Today’s FuelWatch Watch

You know so much confusion is flowing around FuelWatch econometrics that I think someone will need to set up a website to make transparent the information about the scheme. Anyhow, as that is unlikely to happen any time soon, let me highlight a couple of things today.

First, 0.7 cents per litre savings relative to what? The owner of Informed Sources, Alan Cadd, says that the ACCC finding was that Perth drivers saved 0.7 cents per litre on low priced days relative to what those in Eastern capitals were paying and that this can’t be true. Indeed, it can’t. Fortunately, the ACCC analysis did not say that (although the op ed from Graeme Samuel this morning could have used some better editing because it does say that).

What the ACCC found was that Perth drivers saved 0.7 cents per litre relative to what they would have paid if FuelWatch had not been in place. The confusion stems from the fact that the ACCC analysed Perth prices benchmarked on eastern capital prices but that is the appropriate thing to do in order to reach their conclusions on FuelWatch.

Second, a few days I was worried that all this talk about getting 2 to 5 cents a litre off the price of petrol was detracting from the environmental task of increasing the petrol price. For some reason, I had thought that a carbon tax or emissions trading scheme with a price of about $100 per tonne of emissions would lead to much higher petrol prices. Well, according to John Quiggin, they would only rise by 25 cents per litre. These days we can get that every month. So relative to last year we are already at Pigouvian prices that internalise emissions externalities.

This goes to show just how difficult the whole climate change mitigation problem is. For starters, drivers are going to have to be assured that the high prices will stick before really changing behaviour. Second, these prices filter into all transport including public transport. So the relative price differential will be less than expected. In any case, we need to start talking the petrol price up, not down.

5 thoughts on “Today’s FuelWatch Watch”

  1. Transport makes up a lot less of our total greenhouse emissions than you might think. Much more comes from the stationary energy sector, as this data shows.

    This, conveniently, happens to be the area in which cuts can most easily be made.

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  2. Joshua,

    What do you make of the ACCC reporting that when it tested for endogenous structural breaks in Perth’s relative petrl price margins it found them in March and May of 2000 rather than at January 2001 when FuelWatch commenced in WA?

    MD

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  3. Mark,

    The ACCC looked for a structural break on 2 January 2001. The things you are thinking of are what appeared on a graphical inspection. But be wary of that sort of thing as it can be misleading. The truth in the data comes from a quantitative analysis using a test for structural breaks. It is the 2001 break they found that they used to calculate the margin drops.

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  4. The irrationality of economists, governments and media on worrying about the price of fuel makes me despair. What we should be concentrating on is investment in renewables and technologies to save energy be it public transport or insulation in the walls of our houses. The solution to greenhouse emissions is simple. All it requires is investment in the appropriate areas. The naivete of the proponents of emissions permits to think that increasing the price of emissions producing energy will cause investment in renewables is scary. The evidence – what little there is – of the effectiveness of artificial financial devices to fix environmental problems is not good. (The ozone hole is getting bigger).

    Increasing the price of emissions producing energy in the hope that this will cause a flowering of investment in alternative energies is wishful thinking. A simple solution is to direct investment through a market mechanism to renewables and energy savings and that is a trivial solution to implement as we have the infrastructure and social systems to do it. Simply give a large number of people and institutions a lot of resources (money) and require them to spend it on investment in renewables and energy savings. If there is a lot of money waiting to be spent the sellers of solutions will arise and the money will go to the solutions that give the best return on the money. It really does not matter where the money comes from but the existing excise taxes on energy is a good place to start or even the money collected from selling emissions permits it if ever sees the light of day. Can someone tell me why we don’t spend us much time talking about how to spend money efficiently instead of always talking about how to collect it?

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  5. “Second, these prices filter into all transport including public transport. So the relative price differential will be less than expected.” Well when you benchmark against such a vague oracle as “expected”, it is hard to say nay. Nevertheless, I say “nay”. When you pack 40 people on a bus the fuel cost is a small proportion of the cost of transport compared to driver and maintenance. Higher fuel costs must ultimately drive people towards collective forms of transport.

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