I overheard a discussion about petrol prices between two men at the local service station the other day. One of them had just put about $90 worth in a fairly new-looking Jeep Cherokee and the other was in the process of filling one of those boxy, bulky 4WD look-alikes. Having filled his vehicle, the first driver announced to his fellow patron, and anyone else who might be listening, that as petrol had been under a dollar a litre for almost all the time since decimal currency was introduced in Australia there was “no justification” to now be paying $1.40 a litre. An interesting leap of logic.
In 1966, when decimal currency was introduced, a brand new model HR Holden cost around $2170. This represented about 37 times the average (male) weekly wage. Petrol cost 7c a litre. The cost of a litre of petrol was .0032% that of the cost of the new car. A new model Holden Commodore will now set you back about $42,000, or 34 times the average weekly wage, while petrol costs $1.40 a litre. Petrol now costs .0033% that of the cost of the new car. In relation to earnings, while the cost of petrol has been rising, the cost of cars has been falling. This, coupled with the inflation rate from 1966, is quite sufficient justification for current petrol prices.
We may not believe it when we part with around $60 for a tank of petrol for an average car, but for a long time we have been getting away with very cheap petrol. In fact, Australia has the fourth lowest petrol prices in the OECD, with only Canada, the USA and Mexico paying less for petrol at the bowser.
Oil, as with any resource, is subject to the market mechanism of supply and demand. As a resource becomes scarcer, its price increases in response to demand. It is hardly groundbreaking news that oil is a finite resource. By even the most optimistic assessments, we have reached ‘peak oil’, the point at which global oil production peaks and then starts to decline. The problem is that as oil production declines, demand for it is increasing. That’s when market forces take over and the price of the commodity rises. No one, except possibly the PR representatives for the oil companies, is disputing that oil is running out.
We are a society with some very misguided priorities in how we regard value. Last time I checked, 600mls of bottled water cost about $2.40, equating $4.00 a litre, more if the product is imported. Most Australian cities have very high quality drinking water. Depending on the city, the season and subject to local water recycling practices, most of us can drink the water we use to water our garden; we can drink the water we use to wash our clothes; we can drink the water we use to flush our toilets. In a country where drought is the norm and water resources scarce, we flush our drinking water down the toilet and pay upwards of $4.00 a litre to buy it in bottles. At the same time we complain about paying $1.40 a litre for a finite fossil fuel.
The problem with market mechanisms is that they only determine price, not value. Furthermore, the ‘true’ or indirect cost of using the resource is not factored into the market price. The true cost of petrol includes the reduction in global oil stocks; the greenhouse gas emissions from the extraction, production and transportation of the oil and the emissions produced from its use as petrol in our cars; and the cost in human lives associated with the 1991 Gulf War, when the USA defended oil-producer Kuwait against the Iraqi invasion, and the 2003 invasion of Iraq, now acknowledged as mired in the US’s need to guarantee oil supply. If these costs were included in the price, it would be out of reach for most people.
Calculating the value of water is relatively simple: without water we cannot live. Calculating its true cost is somewhat more difficult. Unlike oil, water is not a finite resource, but the reliability of its supply cannot be guaranteed. Governments continually need to assess such costs as the impacts of reduction in supply on environmental flows and urban areas deemed as non-essential water uses, and impose restrictions on other use. Consumption of bottled water adds extra costs to water: reduction of supply from springs and artesian sources plus the costs of packaging, transportation and disposal of the bottles. In buying bottled water, we are willingly placing our most vital resource on the open market to be priced in the same way as petrol is priced.
We need to have a rethink on our social priorities. What’s really important? What has value, what is essential and what are we willing to give up? While we can turn on a tap and get clean, high-quality drinking water are we prepared to pay $4.00 a litre to a multinational company for the same product? And as global oil production decreases, get ready for higher prices at the bowser if you want to continue driving that Jeep Cherokee or boxy 4WD look-alike.
The illustration below is by Laura Packer Design: