Preparing for $3+ per litre fuel

Australians will inevitably have to face the reality of higher fuel prices. Since the late 1940's when war-time fuel rationing ended and most people began driving cars, we have come to think of cheap abundant fuel as a right. Governments' policies have reduced fuel taxes far below real costs. Many of us now have a habit of driving alone in large over-powered cars (average occupancy 1.3 people and fuel consumption 11L/ 100 km). Our car fleet fuel consumption and emissions are quadruple what they would be if everyone used small efficient vehicles and carried an extra passenger. Purchasers of new vehicles need to be aware that one CSIRO scenario puts fuel at $8.00 by 2018. STCWA argues that fuel tax increases, offset by reductions in other charges are necessary to prepare for a carbon and oil constrained world with fuel prices of at least $3.00/L.

The world is at 'peak oil', i.e. the rate of extraction has levelled out and must soon decline. It costs more to extract the remaining half of oil resource that remains in the ground, while demand is increasing, so the oil prices must rise. Australia and the US already import more than half of their oil needs. Unless domestic renewable substitutes are produced this will increase to 90% by 2050, mainly from Gulf countries, which is clearly unsustainable. Fuel prices will trend upward, as will the risk of fuel shortages and spikes exceeding $1.00/L. The howls of the cheap fuel lobby when prices rose a few cents per litre will seem absurd. With fuel at $3.00/L, demand for seats on trains and buses is likely to at least double to more than 30% of journeys. At present, State governments are not even keeping up with public transport demand. The urgent need to expand rail and bus fleets is made evident by the overcrowding of peak hour trains in Sydney and Perth's northern suburbs. A drop in the Australian dollar exchange rate to normal levels would alone increase the fuel price by more than the recent price increase of 20c/L.

A reformed system of fairer road user charges is long overdue. To be fair and equitable, motorists must pay more to cover the real costs of their impacts. The reforms proposed here will benefit taxpayers by encouraging more efficient transport and to pay for the expansion of bus, train and bicycle networks. Offsets by raising the income tax free threshold and rebates or reducing stamp duty and licensing charges could ensure revenue neutrality.

Fuel excise is the primary means of charging road users because it is simplest, cheapest to administer and arguably fairest. Fuel use is proportional to the size of the vehicle and kilometres travelled, which are in turn proportional to pollution and accident impacts. STCWA believes that fuel tax increases of at least 60c per litre should be phased in to minimize impacts on motorists. In the UK, fuel excise was doubled over 10 years by a 'fuel price escalator policy' during the '90's. Reformed fuel taxes should include the carbon price, increased excise and a third party accident insurance component.

• Carbon price, initially about 6c/L. Carbon pollution is the greatest threat human civilization has ever faced and road vehicles are a major source of this pollution. To be fair and equitable, a carbon price must be levied on all emission sources, including transport fuel. Road transport accounts for about 18% of Australia's emissions, when the production of fuel and vehicles are taken into account. Cars account for 65% of this; they are by far the largest of six sources of household emissions, exceeding both electricity and food consumption. An initial minor increase of 6c per litre with a carbon price of $25 per tonne of CO2 would probably rise to about 15c by 2030. If Government were to bow to the howls of cheap fuel lobbyists and reduce GST on fuel to compensate for the carbon price it would make a mockery of the 'polluter pays' principle. It would be a signal for fuel wastage and pollution to continue, while responsible households and industries bear the cost by paying a higher carbon price to meet national reduction targets.

• Fuel excise increase and congestion charges. These are needed to cover the 'intangible' costs road usage, which are currently externalized, i.e. paid for by the wider tax paying population and trauma victims, many of whom rarely use cars. Congestion accounts for more than half of these costs and is estimated at $9.4 billion a year (equivalent to 60c/L of fuel) rising to $20b by 2020. As congestion is mainly caused by users of specific inner city roads, taxes would more fairly be levied electronically as tolls rather than fuel excise.

• Australian fuel excise is fixed at 38c/L and has been falling in real terms since 2001 when it was reduced by 8c/L and 10% GST was added. Europeans drivers pay 50c to $1.20 more per litre than we do in fuel taxes; ours are the fourth lowest of 28 OECD nations. Externalized costs identified by the Bureau of Transport and Regional Economics include real cost of human life (about 60c/ L), local air pollution (8c/L) noise nuisance and space taken up by roads and parking lots. An increase in fuel excise of 30 c per litre would partly cover such costs.

• Third party accident insurance component of about 25c per litre. Payment 'at the pump' (PATP) is a fairer way paying insurance. The current fixed rates on vehicle licenses would be removed. With PATP, high mileage drivers with large vehicles would pay more, reflecting their higher probability of causing death or injury and low mileage drivers of small cars would pay less.

There is a common myth that suburban commuters and regional travellers have no option but to continue to travel alone in large cars. The reality is that for those of us spending a lot on fuel, the main reason is that we are not travelling efficiently. There are many options – car sharing, small efficient cars, motorcycles, electric vehicles, trains and buses, all of which cost much less and greatly reduce fuel consumption and pollution.

Government regulatory action is needed in addition to road user tax reform. 'Perverse incentives' that encourage wasteful car use should be removed. For example fringe benefit tax which reduces from 25c to 7c in the dollar depreciation on vehicles that travel more than 40,000 km per year. Vehicle fuel efficiency standards that penalize or ban sale of 'gas guzzlers' and reward purchasers of the most fuel efficient vehicles are long overdue. Governments must be fully accountable for how road user revenues are spent, i.e. not only on building roads but also sustainable transport such as buses, trains, bike paths.

Electric vehicles (EV's) will play a major role in urban commuting because they are 50 - 100% more fuel efficient and much cheaper to run. Carbon pollution is reduced by 20 – 40% compared to similar petrol models when charged on WA's current electricity grid and 90% if renewable energy is used. Alternatives to fuel taxes for EV's could include higher license or stamp duties or levies on electricity dispensed at charging stations.

We are in a similar position with fuel now as we were with electricity a few years ago. Governments had kept tariffs well below real costs in an attempt to win votes and many of us were wasting electricity as a result. Sharp price rises were unavoidable to catch up with installation of infrastructure and clean generation. The difference with fuel is that the impact need not be as severe. Fuel tax increases can be phased in. If we travel efficiently, we can still reduce our motoring costs while paying 60c per litre more in fuel taxes. The switch to efficient low carbon transport modes would be encouraged and public transport expanded, in preparation for a future of oil scarcity and $3+ per litre fuel.