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.