The decade old decision to remove the automatic indexation of petrol excise duty is a significant contributing factor in our national obsession with petrol hungry vehicles, a Australian National University (ANU) report has found.

The report, prepared by ANU’s Paul Burke and Shuhei Nishitateno, studied petrol prices for 132 countries over the 1995-2008 period to find out what the key factors were in determining the take-up of fuel-efficient vehicles.

The researchers found that a 10 per cent increase to the price of petrol resulted in a three per cent reduction in petrol use, as well as a two per cent increase in the uptake of fuel efficient vehicles.

“This research adds to the large body of evidence confirming a simple point: people respond to incentives,” Dr Burke said. “Higher petrol prices provide an incentive to conserve petrol. Part of this happens via vehicle choice. If petrol is expensive, consumers are less likely to opt for a gas guzzler.

“Petrol consumption is ‘price inelastic’. This means that higher prices reduce consumption, although the response isn’t as big as it is for some other goods.”

Although complaining about petrol prices is close to a national pastime, Australia’s petro prices are about middle of the international pack. Petrol prices are generally lower than Europe or Japan, but higher than many oil rich countries such as the United States.

The two researchers concluded that new cars sold in Australia generally compare poorly in terms of average fuel economy.

“We estimate that an increase in petrol tax to the level in the United Kingdom would result in an improvement in the fuel economy of new vehicles in Australia of around seven per cent,” Dr Burke said. “We’re not calling for such a large increase, but it’s interesting to consider how our vehicle choices would change if we moved in this direction. Our fuel economy would still be behind European countries, but not as far.”

He added that the tax applied to petrol in Australia is instead shrinking.

“Australia’s petrol excise duty is no longer linked to inflation, meaning that the excise is falling in magnitude in real terms. A return to automatic indexation of the petrol excise would help achieve reductions in emissions from the sector, as well as stimulate a transition to a more energy-efficient fleet. The revenue could be used to fund transport infrastructure and other priorities, or to reduce other taxes,” Dr Burke said.

“Additionally, Australia’s carbon pricing scheme essentially exempts the road transport sector. Australia’s carbon price should ideally be as broad as possible to encourage least-cost emissions reductions across the whole economy. This means fully covering transport.”

The study also revealed that countries that subsidise petrol prices at the pump, such as Indonesia, were falling behind in the transition to fuel-efficient vehicles.

“Countries that subsidise petrol for consumers are encouraging inefficient use of a scarce and valuable resource,” Dr Burke said.


The research, Gasoline prices, gasoline consumption, and new-vehicle fuel economy: Evidence for a large sample of countriesis published in Energy Economics:

The paper and data can be accessed from Dr Burke’s website: