petrol prices.

In any case, an examination of the last six months is going to provide us with some good data on short-run price elasticities. Could the Opposition dare to run a regression?

4 Responses to Fact checking: petrol usage

  1. Kevin Cox says:

    To do anything about global warming we are not talking about a few percentage points in reduction we are talking about making liquid fuels carbon neutral in some way. Fiddling around the margins is not going to do it. This means a change in the way we invest in infrastructure so that we spend little to increase our petrol infrastructure production and delivery but rther we spend most on lower carbon alternatives. Perhaps make it a rule that if you want to sell petrol you also have to have as many natural gas or hydrogen outlets as a starting point?

  2. [...] the other day to Tony Abbott claiming that the price elasticity of petrol is zero (Joshua Gans quotes the Coalition’s Greg Hunt making the same claim). It was perhaps the first time that I had [...]

  3. [...] what is the evidence to support his claim that petrol is largely inelastic? As I have mentioned before, there is none because it is wrong. Andrew Leigh links to some actual estimates. What is more that [...]

  4. [...] Josh Gans has noted here and here, there is clear evidence that petrol is a reasonably elastic good and that people do respond to [...]

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