This provocative post by Gary Becker argues that the low taxes on US petrol completely internalise the external costs of petrol consumption in terms of the global warming and foreign oil dependence externalities imposed on the US. On this basis, Australian excises on petrol - much higher than US excises - would seem to be on the high side and to go further than you would want in internalising externalities that hurt Aussies. Thus the Rudd Government's Green Paper decision to exempt petrol from carbon charges by rebating any carbon cost from current excises would seem justifiable. At least it is not a priori a foolish argument.
Of course Rudd is concerned with the political costs of taxing petrol further when its cost is currently high. Maybe this is not a dishonourable position either.
Becker points out a host of benefits of high current fuel prices in internalising congestion and other externalities. He is right. OPEC and China are jointly doing a better job of managing congestion issues in Melbourne than the Victorian Government with their inane fixation on expensive tunnels and extra freeways.