[Peakoil-announce] The Age: Fuel price debate ignores real issue

[Alex Pollard]

Some much-needed commentary from the press.

Alex
O4O4873828

President
ACT Peak Oil Inc.
http://act-peakoil.org
_____________________________________
http://www.theage.com.au/articles/2008/05/28/1211654119847.html

Fuel price debate ignores real issue

Kenneth Davidson
May 29, 2008

Even by the debased standards of political debate in this country, the petty
point-scoring between the Opposition and the Government on easing the burden
of petrol prices has achieved a new low.

Both sides of politics have done their homework. Their focus groups
obviously show that the issue is uppermost in voters' minds. The question is
how to show the most phoney concern for the motorist.

Spare us. This issue is high on perception and virtually zero in terms of
substance. Over the past 18 years the "private motoring" component of the
CPI has risen at an annual rate of 2.7%, the same as the "all groups" index,
according to Centre for Policy Development fellow Ian McAuley. In other
words, the real (inflation-adjusted) price of private motoring remains
unchanged.

How come? According to McAuley, although the price of petrol has increased
by 4.7% a year, in real terms the price of cars is now 40% cheaper than 18
years ago. Furthermore, modern cars last longer and are more reliable. This
suggests that governments should save their concern for public transport
users. Over the same 18 years, public transport fares have risen 4.7% - the
same as for petrol. Governments can't do much about crude oil prices, and
higher prices for petrol will help motorists adjust to peak oil. Lower
public transport fares will also help smooth the adjustment to peak oil.
Given the prospect that global oil prices could increase to $200 a barrel
within the next decade, it is hard to imagine a more perverse set of market
signals.

As the Australian Association for the Study of Peak Oil and Gas (ASPO) says,
"high prices are the market signal that we will reduce our oil dependence.
Suggesting that high prices are temporary misleads the public and allows
governments to delay difficult decisions."

But wait, it gets worse. Egged on by the road lobbyists, the politicians
claim that relief should be given to motorists because the hardest hit are
the poor. The cost to revenue of both the excise cut and GST rebate of four
or five cents is about $2 billion each. According to Richard Dennis, the new
director of the Australia Institute, the household expenditure survey shows
that the lowest 20% of families by income would benefit from either proposal
by $160 million and the top 20% get $600 million.

Until recently, the Paris-based International Energy Agency was in denial
about peak oil. In a recent interview, the IEA chief economist said the
forthcoming forecast through to 2015 (to be published in World Energy
Outlook for 2008) would show an annual decline in oil production of 3.7% to
4.2%.

According to ASPO, the world is producing one barrel of oil for every three
we consume. Production of oil peaked in Australia in 2001. Thanks to falling
domestic production and higher import prices, net imports are expected to
increase from about $12 billion now to about $30 billion in 2012. If the
excise or GST on petrol is reduced, the electorate will demand a similar
response every time the price goes up. This nexus must be broken now. It
would be obscene if the Rudd Government cut the GST on petrol while
continuing to impose the GST on rail, tram and bus fares. We all pay
indirectly for higher petrol costs.

A less objectionable second-order response is to cut other taxes to
compensate for the higher petrol price.

The fringe benefits tax concession on private use of company cars costs some
$2 billion a year. It should be scrapped and the savings used to cut income
taxes or, even better, improve public transport.

Our first-order response should be to switch transport expenditure in the
capital cities from freeways to rail, with feeder services in the outer
suburbs, so that when two-car (or three-car) families are no longer
affordable they will have a genuine public transport option.

A 2005 study of peak oil for the US Energy Department concluded: "As peaking
is approached, devising appropriate offsetting fiscal, monetary and energy
policies will become more difficult. Economically, the decade following
peaking may resemble the 1970s, only worse, with dramatic increases in
inflation, long-term recession, high unemployment and declining living
standards."

We are entering the era of global peak oil. Together with global warming and
water shortages, it will demand statesmanship not in evidence in the present
political debate.

Kenneth Davidson is a senior columnist.

kdavidson at theage.com.au