Tree of Knowledge

Chapter Two of the Green Paper on the relevance of high petrol prices:

The inclusion of transport emissions in the scheme would imply that consumers would see the carbon price signalled through changes in fuel costs. Such changes would be minor compared to petrol price rises over recent years as a result of increasing global oil prices. For example, the increase in petrol prices from 90 cents/litre in 2003 to current prices at around $1.70/litre is roughly equivalent to a carbon price of $320, which is well in excess of the expected carbon price under the scheme.

Changes in fuel prices will create incentives to changes patterns of fuel use and, over time, will influence the decisions that consumers make about the vehicles they purchase as well as where to live and work, as discussed further in Box 2.2. However, given recent significant increases in global energy prices and the current cost of living pressures facing households, the Government recognises that households already face strong incentives to reduce their fuel use.

Further:

While people have limited flexibility to respond quickly to changes in the petrol price, the evidence shows that, over time, our transport choices are influenced by price changes.

Some international studies indicate that a 10 per cent increase in price leads to a fall in fuel use in the longer term of up to seven per cent. Australian studies have come up with lower figures, but those studies have all been conducted in periods with greater price stability and much lower prices. Motorists have tended to see high prices as a temporary event that does not require lasting changes in behaviour, including in their choice of motor vehicles.

Current high fuel prices have led households and businesses to focus on the price of petrol and how they can cut their costs at the bowser. As a result, 2007 recorded the largest fall in oil demand among developed countries since 1983.

There has also been a sharp reduction in the proportion of large cars and four wheel drive vehicles being purchased in Australia and in the United States. Over the past few years new vehicle sales data shows an increase in sales of small and medium size vehicles.

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