The case for fuel efficiency standards
Thanks to Joe Hockey’s masterful salesmanship, the idea of restoring indexation of fuel exercise, let alone imposing a carbon price, is dead for the foreseeable future. This is one case where, despite my economistic prejudice in favor of price-based measures, I think regulation is the way to go. Australia is one of the few developed countries that does not impose fuel efficiency standards on motor vehicles. Now that the Obama Administration has greatly tightened US standards, we are set to have the most petrol-guzzling car fleet in the entire world.
The Climate Change Authority, of which I’m a board member, recently looked into the issue and concluded that, over the lifetime of a vehicle, fuel efficiency standards matching those of the US would save motorists thousands of dollars. Unfortunately, it’s difficult to factor this saving into the initial sale price, given that it may not be reflected in resale values. Still, this would be one of the easiest and cheapest ways of reducing CO2 emissions.
In the long run, given the demonstrated feasibility of electric vehicles, it should be possible to decarbonize most motor transport at a very modest cost. Once the infrastructure was set up properly, this would also solve a large part of the timing problem created by the fact that peak solar supply is in the middle of the day, when household demand is low, but when millions of cars are parked, and could be recharged.