Is petrol in Canberra too expensive? Price data suggests it may actually be too cheap

Fuel prices hit “historic highs” this month, both in Canberra and across the country.

ACT drivers paid an average of $ 1.72 per gallon of unleaded gasoline last week.

But the big news is not how much Canberrans pays for fuel – it’s how little we’re paid.

For most of the past year, the average weekly price of unleaded petrol has been cheaper in ACT than in Sydney.

In fact, the typical Canberra motorist who drove a car with average fuel economy above the average (pandemic) mileage would have spent $ 94 less on gasoline than their Sydney counterpart over the past year.

ACT drivers usually pay a premium

Cheap – or relatively cheap – petrol in Canberra is not the norm: ACT prices are usually higher than in most cities.

The market watchdog, the Australian Competition and Consumer Commission, has previously explained some of the reasons for this.

For example, Canberra has fewer independent fuel dealers and less competition than larger cities.

It is also further from refineries, which increases shipping costs marginally.

ACT is also relatively wealthy – and goods and services tend to cost more in places with higher incomes. (This partly explains why Canberra’s childcare and medical fees are the highest in the country.)

Nevertheless, the premium that Canberrans normally pays for petrol became a crisis 18 months ago, as the difference between Sydney and ACT prices regularly exceeded 20 cents per liter.

Chief Minister Andrew Barr even threatened to impose statutory ceilings on service stations’ retail margins – the difference between the wholesale and pump price.

“We know we’re being eroded and that has to stop,” Mr Barr said.

“We have a market failure that necessitates government intervention.”

Station owners responded, prices fell and the crisis passed – without the government messing with the market.

We notice price increases, but forget the falls

An electronic petrol price tag.
Gasoline prices are constantly in sight, unlike most other commodity prices.(ABC News: Nick Haggarty)

So given that Canberra usually has higher petrol prices – and with good reason – what happened over the past year?

The probable explanation is that the demand for fuel in ACT, and thus the price, collapsed because Canberrans stopped driving – more than other Australians.

Several workers in Canberra were able to work from home and chose to do so, not only during lockdowns, but during the entire pandemic.

In other words, the ACT gasoline market – supply, demand and pricing – seems to function as a free market should.

Australian National University energy economist Paul Burke says petrol prices attract more political attention than other commodity prices simply because they are visible.

“Gas price tags are so big and we often drive past them so they are in the forefront,” he says.

“They are much more upfront compared to some other fees we pay – for example, related to our retirement accounts – which we may rarely check.”

Today’s ‘historical heights’ are not very high

The motoring organization NRMA has called this month’s pump prices record highs and “the worst we’ve ever seen”.

Strictly speaking, this is true – but only if one ignores inflation.

The real price of fuel, including our ability to pay, is high, but not close to record.

This is partly the reason why Dr. Burke says Mr Barr’s threat to cut ACT petrol prices last year was “an intervention that sought a problem”.

“It would be better to focus them on things that will help us reduce our emissions, instead of pushing the price of gasoline down,” he says.

In addition to the price movements associated with global oil supplies, Australia’s petrol prices have in fact always been at the lower end of the international market.

Very few developed countries – the United States is a notable exception – have cheaper fuel, largely thanks to Australia’s tiny taxes.

Dr. Burke says this is likely to slow down Australians’ transition to electric vehicles (EVs).

“One of the key determinants of whether countries have highly fuel-efficient fleets is how high their gasoline prices are,” he says.

He recommends that governments increase fuel taxes to help break the dependence on gasoline.

“In the long run, it will be a dying source of revenue when we switch to electric vehicles,” he says.

“But a higher rate [of fuel excise] would encourage us to switch to electric cars, and the revenue we collect in the meantime could be used for things like investment in public transport. “

Charger CU
Electric cars are much cheaper to drive, but the price is an obstacle.(ABC News: Chris Taylor)

Canberra needs a real-time price monitoring network

NRMA spokesman Peter Khoury agrees that governments should do more to encourage the use of electric cars, such as rolling out more chargers and helping reduce vehicle prices.

But the NRMA says it should not be paid by penalizing drivers with higher taxes.

Sir. Khoury says Canberra motorists are at a particular disadvantage because the ACT government has not set up a real-time network to monitor petrol prices.

All other jurisdictions have, except Victoria.

“It just wanted to [make it] a little easier for motorists to find cheaper petrol stations, “says Mr Khoury.

“At the moment, Canberran’s blind are driving: they have no idea if they’ll get a good price or not.”

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