Media circus

So when FuelWatch was announced, I was cited in the media as the economist who liked it. And I did and still do in the sense that if competitors have easy access to price information so should consumers and that the WA scheme it was based on seemed to achieve that without economic cost to consumers there. But, at the same time, I wanted academics to be able to study the situation using the same data as the ACCC and had proposed a different system to the ACCC based on just the provision of that price information.

This week, I am apparently the economist who doesn’t like FuelWatch. See here and also on the ABC’s AM program this morning.

Melbourne Business School’s Joshua Gans said yesterday it was clear the Rudd Government had adopted the scheme without any research beyond the study conducted by the ACCC of the operation of a West Australian version in the Perth market.

Although it found that Perth motorists were 1.9c a litre better off as a result of the scheme, Professor Gans said the study was not conclusive, and several possible influences on pricing were not included in the modelling.

“There is an arbitrariness in simply adopting the Western Australian model,” he said. “A policy with such broad implications should get more investigation.”

This reflects my recent posts thinking about how we might have done better. As Sinclair Davidson pointed out in the comments to this, this looks like a change in enthusiasm. And it is, to some extent, and I am worried that the speed of adoption of this policy might lock out improvements in the future. Moreover, it takes attention away from the fact that what the ACCC really recommended was changes to the Trade Practices Act; something that appears to have been completely ignored by the government.

That said, my distress is really with all of the attention FuelWatch and high petrol prices are getting from our politicians. Previously, I thought we could have a national discussion as to how to make our petrol retailing market better independent of the fact that the real policy target on petrol prices should be much higher prices — to real with environmental issues. But recent experience indicates that I was wrong about this. With politicians left and right committing themselves to caring that petrol prices are too high, what are we going to do when we try to put in place an emissions trading scheme or some other environmental response that necessarily leads to higher petrol prices? I am really worried that we are losing leadership on that front and let’s face it, it is the big issue there and not whether petrol prices could be 2 or 5 cents lower. The competition and environmental issues have become tied in ways that are surely not good.

2 thoughts on “Media circus”

  1. In my opinion, there’s not enough talk or information to the public about what the government can or can’t actually do about petrol prices.

    What will current and upcoming policy decisions say about the government’s bet on the future trend of petrol prices?

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  2. The cost of producing petrol has remained the same even though the price of petrol has increased. The extra money is going to the owners of the raw materials and the middle men like the oil majors. They are obtaining windfall profits because they have been able to increase prices due to high demand. These extra profits, according to what I read economists saying, should go to increasing the supply of petrol or of reducing demand or of finding alternatives. The way we have set up our financial system is that it is a hit or miss affair and this may or may not happen. At the moment it is mainly miss. However, governments could make it happen. That is they could require that some (all) of the windfall profits are spent on investing to reduce demand and finding alternatives. If the Federal Government wanted to do something about petrol prices the best thing they could do would be to ensure that the windfall profits went to investments in reducing demand and finding alternatives. This can be done in a market friendly way through a variety of mechanisms. By giving some of the windfall profits from Australian sourced oil back to buyers who have to invest the money in renewable alternatives would effectively reduce the price of petrol by perhaps one third while making a big dent in the renewable energy targets. By requiring that some overseas oil profits be invested in Australia in renewable energy projects the government could increase investment in Australia and help solve our terms of trade.

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