Will a carbon tax double the price of petrol?

Possible future petrol prices under different oil market/carbon price scenarios (CSIRO)

Tony Abbott made a surprising claim on Sunday that a $40/tonne carbon tax would increase the retail price of electricity by 100%. Fortunately, John Quiggin has ‘done the maths’ on Abbott’s assertion and points out that it would result in a much lower increase in the retail price to households – around 20%.

So let’s look at the likely effect of a carbon tax on the price of petrol. This CSIRO report, Fuel for Thought, estimates that a $40/tonne emissions permit would only increase the retail price of petrol by 10 cents per litre. So the additional cost of the $23/tonne carbon price touted by the Greens would seem to be no more than the weekly fluctuations in price at my local servo!

That’s hardly a great big new tax. But what’s important from a policy perspective is that a price on carbon of this order isn’t really going to have a significant effect on what we drive and how we drive. Read the rest of this entry »