News today that the Government will, for three years at least, leave petrol effectively out of the emissions trading plan. To be sure, permits will be required (I think) but the cost of those permits will be fed back into reduced excise taxes. What this means is that if you want to buy petrol, the price will be no higher or lower as a result of emissions permit price fluctuations (or the existence of that price).
A year ago, I would have been outraged about this. But with world markets doing a much better job of getting petrol prices up than any emissions trading regime, we can be relaxed. What is more, this plan must be forecasting that the pain from emissions trading will be no more than the current level of the exise tax. That implies that we already have a carbon tax on petrol in our current policy. To get political traction on this issue, this is something I can live with. Moreover, there will still be impacts at the refining end and also on the costs of car capital. This also doesn’t preclude some sensible moves on road pricing (something I see as far more important) at a later date.
But these arguments come with a caveat: should world petrol prices plummet all bets are off? We need to ensure that petrol prices stay at their current levels or higher to send signals to people to change behaviour. It would be a welcome move to make a petrol price floor explicit.