Living with higher fuel prices

Written by The Financial Express | Updated: Jul 1 2008, 03:38am hrs
Observing how people are responding now to higher fuel prices gives us some idea about how people will respond to a price on carbon under an emissions trading scheme.

In the short term, we can expect pain on households and businesses as their usual ways of doing things become more expensive. In the slightly longer term, people adjust by finding different ways of doing things: driving less, taking more public transport. And in the longer term, people make bigger adjustments like buying more efficient cars or moving closer to work.

Were definitely seeing the short term pain and the immediate political pressure to do something to bring petrol prices down. And were also beginning to see people adjustan interesting example is truckies choosing to take the ferry across the Spencer Gulf [hyperlink] in South Australia rather than driving around it:

South Australian ferry operator Sea SA says figures for the June quarter show a doubling in traffic compared with the same part of last year.

This also shows an advantage of using prices to drive changes in behaviour to reduce emissions, compared to government-dictated solutions like banning incandescent light globes or subsidising solar panels on roofs: you get a whole lot of unexpected and locally appropriate methods of reducing emissions coming out of the woodwork.

It also shows though that the effects can be somewhat unpredictablewould you necessarily think that a South Australian ferry company would benefit from emissions trading

Adjusting to higher energy prices will no doubt be painful and difficult, but probably not as painful and difficult as people think: because innovative businesses will come up with ways to ease the transitionearning profits for them and reducing the costs for others.