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

1.50 90

$A/litre $US/barrel

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

98 99 00 01 02 03 04 05 06

0

10

20

30

40

50

60

70

80

Australian retailpetrol price (LHS)

World oil price (RHS)

+ 50%

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

Annual change in underlying inflation

0

1

2

3

4

5

6

7

90 92 94 96 98 00 02 04 06

US

Europe

Japan

Australia

-1

US

Source: Datastream, AMP Capital Investors

% p

.a.

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

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

Production up

Price up

The risk of continued upward movement in oil prices is more likelythan 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)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 conventionalfuel prices in the near future – not just at the point of introduction

Increase of $0.03 cpl for every $10 increment in CO2e

The potential impacts of sustained high fuel prices on an economy

Congestioncosts

Higherinput costs

Reduced competitiveness of business & industry

Increased costof goods & services

for households

High transportInfrastructure costs Economic

Urban air pollution

Traffic noiseLoss of urban public space

Greenhouseemissions

Loss ofurban amenity

Environmental

Humanhealth costs

Inequitable levels of

transport access

Disconnected communities

Reduced volunteerism

Inequitable Financial impacts

on households

SocialCommunity costsof road transport

Indicates community costs that are exacerbated by rising fuel prices

Congestioncosts

Higherinput costs

Reduced competitiveness of business & industry

Increased costof goods & services

for households Inequitable levels of

transport access

Disconnected communities

Reduced volunteerism

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 actionon 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 actionsAnalysis 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 opportunitiesfor adoption of sustainable transport practices in our local communities

Curvilinear sub-division layoutTraditional grid layout

Road freight represents a rapidly increasing areas of vulnerability for businessand 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 infrastructurePotential 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 traditionalgrid layouts in new urban areas

Vehicle and fuel technologiesAnalysis of past actions

Impose the least social and economic cost on the wider community in generaland 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 trucks 17.1 years 15.9 years

Articulated trucks 10.1 years 11.2 years

Urban bus fleet 15.1 years 11.0 years

Light rigid trucks 15.2 years 11.2 years

Passenger vehicles 11.5 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 level Start-up Market ready Indigenous Abundance Price Economic Environmental(US$ / barrel) costs vehicles fuel stability performance performance

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 theaverage 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 technologiesPotential 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 behavioursAnalysis 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 Door-to-door journey time

2 Personal safety/security

3 Flexibility

4 Convenience

5 Price (out of pocket)

Decreasing

influence

on an

individual’s

choice

of transport

mode

Transport consumer behavioursPotential 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 ofour economies to the adverse impacts of rising fuel prices

Human settlement& transport

infrastructureimprovements

+

Alternative fuels & vehicle technologies

+

Transportconsumer

behaviours

Strategic objective Improvement strategies Action 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

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