Gas prices go down, driving goes up

Well, duh.

The reports are anecdotal at this point, but it would be odd if the large decline in gas prices didn’t have some effect on people’s behavior. People like to go places. When going places gets cheaper, I’d expect them to do more of it.

Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, puts it in more poetic terms: higher gas prices over the summer created “not demand destruction but demand reduction, which is largely reversible.” In other words, gas prices weren’t high enough for long enough to bring about any real structural changes. People hunkered down for a while, and now the storm has passed.

**Update:** Ford is re-hiring 1,000 workers in a factory that manufactures gas-guzzling F-150 pick-up trucks, the WSJ reports.

What we need is, I don’t know, some kind of forward-looking policy that encourages people to use less gas. Such a policy would push some costs onto consumers, but it would also help to shield them from the vicissitudes of oil prices by encouraging them to consume less oil in the first place. It would also help us to start to get a leg up on our climate change problem.

In semi-related news, Shai Agassi’s Project Better Place (profiled here) is seeking $700m to build an electric car network in Australia. Project Better Place, you may recall, wants to sell electric cars on a service model, like cell phones: pay as you drive. It’s an intriguing idea, a total long shot (meaning, likely to fail), and another indication that driving in the future will look very different than it does today.

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adam

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  1. Pio - November 5, 2008

    Since the next administration is going to raise taxes anyway, why not increase the federal tax on gasoline and diesel by $1 or $2? If the government takes advantage of this temporary lull in commodity price, they can raise the price of gasoline to the $4-$5 range where people seem to think seriously about conserving. When the price of oil goes back up, the oil companies will hesitate to raise prices because they are afraid to impact demand. The oil companies have always complained about increased gasoline taxes, because they feel if the public is willing to pay more for gasoline, they should get that revenue. Continued high energy prices is the only thing which will create “demand destruction”.

  2. Tim - November 6, 2008

    Pio offers a testable theory: higher taxes on gasoline will cause oil companies to “hesitate to raise prices [when the price of oil goes back up] because they are affraid to impact demand.” The UK, France, Germany and the Netherlands have high gasoline tax rates ($4-$7 per gallon) relative to tax rates in the US (less than $0.50/gallon). If Pio’s theory is true then fuel prices in these European countries over the past year would have increased less than prices in the US on a pre-tax basis and after adjusting for currency differences. Historical fuel price data is available at http://www.theaa.com and also through the Energy Information Agency (http://www.eia.doe.gov/emeu/international/prices.html)
    Adam, does the theory hold water?

  3. Adam Stein - November 6, 2008

    This is a pretty easy one. Oil companies don’t set prices — supply and demand do. The price of oil is set on global markets, so regional gas taxes shouldn’t really affect regional prices.
    Gas taxes are a good idea, but politically unsaleable. Most likely the only way to sneak around this fact is to impose higher fuel efficiency standards on cars.