Kicking the Habit

KICKING THE HABIT….The LA Times reports that high gasoline prices have changed driving habits:

To the surprise of many economists, U.S. motorists changed their ways enough to cut the nation’s per-driver mileage by 0.4% in 2005, ending a string of increases dating back to 1980, government data show….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.

This really is good news. Still, there’s never been any question that higher gasoline prices lead to lower gasoline consumption. It’s a standard commodity, after all, and its demand curve slopes downward.

Instead, the real question is: How big a price increase does it take to reduce gasoline consumption? And here the news is pretty dispiriting. After all, from early 2005 to mid-2006, the average price of gasoline increased more than 60%. (Data here.) And what did this get us? As the accompanying chart show, during that period total miles driven flattened out and per-driver mileage decreased only slightly. That’s not a very elastic demand curve.

Plus there’s this: gasoline prices peaked in July-August of last year and have since dropped by nearly a quarter. So what happened?

“The gasoline consumed since that August peak in gasoline prices is up nearly 2.5% versus the comparable time period a year ago,” said [David] Portalatin, the NPD researcher. “What it means is that consumers have a short memory.”

This shows that if we’re serious about wanting to cut gasoline usage — to fight global warming, reduce oil imports, cut down on smog, or whatever — half measures just aren’t going to do it. In the space of 18 months the price of gasoline went up by more than a dollar per gallon and its impact on driving behavior was barely noticeable. A gas tax of the same amount would likely have a bigger effect over time, but it would still probably be modest.

This is why I favor (among other things) higher CAFE fuel standards. A gasoline tax is a fine idea for a variety of reasons, but by itself it’s highly unlikely to seriously affect gasoline usage. If that’s our goal, we need to do far, far more.