A report released by the Texas Tech University underlines the costs to NSW motorists for not choosing ethanol blended fuels and points to the need to educate Australian motorists in the facts that American motorists have known for some years – E10 is a near perfect substitute for both regular and premium gasoline.
The report concludes that motorist’s fears about ethanol blended fuels have caused them to choose higher priced Premium ULP causing them to waste an additional $331M (or 12.01 cents per litre(cpl)) on fuel between 2007 to 2013. Marketers have seized on this fear and leveraged the issue to improve wholesale margins on Premium fuels and increase profits.
Conducted by Michael Noel and Travis Roach from the economics department of the Texas Tech University, the report examines the “Lucas Critique” seemingly at play in Australian fuel market. The Lucas Critique effect examines cases where consumer behaviour ignores the facts and takes action in deference to public policy. Reflecting on the American experience, the authors note that, “In contrast [to Australia], all vehicles in the U.S., including those built before the notion of the ethanol mandate was conceived, use a 10% ethanol blend today largely without incident”.
Whilst the Texan report is myopic in its scope, it is important to recognise the fact that those consumers, who have chosen E10, have helped the state reduce carbon emissions by over 1 million tonnes of CO2e and reduced particulate emissions resulting in cleaner air to breathe.
Over 60 countries now mandate ethanol fuels around the world, with both the International Energy Agency (IEA) and World Energy Council (WEC) calling on governments worldwide to actively support the continued development of biofuels. Clearly one lesson we can learn from this report is that if we were to follow the lead of the US, we could expand the mandate as contemplated in the recent ethanol mandate discussion paper to include the blending of premium fuels. This would force Australian consumers to face their aversion and learn, as the US did, that Ethanol is a quality fuel that can assist reduce pollution, carbon emission and strengthen fuel security.
The BAA believes that together with the NSW petrol retailers and government, we need to learn from the US experience, re-educate consumers, so that motorists can start choosing E10 at the pump and start saving real dollars today.