Gasoline: Price Matters

The following is an exerpt of an interesting article from the LA Times. To read all of it, click on the post title above.

To read a summary of the Cambridge Energy Research Associates report cited in the article, go to:

http://www2.cera.com/gasoline/summary/

All in all, this confirms my conviction that higher gasoline taxes will significantly change consumer behavior.

U.S. motorists cutting back a bit

Americans cut miles driven for the first time since 1980. High prices are behind the change in transportation habits.

By Elizabeth Douglass
Los Angeles Times Staff Writer

January 25, 2007

Two years of record-high gasoline prices have forced auto-crazed Americans to do something they haven't done in more than two decades: Drive less. ...


Other reports over the last year on mass transit ridership, total miles driven nationwide, gasoline demand, vehicle sales and retail and restaurant spending reinforce the notion that U.S. drivers made significant — and in some cases, lasting — adjustments to offset steadily rising gasoline prices.

"In 2005 and into 2006, we did see consumers start to change their driving behavior," said David Portalatin, director of industry analysis at NPD Group Inc., which tracks consumer spending. "That's a very hard thing to change, because I've either got to change where I work, where I live, or what kind of car I drive in order to actually consume less gasoline."

It's a small but important shift for a nation that many believed was impervious to rising gas prices because drivers were unable or unwilling to rein in their gas-guzzling ways. Lofty energy costs have generated such concern that President Bush devoted a significant chunk of his last two State of the Union speeches to addressing the nation's oil addiction.

"The message is that price matters," said Daniel Yergin, chairman of Cambridge Energy Research Associates, a Boston-area consulting company that recently published an analysis called "Gasoline and the American People." The study highlighted the decline in per-driver mileage and a cooling appetite for the largest sport utility vehicles, among other things, and concluded that expensive gasoline was transforming "America's love affair with the automobile."

Even though pump prices have dropped substantially from their highs in 2006, "there's a greater sense of insecurity, and people don't want to be caught emptying their wallet at the gasoline pump," said Yergin, author of "The Prize," a Pulitzer-winning history of the oil industry....

While high prices cut into the expected growth rate, U.S. gasoline consumption nonetheless increased by about 1% in 2006 after staying flat the previous year. "The gasoline consumed since that August peak in gasoline prices is up nearly 2.5% versus the comparable time period a year ago," said Portalatin, the NPD researcher. "What it means is that consumers have a short memory."

Retiree Joe McElroy of Fountain Valley admits to being a backslider. When local gas costs jumped last summer, McElroy consolidated errands and trimmed trips to visit Riverside relatives. But, he acknowledged, "when prices eased up, I kind of relaxed on that cutback and went ahead and did a little more driving."

That response is what economists have come to expect. Decades of studies invariably conclude that big spikes in prices at the pumps produce only tiny short-term cutbacks in demand. If that research is any guide, whatever changes motorists made during the recent gas-price spikes would be wiped out by recently plunging prices outside of California.

But some transportation experts say that a handful of new factors are starting to turn the tide, causing some consumption changes to stick despite lower prices....