Wednesday, June 18, 2008

Responses to higher fuel prices

Observing how people are responding now to higher fuel prices gives us some idea about how people will respond to a price on carbon under an emissions trading scheme.

In the short term, we can expect pain on households and businesses as their usual ways of doing things become more expensive. In the slightly longer term, people adjust by finding different ways of doing things: driving less, taking more public transport. And in the longer term, people make bigger adjustments like buying more efficient cars or moving closer to work.

We're definitely seeing the short term pain and the immediate political pressure to do something to bring petrol prices down. And we're also beginning to see people adjust - an interesting example is truckies choosing to take the ferry across the Spencer Gulf in South Australia rather than driving around it:

South Australian ferry operator Sea SA says figures for the June quarter show a doubling in truck traffic compared with the same part of last year.

Justine Day from the company says the main attraction is saving money. "We're being told by people in the industry that this is because the price of fuel which is, as we all know, at record highs at the moment - it's actually making the ferry a more attractive option than driving all the way around the Spencer Gulf," she said.

This also shows an advantage of using prices to drive changes in behaviour to reduce emissions, compared to government-dictated solutions like banning incandescent light globes or subsidising solar panels on roofs: you get a whole lot of unexpected and locally appropriate methods of reducing emissions coming out of the woodwork.

It also shows though that the effects can be somewhat unpredictable - would you necessarily think that a South Australian ferry company would benefit from emissions trading?

Adjusting to higher energy prices will no doubt be painful and difficult, but probably not as painful and difficult as people think: because innovative businesses will come up with ways to ease the transition - earning profits for them and reducing the costs for others.


Jekaterina said...

good conclusion indeed... hm, as the business of business is business otherwise it won't be business. Here the problem is that adjusting our consumption and behavioural habits in general value system should be altered as well. Namely, saving environment for its own sake, not in order to save money... and save motivational factors in addition to economic benefits should be found

Eilleen said...

yes you are right David that there are definitely new opportunities in a "green" economy. Even for small businesses.

My father is finding now that he is actually making more money with petrol prices going up. For his business, it has meant that the larger businesses are no longer wanting to cut into his (small) market and that customers who were before willing to travel the 1-2 hours by car to the larger businesses are starting to frequent his business.

This has certainly been an unexpected outcome and perhaps is something that in a emission trading scenario and high fuel prices, small and local businesses will start regaining their foothold in their local markets once again.

Doug said...

I hadn't thought about unexpected benefits beyond people turning to public transport.

Obviously some of my "expensive" neighbourhood stores might wind up getting more business as a result, possibly making them more competitive than they were before.

Otherwise, I'm increasingly glad we just didn't get around to buying a car last year. Bicylces and trains ahoy!

Anonymous said...

I'm visiting relatives in Shanghai and I've been really impressed with the motorised push bikes powered by batteries that can be recharged by plugging into the mains. They can get up to about 50kph and only cost about AU$300-$450. If you drive to work every weekday and you live 20km from work you could make that back in no time with petrol prices as they are. The only question is whether they'd be allowed on the freeways classed as motorcycles or would they be prohibited being classed as pushbikes.

Petrol prices and fattest country in the world title getting you down? Electric bikes to the rescue! Too bad we've not seen them flooding the Australian market already.