The Impact of Clean Fuel Specifications on Adelaide Retail Petrol Prices

In March 2001, the South Australian Government introduced a clean fuel policy which it claimed was designed to protect air quality. This paper quantifies the policy's impact on relative Adelaide retail prices for unleaded petrol through Box-Jenkins autoregressive integrated moving average methodology coupled with Box and Tiao intervention analysis. The analysis uses weekly price data spanning from January 2000 until the beginning of June 2002. It finds the clean fuel policy had a statistically significant impact on relative retail petrol prices, resulting in an increase of almost 1.9 cents per litre and, therefore, costing Adelaide motorists around an extra $15.8 million per annum. Based on claims that the quality of fuel produced by the local Adelaide refiner did not change in response to the implementation of the clean fuel policy, the paper concludes that the increase in relative retail petrol prices was most likely associated with the exercise of market power rather than an increase in refinery production costs