Hysterical, hopeless and hypocritical

There's a popular argument on what we should do about this. Australia should comply with International Energy Agency obligations and stockpile 90 days-worth of oil imports. If Australia did this, the argument goes, we could buffer our economy from this global shock.

This is the argument being hurled at the government by the opposition and a bunch of commentators. The argument is clear and intuitive. It's also wrong and hypocritical.

The hypocrisy is obvious. Australia has failed to comply with this IEA obligation since it was created in 1974. The Coalition has been in power for more than half this time, and many of those calling for urgent action were cabinet ministers in those governments.

Crying foul over inaction from the Albanese government is a bit rich to say the least. But the biggest problem isn't hypocrisy, it's that the idea itself is bad policy.

Estimates vary, but they all conclude that the cost of developing a 90-day stockpile of oil in Australia will run into the tens of billions of dollars.

It is exorbitantly expensive. Is there nothing better we could spend that money on to insulate us from global oil shocks?

If we get into the data, an answer stands out.

Australia currently has 36 days of petrol in reserve. If we analyse this over time, we find that about 1.2 days of this has come from Australia's adoption of electric vehicles.

To be clear, Australia's adoption of electric vehicles is low. Just 2 per cent of our passenger cars are battery EVs, compared to more than 30 per cent for Norway.

But herein lies the opportunity. If Australia got its battery and hybrid EV uptake up to the level of Norway, our petrol reserves would go from 36 days to 47 days.

If we get our EV uptake even higher and electrify other critical areas, such as our trucking fleet, we will quickly get within striking distance of our IEA obligations.

The moral of the story is that there are two ways to build our oil reserves: you can increase the numerator by building our reserves or you can shrink the denominator by reducing demand.

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Both options boost the resilience of the Australian economy to oil shocks. But only one of these options will also boost productivity, reduce cost of living pressures and help achieve our climate goals.

Increasing the size of our reserves achieves none of these things. We can, and should, be smarter than this.

How do we increase the take-up of EVs?

It's easy if we've got tens of billions of dollars to throw at the problem (the money saved from not building huge oil reserves): we can just jack-up the subsidies we are currently offering and we will get a much bigger take-up.

But we can be even smarter than this, too. While subsidies should continue to play a role, there are simple regulatory reforms we could implement that will boost uptake of EVs without the costs of increasing subsidies.

The answer lies behind a statistic we compiled by comparing the prices of thousands of second-hand EVs and hybrids in Australia to those in New Zealand.

We found that second-hand EVs and hybrids were a whopping 41 per cent more expensive in Australia than in New Zealand.

New Zealand electric and hybrid vehicles, controlling for key observable characteristics, are on average $9025 cheaper than in Australia.

What is New Zealand doing that we aren't?

It's simple. Unlike Australia, New Zealand does not have a ban on the parallel imports of second-hand vehicles.

Many Australians would be surprised to learn that we have regulations in place that allow foreign companies to determine what cars Australians can and cannot buy, even when those companies don't make cars in Australia.

The regulations in question are parallel importation restrictions. The regulations were established when Australia had a domestic car manufacturing industry.

These regulations stopped people from importing car models that were made in Australia to protect the car manufacturers that operated here.

These regulations still exist today even though these car manufacturers no longer make cars in Australia. We are protecting a non-existent industry.

By allowing foreign car manufacturers to stop Australians from importing electric vehicles that they sell in Australia we are doing four things, all of which are damaging to the economy, environment and cost-of-living.

First, we are forcing Australian consumers to pay millions of dollars each year to foreign car manufacturers.

Second, we are making it harder for the private sector to help fight climate change.

Third, we have driven up the price of cars through a regressive policy that hurts people on low incomes the most.

Fourth, we are hurting Australia's mechanics, car repairers and parts suppliers who would otherwise be making more money servicing these vehicles.

The Australian economy is in for a bumpy ride thanks to the Iran war. Tough problems require calm and smart policy responses. Spending tens of billions of dollars on oil reserves is neither.