How to save us pain at the petrol pump and boost national fuel security

But it’s not just the price of fuel that matters. When there’s turmoil overseas, we also need to worry about our national fuel security. 

Australia is in a poor position on both fronts. Because we drive gas guzzling cars, Australians feel the pinch of high petrol prices acutely. And because our approach to managing fuel security is short-sighted, shocks from overseas put us at risk of disruptions back home.  

Fortunately, we can hit both targets at once. By encouraging a push toward more efficient and electric vehicles, Australia can become less dependent on imported oil – boosting our liquid fuel security and saving us pain at the petrol pump. 

With the war in Ukraine disrupting the global supply of fuels, buyers of oil are more willing to buy today instead of tomorrow, even if prices are higher. But the situation has also fundamentally changed the dynamics of oil supply, with Russia, a top exporter, facing sanctions and reduced access to the global market. 

Because most Australian fuels, such as petrol and diesel, are either imported directly or made from imported oil, we feel these effects back home. 

Fortunately, the conflict hasn’t totally disrupted global oil supply just yet; we can still get petrol reliably at the bowser, albeit at a high price. But there’s no guarantee this conflict, or a future conflict, won’t eventually affect supply. 

It’s for this reason that `fuel security’ is important: to make sure that even when there are fuel shocks overseas, any disruptions back home are limited. 

As a signatory to the International Energy Program Treaty, Australia is required to hold the equivalent of 90 days’ worth of net imports of oil. But since March 2012, Australia has failed to comply with this agreement. In the event we were cut off from international supply lines, our petrol and diesel reserves would only last 20-to-30 days. 

Fortunately, our access to fuel hasn’t been hit just yet. But the crisis has shone a spotlight on the costs, and risks, of being beholden to foreign oil. 

The Morrison Government’s approach to national fuel security has been remarkably simple. When domestic oil refineries began to fall away, beaten out of the market by imported fuels, the Government threw money at the two which remained; all in the name of ‘locking in Australia’s fuel security’.

But subsidising oil refineries does little to make us more secure, because our refineries depend overwhelmingly on imported oil. 

Instead of shelling out to prolong the life of domestic refineries, whichever party wins the imminent federal election needs to get upstream of the problem and reduce our dependence on oil. 

Because more than two thirds of our liquid fuel is used by the transport sector, getting transport on the right track will go a long way to solving our woes. 

Australia currently has one of the least efficient vehicle fleets in the OECD. We rely on more imported fuel each day to keep us running. And when petrol prices spike, we feel the pinch more that we should, because our cars use so much petrol and diesel. 

Our current vehicle regulations make it harder for everyday Australians to reduce their petrol use. Because our petrol quality and vehicle standards are so poor, Australians buying a new car don’t have the same options as buyers overseas. We are offered older technology, and engines that guzzle more gas so they can cope with our low-quality petrol. 

So, what’s an ideal path to reducing our dependence on oil? 

First, we should focus on boosting electric vehicle uptake, and sales of more efficient petrol and diesel cars. Unlike oil, we can generate our own electricity here at home. And the less petrol and diesel our cars use, the less exposed we are to international shocks. 

The best policy to encourage more Australians to switch to electric vehicles is an emissions ceiling. An emissions ceiling works by giving manufacturers a target of how fuel-efficient the average new vehicle they sell needs to be. Over time, the ceiling is lowered, ensuring the cars on Australian roads use less fuel.  

Grattan Institute modelling suggests that if a well-designed emissions ceiling was implemented in 2024, Australian cars would use almost 20 per cent less fuel in 2030 than today: and about 40 per cent less by 2035. 

Unfortunately, both major parties have ruled out an emissions ceiling. The Ukraine crisis should inspire a change of heart. 

Some commentators might propose that government should simply step in to lower fuel prices at the bowser directly. But that would be a Band-Aid measure which would just need to be paid for by taxes elsewhere. It would also do nothing to reduce our dependence on oil. 

At some point, another shock will come around, and next time supply, as well as prices, could be affected. Australia needs to be better prepared.