The politics of fuel move

Yesterday’s announcement by the Government of new fuel market policies had three key planks: the Commerce Commission will have the power, if it sees fit, to regulate wholesale fuel prices; requirements around the addition of biofuels have been delayed a year; and, with the closure of Marsden Point oil refinery, onshore fuel stocks will be bolstered to protect against major supply disruption.

‘‘Together,’’ Energy Minister Megan Woods said, ‘‘[they] aim to deliver a more resilient, sustainable and competitive fuel system.’’

The whole exercise looks like a strict economic consideration, but it is also a political one. With the possible exception of food, fuel is the biggest flashpoint in any cost of living crisis.

Unlike a direct debit for your electricity bill or insurance premium, it is a conscious purchase. When the price rises, even by a few cents, we notice. This is what prompted the Government to cut fuel taxes by 25 cents a litre back in March, after the Russian invasion of Ukraine sent global energy markets haywire.

‘‘We cannot control the war . . . but we can take steps to reduce the impact on New Zealand families,’’ Prime Minister Jacinda Ardern said at the time.

At least two of the three policies announced yesterday share this political calculus. First, the new Commerce Commission powers. A fuel market study brought new legislation in 2020 which required wholesale fuel suppliers to post a daily spot price, in the interest of transparency. Since then, the Government has been watching fuel company profit margins closely. Even more so after the fuel tax break, to ensure those savings were passed to consumers.

The changes appear to have worked (margins were at 33 cents a litre when the study began and last week sat at 17c/l), but the fuel tax relief is about to end, and the Government wants a more permanent price lever it can pull if it suspects fuel companies of anti-competitive behaviour.

With the possible exception of food, fuel is the biggest flashpoint in any cost of living crisis.

The commission actually intervening is complicated, and would likely take six to 12 months, but Woods is banking on the new powers acting as a deterrent and preventing a return of politically unpopular price hikes: ‘‘The fuel companies know that these tools exist,’’ she said. ‘‘They will not want the Commerce Commission doing an investigation into whether or not there is price co-operation.’’

Second, delaying the start of introducing biofuels into the fuel supply from April next year to April 2024. Woods has acknowledged outright that this is purely to keep prices down. Diesel is the main problem. It has become an important substitute in Europe since the supply pressures brought about by the Russian invasion of Ukraine. The price has spiked, and biodiesel with it.

Pushing ahead with the original date on the biofuel mandate would have boosted the pump price here another 6-10 cents, Woods said. ‘‘In terms of pressure of cost of living and consumers’ pockets, that was something as a government we were not prepared to do.’’

At least one fuel sector lobby group has already bemoaned the new Commerce Commission powers and the move to boost fuel reserves as at best ineffectual, at worst more costly. The selfinterest there is hard to miss, so don’t expect any wavering from Woods. Soaring petrol prices are bad for business and, if you are in government, the ballot box.