An Australian Energy Victory

Energy Victory explains how the United States can end its oil dependence, but what about Australia? Can we liberate ourselves from OPEC even if the USA doesn't lead the way? Maybe, after all Brazil did.

During the oil shocks of the 70's the Brazilian government decided to save foreign exchange by moving towards ethanol. The country's sugar industry could efficiently produce ethanol so the government mandated E24 fuel mix then started an alcohol car industry by ordering service station to install an ethanol pump (the petrol station were state owned). It also gave tax subsidies to start ethanol car manufacture. Considering the price of oil at the time the alcohol cars were very popular, about 90% of new cars were ethanol fueled by 1981. However from the mid 80's the price of oil went right down and sugar prices tripled virtually killing the industry. Fortunately for the Brazilians , engineer Fernando Damasceno developed a simple flex-fuel system. In 1999 OPEC increased prices again and in 2001 Volkswagen in Brazil convinced the government to subsidize flex-fuel cars. As they say, the rest is history by 2006 70% of new cars were flex-fueled and all other cars are now being fazed out.

So what lessons does it tell us? Well, firstly don't have the government pick winners. Thats what the government did in the 1970's and it was a costly disaster. One problem I have with Zubrin's book is that he makes no mention of other alternatives such as electric cars. Advances in battery technology will allow Teslamotors to release its Roadster this year. Even General Motors has a production electric car lined up. I think alcohol vehicles are a better bet but I don't think governments should be making those type of bets.

Secondly the motorists need to better off They should have an alternative to OPEC priced fuel. They need choice.

Here is my proposal. Tax the sale of new oil using vehicles and give the proceeds to alternative vehicles. There are about 1 million cars and light trucks sold in Australia each year. Lets assume the tax was $1000 per vehicle. If in the first year only 10% are flex-fuel or electric that will allows a $9000 cashback to the alternative fuel cars, a total saving of $10,000. Sounds like a pretty good incentive to me!. If the percentage goes up to 50% there will still be a $2000 benefit.

The policy would have two big advantages, firstly the car companies will be racing to be the first to have alternative fuel cars in the show rooms to maximize sales from the early high subsidy. Secondly as alternative fuel cars take over the tax/subsidy would phase itself out. It would really be a temporary tax.