Don't pour fuel on the carbon tax fire

Prime Minister Julia Gillard is intent on introducing a carbon tax and wants this to affect the decisions of big polluters without hurting household budgets. This can be achieved by reviewing the inequitable taxes on fuel.

RACQ has just released its policy on carbon pricing, supporting the introduction of a carbon tax. However, we believe this should be done without increasing fuel prices for motorists. Rather, it should be done by reducing the subsidies paid to the big polluters, or bulk fuel users, so they receive a price signal to affect investment decisions.

Motorists currently pay a fuel excise of 38 cents on every litre they purchase, yet truck drivers are only charged 21 cents per litre in fuel taxes. The full 38 cents per litre fuel excise is rebated for other industries, including mining. While there are some people who argue that current fuel taxes are justifiable because they fund road infrastructure, less than one third of this revenue – which totals over $13 billion every year – is allocated to roads.

It does not make sense to keep increasing taxes on motorists while giving large rebates to other fuel users. The current and proposed net fuel taxes are shown in the figure below, assuming a carbon price of about $30/tonne CO2e.

Increasing fuel and carbon taxes on motorists will not markedly reduce demand or emissions. Short-term demand for fuel is inelastic because most travel is not discretionary. Evidence of this: the volatile global oil price swings that have added almost 20 cents per litre to the price of petrol in 2011 have not demonstrably reduced demand.

RACQ's policy highlights a range of initiatives the government could implement that are fairer and more effective than hitting motorists with higher fuel prices. These include:

– Reducing traffic congestion: RACQ field tests showed that stop-start traffic caused by congestion increased fuel consumption by 30 per cent. Government funding of intelligent transport systems, roads and public transport infrastructure would reduce congestion and emissions.

– Promotion of walking, cycling and public transport as well as fuel-efficient driving techniques.

– Improvements to new vehicle fuel efficiency: efficiency targets would improve the availability of low-emission vehicles and incentives would promote the purchase of more fuel efficient cars.

– Changing fringe benefits tax laws: existing laws for motor vehicles should be changed to remove the incentive to drive greater distances to achieve a tax benefit.

– Supporting alternative fuel production: greater investment should be made in sustainable fuel production to reduce greenhouse emissions and improve energy security.

– Regulating the disposal of end-of-life vehicles: regulations should be introduced to maximise benefits from recycling of vehicle components and to manage the waste products.

Our members accept that it is important to reduce the environmental impact of cars, but we need to concern ourselves also with the social and economic benefits of mobility that our society depends on.

The implementation of a carbon price doesn't have to mean more costs for motorists. If accompanied with reform of fuel excise arrangements and implementation of policies to address fuel, vehicles, congestion and driver behaviour, we can reduce transport sector emissions.

Reviewing fuel taxation arrangements provides our Prime Minister with an opportunity to reduce the impacts of a carbon tax on households. It would make good sense, and cents, to make this a key focus of the tax summit to be held in October.

Michael Roth is executive manager of public policy at RACQ. RACQ's carbon price policy can be viewed at www.racq.com/environment.