Australian Government ETS Green Paper - Petrol Excise
The Australian Government’s long-awaited Green Paper, setting out the Government’s thinking and direction for an Emissions Trading Scheme has been released today. Its a big document, unsurprisingly, weighing in at over 500 pages. Inside, it discusses how the Government is considering implementing the Carbon Pollution Reduction Scheme - the official name for the proposed Emissions Trading Scheme. The Green Paper covers such elements as what industries would be affected, and how the Government would assist individuals and the economy in general to adapt.
You can find some good summary information on the Green Paper in the form of fact sheets on the website for the Department of Climate Change. But what is attracting a lot of press is the proposal to reduce the current excise on petrol to compensate for any price rise caused by the scheme. The net effect would be that the petrol price would not change as a result of the scheme. This mechanism would be in place for at least 3 years, and reviewed at that point.
The responses to this excise proposal have been predictable. The Opposition says that the Government is stealing its policy ideas. Family First is saying that the Opposition stole the idea from them in the first place. Green groups and various economists (sometimes unlikely bedfellows!) are saying that the measure weakens the scheme. And the Government is, unsurprisingly, saying its a sensible and rational decision!
My initial reaction was that this was pretty clearly a politically driven decision. With all the airplay that recent petrol prices have received, increasing the price through this scheme would have been seen as handing the Opposition to much of a gift. It struck me as a bit disappointing - the entire point of an emissions trading scheme (sorry, Carbon Pollution Reduction Scheme!) is to increase the price of carbon-emitting technologies such as petrol. By cutting the excise, they send no additional price signal and, more importantly, reduce the funds gained from the scheme which are destined to help our economy adjust to a low-carbon footing.
The Government’s justification is interesting though. The Green Paper argues that the 3 year term on the mechanism, prior to a review, gives consumers time to adapt. Your average household isn’t going to sell their SUV overnight, just because a price has been put on carbon. But households who are, for instance, replacing the family car might choose to upgrade to a more fuel-efficient model, knowing that petrol could conceivably rise when the review period ends. Effectively, the Green Paper says the measure gives households 5 years to adjust their habits and vehicles (2 years till the start of the scheme, then a 3 year review period).
Taking it one step further, the 3 year window could also be seen to give time for local government to get their act together. This time could be used to put better alternative transport systems in place through improved public transport, bicycle lanes, and urban planning. If and when petrol is covered, these measures would also help insulate individuals from the effects and have the desired effect of reducing carbon emissions.
(There is also the argument that recent price rises in petrol are already sending a strong signal to individuals. Notably, kilometres driven in the US has started to fall already).
Having read the justification, I can see some merit in their thinking. Nonetheless, it still strikes me as weakening the scheme more than necessary. A cap on the price rise of petrol (say, no more than 5 cents) would have sent an extra price signal, whilst limiting the pain to motorists. Or a tax rebate to individuals that matches the average additional cost to motorists would provide an even greater incentive - if you can find a way to catch a bus to work, you get to keep all that rebate for yourself!
I don’t know - there’s reasonable arguments for letting the petrol price rise (at least a bit) and for keeping it steady. What does everyone else think? Let us know in the comments below.
(Image by Dear Harry under the Creative Commons Attribution ShareAlike 2.0 license)
Categories: current affairs, environment, reduce, transport
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July 17th, 2008 at 12:01 pm
On the face of it, an adjustment period is a reasonable justification. In practice, it’s bollocks.
Corporations sometimes adjust their behaviour in anticipation of changes; individuals rarely do. Corporations usually adjust their behaviour in response to current changes; individuals usually do, too.
To test this, we can look at the introduction of other taxes. Did consumer spending decrease in anticipation of the GST? Nope - it increased, with people getting in big purchases like tvs and fridges before the cost was going to jump - and then decreased for several months after the introduction of the GST.
People won’t change their cars because the price of fuel is going up in two or five years, they change their cars because it’s going up now. A society in which people have billions in credit card debt, in which people see the interest rate low and rush into mortgages expecting the rate to be low for the whole 20 years, in which people have used the rising value of their homes to get more from their mortgage - using their mortgage as a credit card - this is a society in which people are not thinking long-term. They’re reacting to conditions as they are today assuming that those conditions will last forever.
It’s entirely political. People are already bitching and moaning about petrol prices, the federal government is thus too cowardly to make the petrol prices rise yet more. I dunno why, it’d all be forgotten by election time.
They could of course point out that the price of crude oil has gone up by ten times since 1998, but the taxless price of petrol only three times, so that the people are complaining about nothing. But governments aren’t that brave.
August 8th, 2008 at 5:17 pm
Yeah, but you could say that consumers have known for quite a while that petrol prices were likely to go up soon. And unless the government says “we will include petrol in the ETS 100% for sure in 2013″, then our uncertainty is not decreased, and we are no more likely to adjust.
The government needs to start rolling out Public Transport right now, so that we are ready, not just buying a few more years here and there. Climate change is happening now. The more we delay, the harder it gets to solve.(due to large costs I believe that this is NOT just a local government issue)