With U.S. gasoline prices at an all-time high, having climbed in fits and starts for five years, the logical results appear to be finally showing up in lower gasoline consumption and a distaste for large cars and light trucks. According to a report in the May 5 issue of Business Week, the number of vehicles on the roads dropped 1.4 percent last year, and gasoline consumption is expected to dip 0.7 percent this year. Sales of SUVs and pickup trucks plummeted 27 percent in the first quarter of 2008, with total auto sales down 8 percent.
Will oil and gasoline prices continue to trend upward and stay there, or is the current situation just a blip? That is the question. If high prices are here to stay, then of course those who immediately replace their big cars with smaller ones will come out ahead of the game, and those automakers who anticipate that behavior will be the winners. Ford Motor, which reported a surprisingly large first-quarter profit last week, is among those betting that high prices are here to stay, says Business Week.
Ironically, if gasoline prices stay in the stratosphere, the United States may be off the hook when it comes to the atmosphere. Back-of-the-envelope calculations suggest that if one wanted to halve carbon emissions from the U.S. automotive sector—enough to get the country into step with international efforts to reduce greenhouse gases—gasoline prices would have to double from their average levels of the past few years, which have been around $2.50. That calculus underlay a blue-ribbon report sponsored by Princeton’s Woodrow Wilson School last year, which recommended increasing gasoline prices by $2.50 per gallon over a period of 10 years--in effect doubling the gasoline price as a matter of policy.
Of course that's a far cry from any policy being discussed out on the campaign trails. McCain, joined by Clinton, has proposed suspending the Federal gasoline tax of 18.4 cents for the summer months, to help out drivers and give the economy a little boost. Obama has dismissed the idea as ineffectual.
If however market forces were allowed to drive the gasoline price to $5, and American consumers started to believe it was really going to stay that high, then—arguably!—policy wouldn’t be necessary. Over time, if econometric studies are to be believed, American drivers would spontaneously use half as much gasoline and emit half as much carbon.
Comments (5)
The report's assumptiona aren't entirely correct. While most people will drive less, some professions like truck and bus drivers and Realtors will still need to drive the same miles they have been driving. Although higher prices will force shipping companies to ship more goods by rail, most frieght trains are pulled by diesel locomotives.
Posted by Patrick Harris | May 1, 2008 2:01 PM
Posted on May 1, 2008 14:01
The analysis is correct only if world demand continues to increase (India and China) as US demand decreases. Otherwise, the price will go down and soccer moms will trade in their sedans for SUVs they can't climb into... again.
Posted by Damien Vu | May 1, 2008 5:22 PM
Posted on May 1, 2008 17:22
As I understand it, we import approximately two-thirds of our oil from other countries, and world oil production is peaking. U.S. oil production peaked in 1971. I think that demand will exceed supply, and prices will continue to go up.
Posted by Ted Grzelak | May 1, 2008 11:01 PM
Posted on May 1, 2008 23:01
I don't think current high prices are a blip. Google "peak oil". We may already be on or very near the downward curve of world oil production. Combine that with India and China's increasing demand for oil, and we're faced with the reality that the age of cheap oil and energy is over. If we don't rapidly accelerate development and installation of alternate energy sources we could see severe economic impact in our lifetimes.
Posted by B Newcomb | May 2, 2008 9:42 AM
Posted on May 2, 2008 09:42
Low gas prices wasn't going to last forever. Decadent gas consumption as manifested in the consumer ownership of high powered sports cars, SUVs, Hummers, 4WD pickup trucks etc., was a needless increase in greenhouse gases even with modern emission standards, whether the drivers could afford the gas costs easily or not. If the need for such vehicles were truly necessary, no gas price increase would change their existence, such as we expect with the needs for military, freight, construction, etc., and other vehicles with poor MPG. Many cars from the late 1980s did far better MPG than many cars for the preceding decades. That consumers would change autos for the sake of gas prices suggests the key reason for ownership of lower MPG vehicles, safety was an often used cited, was more an excuse than a rationale.
Posted by Marv Gozum | May 2, 2008 1:17 PM
Posted on May 2, 2008 13:17