Thursday, June 19, 2008

Oil: Guess what? High prices cut sales.

Australia’s oil imports have collapsed under the weight of higher prices and the resulting changes in consumer behaviour.

Trade figures released yesterday show that just 1.6 billion litres were imported in May – well down on the long-term average of 2 billion litres per month.

May volumes were down 28 per cent on those imported a year earlier.

The change gives heart to those who have claimed that the higher prices that will flow from Australia’s planned emissions trading scheme will cut greenhouse gas emissions.

The claim has been contested by the Coalition whose environment spokesman Greg Hunt has asked how “whacking a great new 20-cent tax” on petrol would cut emissions.

“We have serious reservations and scepticism about petrol tax, given that prices have increased four-fold in the last decade and petrol volume hasn't changed at all,” Mr Hunt said a fortnight ago...

The May plunge in oil imports was the biggest annual decline in four years.

It is consistent with other information showing that the number of litres bought per person and the number of kilometres driven has been falling.

Westpac Economist Matthew Hassan has calculated that in the three years since the oil price began to climb the typical amount spent on petrol jumped from $13.50 per week to $16.90 while the number of litres bought fell from 13.5 litres to 12.9 per week.

The average distance driven per car fell from 14,600 kilometres per year to 13,800 kilometres in the five years to 2006.

The results echo those in the United States where in November the number of cars on roads slipped below the level of a year ago.

The latest figures for March show that US drivers traveled 11 billion fewer miles than a year before. The 4.3 per cent drop is the biggest-ever year-over-year drop in distance driven.

The Wall Street Journal has labeled the phenomenon a “tipping point”, meaning that the price increases have become severe enough to have an effect.

“What we are seeing now is prices have been high for a while and consumers have become convinced high prices are here to stay. That has given them time to make changes, such as the car they buy," the Journal quoted University of California, Davis economist Christopher Knittel as saying.

“That has larger effects than - well, I'm just not going to drive to the mall this week.”

CommSec’s Chief Equities Economist Craig James said that while oil imports had been slowing for six months the size of the May decline showed that Australians had dramatically changed their behaviour.

“Fewer trips are being made in the car, more people are walking to the shops and using public transport and transport operators are making sure they fill gaps in loads to make less trips,” he said.

The change had been anticipated by the head of the government’s climate change review Professor Ross Garnaut who told the Canberra Times earlier this month that he expected the current “exceptionally high fossil fuel prices” to have a strong effect in cutting emissions by themselves.

So strong would be the effect that an emissions trading scheme might now not be needed in order for Australia to meet the 2012 emission targets imposed on it under the Kyoto Protocol.

“We probably were in a position where we were going to more or less meet our Kyoto targets but now we will be more or less under,” he said.

He suggested that when the scheme is introduced in 2010 the price of emissions permits be fixed rather than floating for the first two years in order to avoid the price of the permits falling to zero.