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 Source: Thomson Financial, AMP Capital Investors $A/litre$US/barrel Australian retail petrol price (LHS) World oil price (RHS) + 50%

yet global economic confidence remains steady, raising questions about demand elasticity and the real-world viability of alternatives Annual change in underlying inflation US Europe Japan Australia US Source: Datastream, AMP Capital Investors % p.a.

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

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 Congestion costs Congestion costs Higher input costs Reduced competitiveness of business & industry Reduced competitiveness of business & industry Increased cost of goods & services for households Increased cost of goods & services for households High transport Infrastructure costs High transport Infrastructure costs Economic Urban air pollution Urban air pollution Traffic noise Loss of urban public space Loss of urban public space Greenhouse emissions Greenhouse emissions Loss of urban amenity Environmental Human health costs Inequitable levels of transport access Inequitable levels of transport access Disconnected communities Disconnected communities Reduced volunteerism Reduced volunteerism Inequitable Financial impacts on households Inequitable Financial impacts on households Social Community costs of road transport Community costs of road transport Indicates community costs that are exacerbated by rising fuel prices Congestion costs Congestion costs Higher input costs Reduced competitiveness of business & industry Reduced competitiveness of business & industry Increased cost of goods & services for households Increased cost of goods & services for households Inequitable levels of transport access Inequitable levels of transport access Disconnected communities Disconnected communities Reduced volunteerism Reduced volunteerism Inequitable Financial impacts on households Inequitable Financial impacts on households

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 years Strategic objective Reduce the vulnerability of the community to the rising costs of conventional transport fuels in the future 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 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  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. Vehicle class % of Australian fleet * Passenger vehicles 77.9% 60% Commercial vehicles 18.0% 38% Other 4.1% 2% *ABS 2006b†AGO 2006b GHG contribution to road transport emissions †

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 Average age in Tasmania (2006)* Heavy rigid trucks17.1 years15.9 years Articulated trucks10.1 years11.2 years Urban bus fleet15.1 years11.0 years Light rigid trucks15.2 years11.2 years Passenger vehicles11.5 years 9.8 years * ABS 2006b Average age in Australia (2006)*

None of the popular alternative fuels/vehicle technologies is likely to be available as wholesale substitutes for conventional fuels in the near future Entry levelStart-upMarket readyIndigenousAbundancePriceEconomicEnvironmental (US$ / barrel)costsvehiclesfuelstabilityperformanceperformance LPG $45-50 NATURAL GAS above $50 SYNTHETICS (GTL) above $40* BIOFUELS $45-80 SOLAR ? HYDROGEN ? ELECTRIC ? FUEL CELLS ? * Refers to long-term average (min. 20 year investment period)

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) Articulated truck (450 tonnes/year) Small sedan (5 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. 1Door-to-door journey time 2Personal safety/security 3Flexibility 4Convenience 5Price (out of pocket) Decreasing influence on an individual’s choice of transport mode 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 Human settlement & transport infrastructure improvements + Alternative fuels & vehicle technologies + Transport consumer behaviours Strategic objectiveImprovement strategiesAction areas Reduce the vulnerability of the community to the rising costs of conventional transport fuels in the future 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

Bibliography Australian Bureau of Statistics, 1999, Environmental issues: People’s views and practices, Canberra —— 2004, Household expenditure survey (6530.0) —— 2006a, Survey of motor vehicle use (9208) —— 2006b, Motor vehicle census Australian Greenhouse Office, 1999, Study on factors impacting on Australia’s national average fuel consumption levels to 2010, Australian Greenhouse Office, Canberra —— 2002, in the Department of the Environment and Water Resources Cool communities: Household research January —— 2006a, in the Department of the Environment and Water Resources Australia’s national greenhouse accounts: State and Territory greenhouse gas inventories 2004 —— 2006b, in the Department of the Environment and Water Resources Transport sector greenhouse gas emissions projections 2006 —— 2006c, in the Department of the Environment and Water Resources Australia’s national greenhouse accounts: National Greenhouse gas inventory 2004 —— 2006d, in the Department of the Environment and Water Resources National greenhouse gas inventory – Analysis of recent trends and greenhouse indicators —— 2006e, in the Department of the Environment and Water Resources Natural Gas Story – Experience of the Alternative Fuels Conversion Programme February 2006 —— 2007a, in the Department of the Environment and Water Resources Assessment of the operation of vehicles in the Australian Fleet on ethanol blend fuels, February 2007 —— 2007b, in the Department of the Environment and Water Resources National Inventory Report 2005 – Volume 1, April 2007 Beer T, M Borgas, W Bouma, P Fraser, P Holper and S Torok, 2006, ‘Atmosphere’, Theme commentary prepared for the 2006 Australia State of the Environment Committee, Department of the Environment and Heritage, Canberra Bureau of Transport and Regional Economics, 2002, Greenhouse gas emissions from transport – Australian trends to 2020, Report 107 Bureau of Transport and Regional Economics, Canberra —— 2005 Health impacts of transport emissions in Australia: Economic costs, Canberra Commonwealth Scientific and Industrial Research Organisation, 2002, Energy and transport sector outlook to 2020

Department of Environment and Conservation, 2005, Air pollution economics: Health costs of air pollution in the greater metropolitan region, Sydney —— 2006a, Action for air 2006 update, NSW, Sydney —— 2006b, Who cares about the environment? DEC Social Research Series —— 2006c, NSW State of the environment 2006 Chapter 3: Atmosphere, Sydney Department of Transport and Regional Services, 2006a, Summary of emissions requirements for new petrol passenger cars in Australia , Canberra —— 2006b, Emissions requirements fro diesel heavy duty vehicles, Canberra European Union, 2005, Clean cars: Commission proposes to reduce emissions, press release 21 December 2005, EU, Brussels Gwilliam, K, M Kojima and T Johnson, 2004, Reducing air pollution from urban transport, The World Bank, USA Mayor of London, 2006, Improving air quality in the Capital – Consultation begins on low emissions zone, press release 31 January 2006, Greater London Authority, London National Pollutant Inventory, 2006a, Australian inventory emission report, National Pollutant Inventory, Canberra National Roads and Motoring Association, 1995, Clean Air Monitor of public attitudes: Air quality and the car, NRMA, Sydney Organisation for Economic Co-operation and Development Transport, 2005, OECD in Figures 2005 – Transport —— 2006, OECD factbook 2006 – Economic, environmental and social statistics Truck Industry Council and Commercial Vehicle Industry Association of Queensland, 2004, Trucks to meet the future road freight task: Challenges and directions, Industry Issues Paper prepared by the TIC and CVIAQ, November 2004 VDIK, 2005, Recommendation of the BDIK Board for a sustained improvement of air quality by renewing the passenger car and truck population as quickly as possible (VDIK vehicle replacement program), Bad Homburg, October Zillman, J, 2006, President of the Australian Academy of Technological Sciences and Engineering quoted in: Climate change ‘a bigger worry than terror’ Leticia Makin, January 17, Bibliography