Reducing vulnerability to the rising cost of transport fuels

Some thoughts on a framework for future action

Premier’s Fuel Summit Launceston, Tasmania 4 September 2008

Global oil prices have been steadily increasing for more than a decade

$A/litre

1.50

1.40

1.30

1.20

1.10

1.00

0.90

0.80

0.70

0.60

98 99

Source: Thomson Financial, AMP Capital Investors

$US/barrel

90 80

00 Australian retail petrol price (LHS) World oil price (RHS)

70 60 50

+ 50%

40 30 20 10 0

01 02 03 04 05 06

yet global economic confidence remains steady, raising questions about demand elasticity and the real-world viability of alternatives

Annual change in underlying inflation

7 6 5

Europe

4 3 2 1 0 -1 90 92 94 96 Source: Datastream, AMP Capital Investors 98 00

Japan

02

Australia

04 06

BOTH prices and supply are trending upwards in terms of (a) OPEC production…..

...and (b) non-OPEC production – which is contrary to classical economic theory of supply versus demand

Production up Price up

The risk of continued upward movement in oil prices is more likely than not (and is unlikely to be resolved by tweaking of petrol taxes)  

2006 price forecasts US$37/bbl

by 2015 ABARE, May 2006  

US$47/bbl

by 2014 US EIA, 2006  

US$64/bbl

in December 2012 NYMEX Oil futures, September 2006  

US$380/bbl

by 2015 IXIS-CIB, April 2006

Oil price currently at US$110 NYMEX at US$115/bbl (Dec 2012) Annual price increase of 22 cpl (or 18%)

The CPRS will also (rightly) place upward pressure on conventional fuel prices in the near future – not just at the point of introduction

Increase of $0.03 cpl for every $10 increment in CO 2 e

The potential impacts of sustained high fuel prices on an economy

Reduced competitiveness of business & industry Loss of urban amenity Disconnected communities Increased cost of goods & services for households Higher input costs High transport Infrastructure costs Congestion costs Economic Loss of urban public space Urban air pollution Traffic noise Greenhouse emissions Environmental

Community costs of road transport

Social Human health costs Inequitable levels of transport access Reduced volunteerism Inequitable Financial impacts on households

Indicates community costs that are exacerbated by rising fuel prices

While we can do little about global oil prices, we can develop and implement strategies that reduce our future vulnerability to these rises There is a compelling case for reducing the

future vulnerability

of the Tasmanian community to the rising economic, social and environmental costs of conventional transport fuels

Reducing this vulnerability will require coordinated action on three interconnected strategies over the next 20-30 years

Strategic objective

Reduce the vulnerability of the community to the rising costs of conventional transport fuels in the future

Improvement strategies

Human settlement & transport infrastructure + Vehicle & fuel technologies + Transport consumer behaviours

Human settlement & transport infrastructure actions

Analysis of past actions

 Constitute some of the most significant opportunities for reducing wholesale reliance on conventional fuels in the medium to long term.

 Opportunities are typically costly and complex with significant time lags to full realisation of benefits.

 The nature of trip making in contemporary Australian communities is not easily accommodated by traditional public transport systems.

 Our cities and towns have proven highly resilient to measures ‘imported’ from other international economies.

 Investment in road freight infrastructure constitutes an apparent ‘blind spot’

The historical development of our cities and towns has created a legacy of transport disadvantage that needs to be redressed in the future

Spatial inequities in transport choice and accessibility in Sydney

The design of new urban sub-divisions has also reduced opportunities for adoption of sustainable transport practices in our local communities Curvilinear sub-division layout Traditional grid layout

Road freight represents a rapidly increasing areas of vulnerability for business and industry with little historical focus on urban and inter-urban freight infrastructure

Vehicle class Passenger vehicles Commercial vehicles Other % of Australian fleet

* 77.9% 18.0% 4.1%

GHG contribution to road transport emissions

† 60% 38% 2% * ABS 2006b † AGO 2006b  The Australian road freight task is forecast to more than double between 2000 and 2020 (BTRE 2002), signaling a likely doubling in annual fuel demand for heavy vehicles.

Human settlement and transport infrastructure

Potential future actions

 Seek to realign existing public transport systems with the modern needs of transport consumers in terms of on-demand services and real-time information services.

 Promote investment in freight transport and freight infrastructure to support more efficient movement of freight.

  Improve the levels of employment containment in the outer regions of our cities via a renewed focus on the design and development of urban and local centres.

Adoption of ‘compact cities’ planning philosophies with respect to new residential land developments  Move away from curvilinear subdivision design and return to traditional grid layouts in new urban areas

Vehicle and fuel technologies

Analysis of past actions

 Impose the least social and economic cost on the wider community in general and are therefore relatively easy to implement  Easy gains in this area have largely been secured  Future gains in this area are likely to be harder owing to high costs and a significant level of performance uncertainty  Analysis of remaining options suggests that no one technology will deliver the total solution  The technical nature of these actions and the vested interests of specific technology advocates (both fuels and drive trains) make it increasingly difficult for policy makers to separate ‘fact from folklore’

Continued operation of older vehicles is creating a significant drag on the realisation of emission benefits and improved fuel economy of the state fleet

Vehicle class

Heavy rigid trucks Articulated trucks Urban bus fleet Light rigid trucks Passenger vehicles * ABS 2006b

Average age in Tasmania (2006)*

17.1 years 10.1 years 15.1 years 15.2 years 11.5 years

Average age in Australia (2006)*

15.9 years 11.2 years 11.0 years 11.2 years 9.8 years

None of the popular alternative fuels/vehicle technologies is likely to be available as wholesale substitutes for conventional fuels in the near future

LPG Entry level (US$ / barrel)

$45-50

NATURAL GAS

above $50

SYNTHETICS (GTL)

above $40*

BIOFUELS SOLAR HYDROGEN

$45-80

? ?

ELECTRIC ?

FUEL CELLS ?

* Refers to long-term average (min. 20 year investment period) Start-up costs Market ready vehicles Indigenous fuel Abundance Price stability Economic performance Environmental performance

Promoting the purchase of smaller vehicles will gradually lower the average consumption rate for the state fleet (and reduce GHG emissions) Typical GHG emissions (25,000 km car and 250,000 km truck per year) Hybrid (3 tonnes/year) Small sedan (5 tonnes/year) Articulated truck (450 tonnes/year) Four wheel drive (9-11 tonnes/year) Family sedan (8 tonnes/year)

Vehicle and fuel technologies

Potential future actions

1.

Counter fleet procurement practices and legislative practices that ‘reward’ the purchase of vehicles with relatively high fuel consumption 2.

Introduce incentives targeting accelerated replacement of older vehicles within the state fleet 3.

Investigate opportunities for the implementation of progressive (but mandatory) fuel consumption targets for new vehicles sold in Australia 4.

Promote accelerated take-up of commercially available cleaner technologies such as hybrid vehicles as far as practical 5.

Promote alternative fuels where these fuel deliver demonstrable commercial, economic and environmental benefits, including some biofuels (use caution) and natural gas.

Transport consumer behaviours

Analysis of past actions

    To date, these strategies have been singularly ineffective in curbing growth in road travel.

Past actions have been advanced without due respect to the high degree of inelasticity between pricing and road travel demand Majority of actions have targeted improved behaviours in passenger transport with little or no targeting of improved behaviours among road freight consumers – – – – Strategies have largely been advanced on a

one size fits all

basis, failing to recognise the variability in switching potential according to factors such as: geographic location proximity of public transport access to government services capacity to pay

Door to door journey time is a much stronger motivator for the adoption of sustainable travel practices than price Community research (NRMA 1995) suggests that individuals choose a particular mode of travel based upon a

hierarchy of travel needs

that varies according to the nature of the travel and individual preferences.

1 2 Door-to-door journey time Personal safety/security 3 Flexibility 4 Convenience 5 Price (out of pocket)

Decreasing influence on an individual’s choice of transport mode

Transport consumer behaviours

Potential future actions

1.

Work cooperatively with major land transport generators to promote more sustainable transport practices.

2.

Work with large employers to implement travel efficiency partnerships designed to reduce the quantum of road travel (worker commute and commercial activity) over time.

3.

Investigate innovative opportunities to improve access to information and streamline public transport ticketing systems in major urban areas

Putting it all together

A possible framework for reducing future vulnerability of our economies to the adverse impacts of rising fuel prices

Strategic objective Reduce the vulnerability of the community to the rising costs of conventional transport fuels in the future Improvement strategies Human settlement & transport infrastructure improvements + Alternative fuels & vehicle technologies + Transport consumer behaviours Action areas Public transport Urban form Business & industry Connectivity & disadvantage Alternative fuels Transport efficiency

Key conclusions 1.

The upward movement in fuel prices is a global phenomenon and Governments (at all levels) can do relatively little to reduce fuel prices

per se

.

2.

Governments can, however, set an agenda and provide leadership towards the development and implementation of a

whole-of-community response

that reduces the vulnerability of our economies to future price rises.

3.

‒ ‒ ‒ Such a response would need to be developed around a

consumer-centric

philosophy that seeks to improve the opportunities for individuals and businesses to

switch to more sustainable travel practices

, via simultaneous and coordinated improvements in: Human settlement and transport infrastructure Vehicle and fuel technologies Transport consumer behaviours

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