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

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

ACT motorists paid, on average, $ 1.72 per liter of unleaded gasoline last week.

But the big news isn’t how much cannabis people pay for fuel – it’s how little we paid.

For most of last year, the average weekly price of unleaded petrol was cheaper in the ACT than in Sydney.

In fact, the typical Canberra driver, driving a car with average fuel economy over the average (pandemic) mileage, would spend $ 94 less on gasoline than his Sydney equivalent over the past year.

ACT drivers usually pay a premium

Cheap – or relatively cheap – petrol in Canberra is not the norm: prices in the ACT 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 traders and less competition than larger cities.

It’s further away from refineries, too, which adds marginally to freight costs.

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

However, the premium that canberans usually pay for petrol became a crisis 18 months ago, when the difference between Sydney and ACT prices regularly exceeded 20 cents per liter.

Prime Minister Andrew Barr has even threatened to impose legal limits on the retail margins of petrol stations – the difference between the wholesale and pump price.

“We know we’re stung and it needs to stop,” Mr Barr said.

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

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

We notice prices are rising, but forget the falls

Electronic gas price sign.
Gasoline prices are constantly visible, unlike most other commodity prices.(ABC News: Nick Haggarty)

So, considering that Canberra usually has higher gas prices – and rightly so – what has happened over the past year?

The likely explanation is that demand for fuel in the ACT, and therefore its price, has collapsed as Canberans have stopped driving – more than other Australians.

More workers in Canberra were able to work from home and chose to do so, not only during a blockade, but throughout the pandemic.

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

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

“The signs of the price of gasoline are so huge and we often drive past them, so they’re in the top of our minds,” he says.

“They are much more advanced compared to some other charges we pay – for example, related to our court accounts – that we can rarely check.”

Today’s ‘historical highs’ are not very high

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

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

The real fuel price, taking into account our ability to pay, is high, but nowhere near a record.

That’s partly why Dr Burke says Mr Barr’s threat to limit ACT’s petrol prices last year was an “intervention seeking problem”.

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

Indeed, beyond the price movements linked to global oil supplies, Australia’s petrol prices have always been at the lower end of the international market.

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

Dr Burke says this is likely to slow the transition from Australians 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 excise duties to help break down gasoline dependence.

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

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

Charger CU
Electric vehicles are much cheaper to operate but their price is a hindrance.(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 EVs, such as disseminating more chargers and helping reduce vehicle prices.

However, the NRMA says this should not be paid by punishing drivers with higher taxes.

Mr Khoury says Canberra motorists are at a particular disadvantage because the ACT government has not set up a real-time, petrol-price monitoring network.

Every other jurisdiction has, except Victoria.

“It simply came to our notice then [make it] it’s a little easier for motorists to find cheaper gas stations, ”Khoury says.

“At the moment canberers are driving blindly: they have no idea if they are getting a good price or not.”

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