Modern life has most of us over a barrel. An oil barrel. The price of oil is a fundamental force in shaping our quality of life and how much take home pay is left for other needs and wants. This has all hit home in the last few weeks as the price of fuel at the petrol pump has reached its highest ever.
International refined commodity prices have gone up 19% since March, putting increasing pressure on domestic budgets. Oil dominates New Zealand’s energy supply, meeting 44% of our energy needs, with 36% of that going into transport industry. But that pressure is applied as an unequal burden, and hits the poor, more than the wealthy, so fuel prices are a class concern.
The effects of oil wars and oil destruction are a subset of impacts from humans’ insatiable energy needs. Lasting air pollution and climate change from coal energy, the near extinction of whales for their oil, epochal effects from Chernobyl and Fukushima, and wars and despoliation in oil lands and seas from the Niger delta, to Alaska and the Gulf of Mexico, and to Iraq and Iran, are the consequences of industrialisation and economic development fuelled by unsustainable energy demands. Access to and the cost of energy is a force of capitalism that effects global politics in the Middle East as well as the quality of life of people in Mangere.
US President Donald Trump’s latest cage shaking foreign policy masquerade regarding Iran has added to geopolitical instability and oil security concerns, bumping up the price for crude oil. A strong global economy stimulates energy demand. Wholesale price pressure is contributing to Brent crude oil reaching its highest price since 2014. The New Zealand dollar has dropped to its lowest value since 2014 so our money buys us less, meaning at the pump we’re paying more. And evidence of fuel company price gaming shows we’re paying more than we need to as suppliers try to force regional price increases among their competitors.
Not even a year ago, Brent crude was $US45 a barrel. After Trump’s random ‘tough’ call on Iran, oil prices hit more than $US70 a barrel. Economists at Morgan Stanley Investment Bank suggest it might reach $US130 a barrel by 2020. New Zealand, like the US, Japan, the UK and France, is a high income energy importer; we have some of the highest oil consumption per capita in the OECD, but we’re behind most OECD countries in terms of our energy innovation compared with GDP. That means we’re more dependant and more vulnerable to oil price increases than other comparable countries.
Ken Shirley, Chief Executive of the Road Transport Forum, looks into a crystal ball and suggests the price of petrol could reach $3 a litre here in New Zealand within the next six to twelve months. And because oil is an essential element of many consumer goods, other commodity prices are also likely to rise. It will impact on personal and public transport costs, and construction. We’ll potentially face higher inflation and interest rates. In Auckland from July 1, we’ll also be paying an extra 11.5c a litre in a regional fuel tax, with another 9-12c national fuel tax phased in over the next four years to cover transport infrastructure spending needs.
National Party leader Simon Bridges says the Government is ‘piling on more taxes’ such as the regional fuel tax, while it’s ‘awash with cash’, maintaining a budget surplus. Current taxes are about 66c per litre, and another 25c a litre is proposed through the next four years. The AA says the Government should be cutting fuel taxes by up to 10c a litre, but given Auckland’s transport needs,
Liam Dann in the Herald, suggests the regional fuel tax is the right idea, just at the wrong time.
The AA says there’s plenty of competition in the NZ fuel industry. People refer to the ‘Gull effect’; Gull can offer cheap fuel because they’re unstaffed and their stations are located in (allegedly) poorer areas where ground rentals are low. This is supposed to drive fuel costs down among competitors. But this isn’t perfect competition. An internal email from BP revealed price leveraging. Rather than reacting to low sales in Otaki by lowering prices there, BP’s sales strategy was to increase prices at its service stations elsewhere on the Kapiti Coast expecting its competitors to do the same. More generally, low ‘competitive’ prices in Auckland and the North Island, have been offset by higher prices in the South.
We’re told fuel price increases are the sign of a healthy economy, and that higher prices generate more GST which means more money for the government to invest in education, housing and transport. High prices are a good incentive to use public transport, to walk and ride. Delivering the Auckland Transport Alignment Project’s (unnecessarily) grand plan including light rail as far as Kumeu and the airport depends on the regional fuel tax. In Auckland, the regional fuel tax will replace the Interim Transport Levy, so ratepayers, will be better off.
But expensive fuel impacts poorer people worst, and enshrines class disparities globally and here at home. Overseas, high oil prices fuel wars. For leading exporter Saudi Arabia, every extra oil dollar means more money available for military supplies. High prices are likely to drive renewed investment in environmentally negative fracking and shale gas extraction in the US.
The AA and motoring writers advise us how we can save fuel. Minimise journeys, make sure your tyres are inflated, go easy on the gas. We can commit the greatest act of anarchy avoiding the corrupt fuel transport market, by walking or riding a bike. Reduce your household’s fuel costs by getting rid of a car or two.
Media commentators suggest that New Zealanders have got used to the cheap oil of the last decade, so the current and future price increases will be felt hard. But that interpretation overlooks the contribution of energy costs to the thousands of people in poverty, including the working poor, for whom energy prices have to just be absorbed already.
Those with low to middle incomes, with mortgages, children and debt will be worst hit by further fuel price increases. These are often the same communities who live further from work, facing time and cash expenses, and earn less, and who contribute a greater proportion of their wages to transport expenses than wealthier citizens. They’re less likely to have their transport costs covered by their employers, and are less able to switch to energy efficient cars or walk or ride to work. The most affected kiwis don’t have the option to buy an electric vehicle, or to reduce travel demand. Most often they are at the mercy of income disparity, public transport inequity, with few alternatives to the car.
Most of their earnings already go on meeting energy and living costs.
In response to apparent problems with the market, the Minister of Energy and Resources, Megan Woods, has ordered an inquiry into fuel prices. She rightly identifies a problem with the transfer of wealth from the consumer to fuel producers, worth millions of dollars. Kris Faafoi, Minister of Commerce and Consumer Affairs, has asked the Commerce Commission to investigate what would be required to understand how fuel markets are functioning, and the Ministers said they hope to develop legislation by the end of the year to allow the Commission to look into importer margins, to see what regulatory interventions might be possible if required, to improve competition.
The AA criticises this approach, suggesting the government is slamming fuel companies while applying extra, regressive fuel taxes. Commentators observe that the Government is imposing additional, inequitable tax burdens on the communities it most claims to represent, while relieving the Auckland landed class of the property-tax based Interim Transport Levy.
Minister Woods is right though. The core imperative of the fuel industry is to make a profit from its fuel sales, and that entails the transfer of wealth from the public to huge multi-national companies complicit in environmental destruction and social and economic chaos around the world. But we’re fossil fuel addicts and it’s hard to imagine society without it, even though it’s an inequitable and unequal distribution of costs and benefits. No amount of pumping up the tyres or driving slowly and efficiently will change the fundamentally unjust nature of the structural arrangements that keep the poor poorer with energy costs a key part of that injustice.