Is petrol expensive?

The price of Brent Crude Oil since 1987: Picture from Wikipedia

The price of Brent Crude Oil since 1987: Picture from Wikipedia

An interesting article in the Financial Times today [No, I haven’t started reading the FT: it had been left in a cafe] reporting that the national speed limit in Spain was to be reduced from 120 km.p.h. to 110 km.p.h in order to save money. I remembered that the UK and USA (amongst others) had lowered speed limits in the 1970′s as a response to a sudden rise in oil prices. The motivation then, as now, was to save the country money. The Spanish Deputy Prime Minister said

…the change would cut consumption of petrol by about 15 per cent and of diesel by 11 per cent, in a country where every $10 rise in oil prices costs an extra €6bn ($8bn) a year.

Now these are projections, and maybe not all these savings will come to pass. But this is a case where prices have increased enough to change behaviour. This is how we should judge whether petrol prices are ‘high’ in the UK. If we nationally want people to use petrol wisely then the price needs to be high enough to force people to consider changing their habits:

  • working from home,
  • increased videoconferencing,
  • changing job to be near home,
  • moving home to be near a job,
  • car sharing,
  • and avoiding certain journeys,
  • widespread adoption of fuel saving strategies.

Some of these things are happening now, but petrol prices probably need to rise still further in order to force the create sufficient ‘force’ to induce changes in infrastructure of our economy. In the meantime, it will be individuals and small business who feel the pain and poverty involved in this change.

Interestingly, the second part of the Spanish plan would additionally reduce the price of public transport, providing a rational counterpart to increasing the cost of private transport. I wonder if there is any chance of such a policy in the UK?

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2 Responses to “Is petrol expensive?”

  1. Nick Day Says:

    I think I’ll continue to consider petrol too cheap whilst it’s commonplace to see vehicles parked with the engine running for more than thirty seconds or so.

  2. The problem with Oil… « Protons for Breakfast Blog Says:

    […] piece, but IMHO, the answer – which the author skirts – is very, very simple. As I mentioned the other day, it’s just  price. As one learns in Economics 101: if we make oil expensive then we will use […]

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