What if the price of petrol doubled?

One clue to the likely consequence of a major hike in the price of petrol is provided by the recent past. As it happens, the price almost doubled within the last ten years.

The accompanying chart, which is based on ABS data, shows the nominal price increased 100% between March 2000 and September 2008. Fortunately it’s dropped back substantially since then. Even so, the current price is still around 80% higher than it was ten or eleven years ago.

It is therefore instructive to look at how drivers responded to this increase in costs.

In part, travellers adjust to higher petrol prices by driving more carefully, driving less and by buying more fuel-efficient cars. While there have been some improvements in this respect, they’re not spectacular. The average fuel consumption of new light vehicles is now around 8 litres per 100 km. Yet the average consumption of the national fleet is still up at 11 litres per 100 km. Moreover, the potential benefits from more fuel-efficient cars are not being fully realised because of increasing consumer demand for larger, more powerful and more luxurious vehicles.

Some travellers respond to higher petrol prices by switching to public transport. Indeed, there was a significant increase in demand for public transport over this period, especially from around 2004-05. However this was from a small base and public transport still only accounts for around 14% of all weekday trips in Sydney and Melbourne.

Like most things, this increase in patronage is very likely the result of a combination of factors. While there seems little doubt that the higher price of petrol is a factor, it is by no means certain it is the most important one. Read the rest of this entry »