Home > Economics - General, Environment > Hard Cash and Climate change

Hard Cash and Climate change

October 5th, 2005

Tim Worstall gets us past that pesky NYT paywall to link approvingly to a John Tierney column arguing that the way to encourage energy conservation in the US is not to fiddle with standards but to raise prices. Broadly speaking I agree. At a minimum, getting prices right is a necessary condition for an adjustment to sustainable levels of energy use. Nevertheless, the rate of adjustment and the smoothness with which adjustment takes place can be greatly enhanced by the adoption of consistent pro-conservation policies, or retarded by the adoption of inconsistent and incoherent policies.

This is as good a time as any to restate the point that, given a gradual adjustment, very large reductions in energy use and CO2 emissions can be achieved at very modest cost. Rather than argue from welfare economics this time, I’ve looked at the kind of adjustments that would be needed to cut CO2 emissions from motor vehicle use (one of the least responsive) and argued that price increases would bring this about over time, without significant pain.

Nicholas Gruen has some related thoughts

With the price of gasoline in the US passing $3/gallon and most of the remaining sceptics now conceding the reality of human-caused climate change, it seems like a good idea to re-examine some fundamental assumptions in the debate over climate change. Rather than focus on the short-run arguments about the Kyoto protocol, it seems more useful to focus on the question of whether anything can really be done to stop climate change.

A common estimate is that to stabilise the global climate, we would need to reduce emissions of carbon dioxide by 60 per cent, and proposals to achieve this by 2050 have been put forward. Assuming only a limited role for alternative energy sources, it seems reasonably to look at a 50 per cent reduction in primary energy use.

It’s a widely-held view that the kinds of changes required to stabilise the global climate must imply a fairly radical reduction in our material standard of living. This view is shared by radical environmentalists, who see such a reduction as a good thing, and by opponents of such changes most of whom, at least in developed countries are on the free-market right.

The fact that radical environmentalists view the modern economy as critically dependent on unsustainable patterns of energy use is not surprising. On the other hand, supporters of the free-market generally praise the flexibility of dynamism. Currently, energy use accounts for about 6 per cent of GDP. The suggestion that reducing this proportion to, say, 3 per cent, is beyond our capacity seems to represent a very pessimistic view of our economic potential.

There’s a standard economic technique for giving a rough estimate of the economic cost of such a shift. Begin with the assumption that in the long run, the demand for energy is sufficiently flexible that a 10 per cent increase in costs will eventually produce a 10 per cent reduction is usage, relative to the underlying trend. Although energy use responds slowly to price changes in the short run this is a fairly conservative estimate of price responsiveness over periods of a decade or more.

Given this assumption, halving energy use would require a 100 per cent increase in prices (by coincidence this is about the change that’s been seen in US gasoline prices in the last few years). A standard economic calculation suggests that the reduction in economic welfare associated with such a tax would be somewhere between 50 and 100 per cent of the revenue raised, or between 1.5 per cent and 3 per cent of GDP. That’s about one year’s worth of economic growth. Remember that this estimate is not for the modest first steps required under Kyoto, but for a reduction in emissions on the scale required to stabilise climate.

Is such a broad-brush estimate reasonable? One way to check is to look in detail at the kinds of changes that would be needed to achieve such a reduction in the most sensitive single category of energy use, that of private motor vehicles.

Consider changes over twenty years, a period long enough for the vehicle fleet to turn over, and for people and firm to make adjustments to home and work locations, commuting and shopping patterns, and so on.

First, a significant reduction could be achieved simply by improvements in the technical efficiency of fuel use. The motor vehicle industry, although technologically mature, still exhibits steady improvements in the efficiency of engines and other aspects of vehicle design. When fuel prices are low, much of the effort is allocated to improving performance.

When fuel prices are high, and policy is oriented towards reducing energy use, innovations that improve fuel economy are favoured. Over 20 years, and with support from publicly funded research, it seems reasonable to anticipate a 20 per cent improvement in fuel economy, for all types of vehicles, relative to the ‘business as usual’ trend.

Second, some shift towards alternative fuels could be anticipated. While radical alternatives such as ethanol and hydrogen and alternatives to internal combustion such as electric cars have so far proved disappointing, an increase in the effective cost of petrol would encourage greater use of existing alternatives such as LPG and diesel, which are more efficient in terms of carbon emission.

Yet further improvements could be achieved with measures to reduce traffic congestion, including purely technical innovations such as more sophisticated management of traffic lights and market innovations such as congestion charges.

Next, the mix of vehicles in the fleet would change over time. The gain from this source can be illustrated by a simplified example. Suppose that half of fleet uses 10l/100km, and half uses 5l/100km, yielding an average of 7.5l/100km. If the proportions changed to 25:75, the average would fall to 6.25,and fuel use would fall by 15 per cent. Most of this change would arise as a result of consumer responses to changing prices. However, existing policies that favour the use of large, inefficient vehicles (such as the special treatment of SUVs in US fuel economy regulations) should be scrapped, and replaced by policies pointing in the opposite direction.

A small further saving, say 5 per cent, could be achieved through discretionary decisions on which vehicle to use for a given trip. Given high fuel prices, a household with a small car and a 4WD might be more inclined to use the small car when dropping the kids off at school, for example.

A similar small change, say a 5 per cent reduction in fuel use, could be achieved through improved driving habits. These include stricter adherence to speed limits on open roads, and avoiding excessive acceleration and braking in urban areas.

So far, we’ve considered changes which involve no change at all in travel patterns (with the exception of congestion pricing, which would actually improve things), and only marginal adjustments in lifestyle. The biggest single change, in the fleet mix, would do little more than restore the mix prevailing in, say, 1980. Yet taken together, these changes would be sufficient to reduce energy use by between 30 and 40 per cent and CO2 emissions by an even larger amount.

Now consider some changes in travel patterns. The most important single variable is the distance travelled by each person. To get an idea of feasible magnitudes let’s consider a 20 per cent reduction in distance travelled. For commuting, the biggest single use of time, this could be achieved if people chose to live a little closer to work, to rearrange schedules to allow a four-day week, or to telecommute one day each week. Similar savings could be made on shopping and leisure travel with only modest costs.

The fuel cost of travel also depends on the extent to which people share cars. The average occupancy of cars has declined steadily reaching about 1.1 persons per vehicle for commuting trips in the US in 2000, and about 1.5 persons per vehicle for all trips. A partial reversal of this trend, raising occupancy to 1.65 persons would reduce fuel use by 10 per cent for a given number of person-km travelled.

Finally, there’s public transport and alternatives to cars like bicycles and walking. Doubling the share of these would reduce the number of vehicle trips by around 10 per cent, though the reduction in fuel use would be smaller since mostly short trips would be avoided.

Adding all of these modest changes together would yield a reduction in fuel use of more than 50 per cent Some of these changes would be imperceptible, others would require marginal adjustments over a couple of decades. Taken all together, they would be barely noticeable relative to the changes in lifestyle that most people experience over such a period.

You might think that adding together a whole lot of small changes in the same direction is stacking the deck in some sense. But this is the way markets work. An increase in the effective cost of some commodity generates adjustments on many different margins, all in the direction of economising on that commodity.

It is also the way coherent public policy works. If a goal of reducing energy use or CO2 emissions is properly embedded in public policy, it will be reflected in modest shifts in many different dimensions of policy, producing a significant aggregate impact.

The combination of price responsiveness and public policy can be seen working together in the reduction in tobacco use over the forty-odd years since the link between smoking and cancer was first officially recognised in the US in the Surgeon-General’s report of 1964. At the time, the proportion of men who smoked was 52 per cent and smoking among women was rising rapidly as older social taboos lost their effect. In 2000 the proportion who smoked was down to 25 per cent for men, and 20 per cent for women and was declining for both groups.

Admittedly, the health risks of smoking are borne mainly by the smoker, so the link between giving up and receiving benefits is direct and personal. Against this, nicotine is possibly the most addictive drug known to humanity. Giving up smoking requires an effort far greater than the modest changes discussed above.

The reduction in smoking was achieved by a combination of higher taxes, aggressive public information campaigns and public policies that gradually limited smoking in various public places, but without any radical changes or any element of compulsion comparable to Prohibition of alcohol or of the many drugs that are currently illegal.

What is true for driving and smoking is even more so for other forms of energy use, particularly in business and industry. Given a consistent upward trend in prices and a coherent set of public policies, massive reductions in energy use would follow as surely as night follows day.

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  1. Harry Clarke
    October 5th, 2005 at 22:58 | #1

    Where did you get your long-run energy demand elasticity of -1 from? This seems high to me on basis of earlier evidence on energy demands in industrialised countries. My memory was that long-run elasticities were about half that and that short-run elasticities around -0.3. If anything elasticities in industrialised countries will be lower now than 20 years ago because many of the big adjustments were made then and hysteresis prevented demands rising much when subsequently fuel prices fell.

    You might get have large price elasticities in developing countries like China and India where energy efficiencies are low. But of course such effects are likely to be offset by high income elasticities coupled with high income growth.

    I believe there is a strong case for government intervention to promote new energy technologoies and for insuring the losses of dud technologies. Many substitute projects are on hold because of fears in the private sector that fuel prices might again collapse. One of the most respected figures in the world energy scene Morris Adelman has recently stated that we have abundant supplies of liquid fuels for at least another 50 years. History suggests he might be right but it is a ‘might’. We need to develop alternative liquid fuel sources such as shale oil and guarantee such projects should oil prices slump.

  2. October 6th, 2005 at 00:03 | #2

    John – thanks for that run through. I could quibble with some or all of it, but it’s a useful checklist in any event.

    However the way you’ve done it I think there’s a big elephant in the living room. The developing world. Bring them into the equation and you’re talking about a much harder problem.

    You make an excellent point though about the apparent technological pessimism of many free marketeers who argue against taking steps on climate change. We have some people arguing that achieving major reductions in emissions will produce a standard of living of the same levels they were when we last had emissions that low – and they then talk about the nineteenth century. Hmm. Not quite. Over fifty years we could pretty much eliminate emissions. How much would it cost? I find it hard to imagine it would cost more than – say – 10% of GDP. I’m not arguing for this course of action. I’m just saying that, over fifty years giving up three years of growth isn’t such a huge catastrophe.

  3. Chris O’Neill
    October 6th, 2005 at 02:37 | #3

    The only problem with things like shale oile is that it takes a lot of energy, i.e. heat, to get the oil out of the shale and that energy normally causes, you guessed it, more greenhouse gas emissions. So hopefully new sources will be used that don’t actually make the greenhouse problem even worse.

    But at least shale oil as a fuel source is nowhere near as bad as making hydrocarbon fuel from coal which would be a greenhouse emissions disaster – the energy in the hydrogen atoms now has to come from burning coal which would at least double the CO2 emissions, as well as the CO2 emissions required to produce the energy for the synthesis process.

  4. conrad
    October 6th, 2005 at 06:14 | #4

    Perhaps I’m an outlier on this one, but I don’t think using ethanol is a particurily radical alternative at all, particulaly when you could initially just chuck some of it normal petrol without too many problems, or just start selling cars with engines modified to take larger quantities.

  5. jquiggin
    October 6th, 2005 at 06:45 | #5

    Harry, the point of the piece is to show, by examining the kinds of adjustments that would be needed, that -1 is a reasonable estimate for the long-run (20 year) elasticity of demand. In econometric studies, the long run usually means about 5 years.

  6. Paul Norton
    October 6th, 2005 at 08:17 | #6

    The latest edition of Australian Rationalist magazine is a special issue on energy and the environment. Some of the articles (by Kevin Poulton, Frank Fisher and Henry Farrell) make some excellent points regarding major greenhouse emission reductions which are immediately (or almost immediately) achievable from gains in energy efficiency and conservation. See http://www.rationalist.com.au – and shut down and unplug your PCs when you’ve finished surfing the net!

    John Q wrote:

    “Finally, there’s public transport and alternatives to cars like bicycles and walking. Doubling the share of these would reduce the number of vehicle trips by around 10 per cent, though the reduction in fuel use would be smaller since mostly short trips would be avoided.”

    The final caveat is somewhat unnecessary as a combination of cycling from home to the station nearest home, riding the train the greater part of the journey, and then riding from the end station to one’s destination can substitute for many cross-city car trips (although Queensland Transport’s refusal to allow bikes on trains in peak hour is a serious limiting factor).

  7. hermit
    October 6th, 2005 at 09:20 | #7

    All of the GHG savings from changed patterns of vehicle use could be achieved by immediately banning electricity generation from coal. If there was an overall GHG cap in which generators and fuel refiners could buy permits that might sort out the allocation problem. Conceivably there could be perverse effects like abundant fuel and inadequate electricity. Eventually we must stumble towards some mechanism where energy cost is substantially linked to emissions.

  8. October 6th, 2005 at 09:44 | #8

    “The fact that radical environmentalists view the modern economy as critically dependent on unsustainable patterns of energy use is not surprising.”

    What is radical about this? It is obvious to anyone that the ‘free market’ economy is only possible because of cheap and abundant energy. The effort that the major players will go to, to keep energy cheap and plentiful is evidence of this.

    Our economy, as it is now, is based on the huge energy return of fossil fuels. Shale oil’s energy return is 3:1 at best – this cannot possibly replace conventional oil with an energy return of over 20:1. Ethanol is at best 5:1 which is about the same as the worst PV panels.

    We need to reduce the wastage that occurs today. Most of our society can run on a lot less energy with no or minimal changes. However some of this will have to acheived with carbon taxes and subsidies.

  9. October 6th, 2005 at 10:23 | #9

    If we want to get the utmost out of our Shale oil we need to kiss goodbye to the Barrier Reef. (the same could be said of biofuel because of the upsurge in sugar production that would be needed, with the associated runoff and damage to the area.) Yeah I know, emotional, bleeding heart, deep green yada yada. Only “standard of living” as measured by the motor car matters. So it’ll happen. Goodbye, Reef. It was nice knowin’ ya.

  10. wilful
    October 6th, 2005 at 10:24 | #10

    Here’s a bit of a human perspective on the issue:

  11. October 6th, 2005 at 11:31 | #11

    Nicholas, with regards to the developing countries, aren’t we reaching a point that, given the economic growth in China and India, any efforts to reduce petroleum usage here will, through the resulting lower prices, result in more consumption there?

    If so, there’s essentially no point (from a greenhouse perspective), in trying to curb oil consumption in the developed world.

    Similarly, the anti-Kyoto crowd seem to me to have a reasonable point that if the developed world’s cleaned-up electricity supply is more expensive than the developing world’s dirty coal power, energy-intensive industry will naturally transfer itself to the countries with the dirty cheap power.

    So what are we going to do, given the above?

  12. October 6th, 2005 at 13:14 | #12

    The Australian Govt is in the process of introducing legislation to make it compulsory for the larger business users of energy (0.5PJ pa +) to investigate and report on any opportunities for introducing cost effective energy efficiency measures. Some of the more switched on in business have been at this for years and have made some fairly significant savings using technology like cogeneration. The extent to which it might reduce CO2 emissions – nothing like what is needed, but a beginning nonetheless. Unfortunately, Robert Merkel has a good point – increase prices for energy here too much, and the energy intensive industries will go elsewhere. How you get around it without resorting to some form of trade sanctions I don’t know, not likely to be too compatible with trade liberalisation.

  13. October 6th, 2005 at 14:06 | #13

    I’ve blogged about your post here. I wonder then – if fuel becomes more abundant due to innovation, is the threat of global warming dangerous enough to justify other price mechanism to reduce greenhouse gases – say tradable carbon quotas?

  14. October 6th, 2005 at 14:06 | #14

    A lot of this is simply aiming at the wrong target. For instance, biofuel doesn’t necessarily involve increased sugra production; the best biofuel to start with is in fact biodiesel (because if it is used in agriculture the fossil fuel needed for other agricultural biofuel production improves a multiplier).

    Carbon emissions go up with biofuel use, so targetting them would be applying inappropriate incentives for the particular policy objective (greenhouse improvements).

    Efficiency numbers at individual points aren’t relevant, what counts is end to end efficiencies – the amount of travel per unit opportunity cost and/or input of fossil fuels. So ethanol from a fully biofuel based production is in fact a good bet (but not simply more ethanol, here and now, as is).

    Taking all in all, in fact the best greenhouse gas improvement approach is the tried and true 1940s autarky technology: gas producers. Yes, it’s a quick and dirty, inefficient and highly polluting technology – that’s the point. When you run a vehicle that way you get a lot of unburned non-fossil carbon, which is non-biodegradable and will be sequestered by natural processes like being washed out to sea and sinking. All you need is earth-based exhaust filters to eliminate problems near the vehicle.

  15. October 6th, 2005 at 14:20 | #15

    A doubling in price leads to a halving in use, but if we have to get 60% reduction in emissions then somewhat more than 100% increase in cost is required. We may be able to sustain that. But if the population keeps growing then ever greater per capita cuts in petrol use will be required to achieve the desired cut in emissions. And we may need a further increase in the cost of petrol to achieve that. But at what price of petrol will the economy start to fall apart? It appears that with Peak Oil the market alone will be sending the price of petrol through the roof. At what point do we have economic meltdown?

  16. Paul Norton
    October 6th, 2005 at 14:21 | #16

    To Robert and Furtive,

    The Kyoto Protocol was formulated on the assumption that it would be the first stage of a multi-phase approach to emissions reductions, on the understanding that developed countries would be the first to agree to binding emission reduction targets, and developing countries would come into the regime of binding targets at the next stage. Of course there is no guarantee that the developing countries will agree to this in the post-Kyoto process, but the discussions and negotiations will be undertaken with this goal in mind.

    In this light it would be a very crazy-brave energy-intensive industry which would decide to relocate to a developing country for the reason you mention (i.e. cheap energy due to exemption from emissions reduction targets). Given the long lead time for establishment of energy-intensive facilities such as aluminium smelters, they may well find that their country of choice has signed up for emissions reductions targets (and modified its domestic policies accordingly) by the time the plant is operating.

    Also worth considering:

    * Energy prices are only one consideration in the siting of energy-intensive plant. Others include other factor costs (particularly labour), availability of infrastructure, proximity to intended markets, political stability, and proximity to feedstocks (the locations of Australia’s bauxite and iron ore deposits tend to be highy unresponsive to energy price signals).

    * Existing plant and equipment in developed countries represents a major sunk cost on which the operators will want to maximise the return before deciding to relocate.

    * New plant established in purported cheap energy countries will be more technologically advanced than existing plant in developed countries, quite possibly being much more energy efficient, thereby ceteris parabus reducing emissions relative to existing plant of comparable capacity.

    * The cheap energy offered by the developing country might be hydro, and therefore preferable on greenhouse grounds to fossil-derived energy in developed countries (although having an environmental downside of its own).

  17. StephenL
    October 6th, 2005 at 15:43 | #17

    If high prices in the developed world stimulte the development of efficient technologies (such as hybrid cars) economies of scale will soon see these fall in price. Eventually it is likely that they will be taken up by developing countries as well. Of course there may be a time-lag, and given the dangers we face this could be fatal, so rather than simply relying on China and India picking up the techologies because they have become cheaper than the alternatives it may be necessary to encourage technology transfer programs.

  18. October 6th, 2005 at 16:23 | #18

    One point Prof. Quiggin hasn’t made clear in this piece, which uses transportation as an example, is that transportation is a far smaller contributor to greenhouse emissions than what you might think. Have a look at the AGO’s emissions data page. The stationary energy sector makes up close to half our emissions, and it’s actually much, much easier to do something about than the transport sector.

  19. SJ
    October 6th, 2005 at 20:03 | #19

    The stationary energy sector makes up close to half our emissions, and it’s actually much, much easier to do something about than the transport sector.

    How, specifically? And at what cost?

  20. Tony Healy
    October 6th, 2005 at 20:34 | #20

    Evan Jones has an interesting comment on another wasteful use of fuel – the importing of fruit and other agricultural produce. While we’re using that extra fuel, farmers are throwing out unwanted fruit as waste. Seems to me this would be an excellent topic where globalisation shills should be forced to explain themselves better.

    Alert and Alarmed

  21. jquiggin
    October 6th, 2005 at 22:31 | #21

    I picked transport because its generally perceived as an area where adjustment is going to be very difficult and costly.

  22. kyangadac
    October 7th, 2005 at 02:11 | #22

    The effect of doubling fuel prices in real life can, of course, be seen in Indonesia today. Just a thought.

  23. Ian Gould
    October 7th, 2005 at 09:15 | #23


    There are several strategies for reducing emissions from the stationary energy sector.

    Here’s a semi-random sample:

    1. As a starter in Australia, you’d probably look at connecting some of the large remote power users (such as Mt Isa Mines and towns in the Pilbara) to the national grid. The cost of building the connectiosn would be substantial but would be offset by the lower cost of power compared with that from current stand-alone generators. Most of those generators are fossil-powered (I think Mount Isa now uses gas) whereas the grid has a much-larger non-fossil component.

    2. Nuclear power – which really meets only half of the cheap and easy criteria. We could start buying nculear reactors tomorrow but the cost of power would be higher than from coal.

    3. Co-firing coal power and hybrid coal/renewable: Most coal-fired powerplants can accept around 2% contamination in their fuel and you can almost immediately start running them with 2% waste wood or other biomass. Relatively simple modifications can increase that to 10%.

    There are already demonstration plants where the intake water for coal-powered turbines is pre-heated in solar collectors. This is a cost-effective way of increasing power output without increasing CO2 emissions.

    4. Mandate solar hot water systems for all new housing.

    5. Require new coal-fired power plants to use IGCC (integrated gasification combined cycle) technology which significantly reduces emissions.

    6. The cost of renewables keeps coming down. check out the reports on the new Sterling systems http://www.stirlingenergy.com/news%5CSES%20Press%20-%20SDGE%20V%203.pdf.

  24. gordon
    October 7th, 2005 at 09:17 | #24

    In his book “The End of Oil” (which Prof. Quiggin has also been reading), Paul Roberts says: “…much as we will depend on market forces to build our next energy economy, the market’s ‘invisible hand’ will need a little guidance – mainly in the form of political action to assign a cost to carbon emissions” (p.279 of the Bloomsbury paperback). I agree. Yet Prof. Quiggin writes: “…price increases would bring this [cutting CO2 emissions from motor vehicle use] about over time, without significant pain”. Wrong, I think.

    The problem with purely market-based responses to scarcity is resulting inequity. Carbon taxes alone could too easily become regressive, impacting disproportionately on the poor. It is very easy for Prof. Quiggin to suggest a 100% carbon tax (which I presume is what he means by referring to “such a tax” decreasing fuel use by 50%), but the consequences would be very painful for some.

    Regulational disincentives to energy efficiency (like loose building regulations) are certainly numerous, and are discussed in the Roberts book. My favourite source on that subject remains “Natural Capitalism” (Hawken & Lovins). But that is just another reason for believing that price-raising alone is a dangerously incomplete approach, and one which, used alone, would produce plenty of pain. I remain convinced that a large dose of regulation (including overhaul of existing perverse incentives and subsidies, and upgrading regulations governing building, car manufacture, power generation etc.) is essential if an energy policy which is both effective in reducing emissions and equitable is to be found. An example is a recent article by G.Monbiot in the Guardian, where he describes builders pleading for improved regulation so that they can build better (http://www.monbiot.com/archives/2005/09/20/a-world-turned-upside-down/ )!

    And, SJ, the report “Towards a Clean Energy Future for Australia” (Saddler et. al. 2004) is a good place to start. Downloadable from: (http://www.wwf.org.au/News_and_information/Publications/index.php?offset=5&type=report )

  25. October 7th, 2005 at 09:57 | #25

    Ian – Connecting remote power users is exactly the wrong thing to do. The ideal way to reduce emissions is to de-centralise power not connect remote places with inefficient transmission lines. How about building large solar thermal plants instead. Esperance in Western Australia is an example of how to do remote power properly.
    If you read it note the AUSTRALIAN DESIGNED power controls used. Jobs and export markets for Australians. How hard would it be, with encouragment, for Westwind to start ramping up to build large wind turbines. Australia’s CSIRO also makes the best absorbant coating for solar thermal tubes.

    Also nuclear power is neither easy or cheap. I sort of agree with the IGCC however it is only a stopgap. Not only should solar thermal hot water systems be mandatory but solar PV grid-tie installations.

    We need to mandate energy efficiency. There should be nothing on sale in Australia less then 5 stars. Increased use of domestic air conditioners is making huge demands on power generation. Incentives can be given to increase the efficiency of both domestic and business air-cons.

    With Australia’s massive potential for solar and wind there should be no need for nuclear power. Contrary to fossil fuel proponents charges solar power is not needed at night. Peak demand is often 60% more than off-peak demand.

    We need to reduce electricity demand first. We can do this with a combination of carbon taxes increasing the cost of electricity and using the money to fund grants to replace inefficient electrical appliences.

    On the transport front we need to end the diesel fuel subsidy (2 billion per year) and give the money to renewable projects. We need to end novated leases paying less tax when you drive further. We need to exempt hybrids electric cars and electric cars from taxes and give incentives for their use. We need to encourage plug-in hybrid electric cars.

    On the supply side every house in Australia should generate some of it own power. One watt generated at home prevents one watt wasted getting to your home. Grid-tie solar PV plants are commercially available and should be encouraged with more than the current PV rebate. Wind power and solar thermal should be massively expanded with subsidies from the carbon taxes. With reduced demand there is no reason Australia could not be 50% or 60% renewable in 20 years. With this level of renewable power our gas reserves, assuming we stop selling it all to China, should last for hundreds of years and not produce too much CO2.

    All if this however needs Government vision and commitment. With our present government firmly set on the 1950s this will not happen. I have grave doubts that the Labor Liberal Party will do any better. With my own Green Party intent on fairies at the bottom of the garden don’t expect much here either.

  26. Aidan
    October 7th, 2005 at 09:59 | #26

    When we bought a (second hand) car a year ago it seemed pretty obvious to me that fuel prices were too low. Noone we called to enquire about their car knew what “mileage” they routinely got. We had researched the makes and models on sites like drive.com.au and had an idea of what the manufacturers thought it was, but wanted to know if the owners had achieved these figures. They literally had NO IDEA.

    We initially looked at Magnas, but their fuel economy stinks. Something like 12l/100km for the 3.5L versions around the city, and yet these are very popular cars. In the end we settled on a 1995 Mazda 626 (2.0L). We get about 8.5l/100km around town.

    Why isn’t there a requirement that the fuel economy of new cars be displayed at point of purchase? They do this in the US I believe.

    Why aren’t we encouraging diesel cars? They are much more efficient than equivalent petrol versions. I know they aren’t historically popular in Australia, but concessions on registration and perhaps stamp duties could help to change that.

  27. SJ
    October 7th, 2005 at 14:00 | #27

    Why isn’t there a requirement that the fuel economy of new cars be displayed at point of purchase?

    Um, something like this?

    In his 1997 statement on Australia’s response to climate change, the Prime Minister called for a mandatory model-specific fuel consumption labelling scheme for all new vehicles sold in Australia. The development of such a scheme was a key element of the Environmental Strategy for the Motor Vehicle Industry as outlined in measure 5.10 of the National Greenhouse Strategy.

  28. October 7th, 2005 at 15:24 | #28

    It’s fairly easy to get fuel figures – most of the companies keep them on their websites. I thought it was mandatory to publish them (usually at the back of the glossy, in the small print). But I can’t say I’ve ever seen any of them actively display their fuel figures except VW and Peugeot, both of whom now market some very economical diesels that are good for 5l/100k or thereabouts. That’s a whole lot better than any of the local makers can offer.

    As for why diesel cars haven’t caught on in Oz – I’m told that until very recently, Australian diesel was too high in sulphur for some of the new diesel designs to operate reliably, they are very high-tech compared to the smoky monsters of yesteryear. And also Australians for the most part seem unaware of just how good some of the european and japanese diesels are. A friend of mine in northern Italy has a little diesel Fiat (at least I think its a fiat) which is an absolute rocket, good for 200kph on the autostrada (not that I’m advocating such irresponsible activity!)

    There is some interesting trials around about the efficiency of these machines – there was a long distance trial in the US recently where a diesel and a hybrid were compared, and the diesel was more fuel efficient, although the hybrids tend to have the edge in stop-start conditions. The downside of diesels seems to be fine particulate emissions. Nonetheless, if we are serious about significantly improving car fleet efficiency and the CO2 emissions from it, diesels certainly have something to offer, at least as a bridging technology. However, fleet turnover is so slow in this country that it would take a long time for changes to become significant. You also have the problem that only reasonably high income earners can quickly respond to fuel price signals and switch in the short term, those among us who are less well off haven’t got those sort of choices open to them. Alas, it was ever thus.

  29. Aidan
    October 7th, 2005 at 15:45 | #29

    SJ said:

    Um, something like this?

    Yeah .. something like that.

    Paint me purple and call me a gooseberry.

    Not sure what to do about the fleet turnover rate. This would be a problem I agree.

  30. jquiggin
    October 7th, 2005 at 18:10 | #30

    The Oz car fleet currently turns over in about 20 years – hence my choice of this period in the post. That was about the lag between the switch to unleaded fuel vehicles in 1985 and the end of unleaded fuel sales fairly recently. Rising fuel prices would raise the scrappage rate for old fuel-inefficient vehicles.

  31. October 7th, 2005 at 18:52 | #31

    Interesting that you pick up that piece from me. I do have an ulterior motive, of course. I’m peripherally involved in the development of a certain type of fuel cell. 🙂
    I think it’s also worth noting that the country with the highest such fuel taxes (the UK as far as I know although it might be Norway but that would make the same point) has the lowest fuel to GDP ratio of the advanced deconomies. Changing prices via taxation does seem to work.

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