Gasoline elasticity

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Wednesday, March 05, 2008
By Yokota Fritz


It turns out the gasoline demand does have some elasticity, even outside of the context of large natural disasters. In California, gasoline is now about 50 cents more expensive than a year ago, and gasoline consumption has dropped 4% over the past year in California. That never happens outside of natural disasters, but it looks like Californians are adjusting to some degree.

$3.58 / gallon

That matches the expectation in this Wall Street Journal article. In the United States, gasoline consumption has dropped 1.1% from the previous year, but over the long term consumption is forecast to drop 4% for every 10% increase in gas prices as consumers make decisions about their transportation choices and where they live. Part of the reason gas prices are hitting Americans so hard right now is because of choices we made a decade ago about transportation and housing development, when resources were cheap.

This Grist article has more on the topic, including some mockery of Daniel Yergin (and why isn't Yergin completely discredited yet?), and a hat tip for those already finding solutions to high gas prices:
Anne Heedt, of Clovis, Calif., has been moving toward a more fuel-efficient lifestyle for the past few years. She owns a Toyota Prius hybrid but takes her bike on errands when weather permits.

"We're not always going to have the same accessibility to gasoline that we've had in past decades, so we do have to start thinking about what we're going to do over the next 50 years," said the 31-year-old Ms. Heedt, who used to work at a medical office but is between jobs.
Meanwhile, Terrapass asks Copenhagen Cycleliciousness guy for his expertise in how to get more people on bikes. It's a multipart interview, but the first installment suggests we can get there by opening more commuter-oriented bike shops in America:
Here in Copenhagen there are bike shops on almost every main street and they sell primarily bikes that you call “commuter bikes” in the States.
Which reminds me that I have a followup from the North American Handmade Bicycle Show about this topic -- Amy Walker of Canada's Momentum Magazine led a panel discussion on City Bikes at the show. I took notes, I've talked with Natalie Ramsland and Mike Flanigan, now I just need to organize the notes and post them.

In the meantime, Carlton in the UK asked me to get the word about this meeting on peak oil and cycling policy in Scotland:
Spokes Spring Public Meeting - Climate Change, Peak Oil and Scottish Cycling Policy. Weds 19 March, 7.30 [doors open 6.45 for coffee, stall, mixing]. At Augustine United Church George IV Bridge, Edinburgh.

Speakers:
  • David Somervell, Energy and Sustainability Manager, University of Edinburgh - speaking on climate change.
  • Dr Mandy Meikle, Depletion Scotland - speaking on energy supply and peak oil.
  • Kirsty Lewin, head of the Scottish Government's Sustainable Transport Team - speaking on government cycling policy in the light of the above challenges.
Fat Boy Biking has his thoughts on how more expensive gasoline is changing the driving habits of Americans.

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Comments:
Saw your recent flickr picture of the price of gas there. Yikes! Even though it's "only" around $3.15 here (regular), I find myself taking the price of gas into consideration more often when I plan a trip. It's now cheaper to take the train round trip to Chicago than drive in, and that's without figuring in parking.
 
Whereas living in Portland may cause me to be a bit skewed, it's definitely heartening to see shops like Clever Cycles doing well, and companies like Civia, Swobo, and Kind Cycles popping up with solid commuter-focused offerings for the US. It's going to take a while to change the mindset from recreation to transportation, but it will happen eventually. Really there's no other option.
 
..."...is because of choices we made a decade ago about transportation & housing development, when resources were cheap"...

...a simple but good point to bring up in an excellent post, today...

...it's that kind of thinking, that kind of mindset that obviously has to be replaced w/ longer range intelligent forecasting...

...our self limiting ability to look into the future because we're enjoying the 'now' may be our downfall...
 
A good deal of the blame of why Americans don't ride bikes lies on the heads of the bike manufacturers. When people were actually interested in biking while Lance was winning TdFs, what did they sell? Racing bikes and that's all you got except for MTBs. Racing bikes are good for racing but not much else.

Instead of looking at the interest and seeing what people wanted, Big Bike wanted to sell inappropriate bikes to novice bikers. It's funny to see the bike press wet themselves over the utility bikes at the NAHBS because these have been around for a while. It's just that wasn't cool enough, sexy enough for them to get excited about. Perhaps Trek and the rest will finally get the hint that US riders need bikes that work just like bikers everywhere else around the world.

Perhaps they'll get it this time.
 
Thanks for the comments, all. I had Bro Yam's similar post flagged but forgot to include it in my article (which I'll do in a moment).

When gas is cheap, it's easy to go wild and have fun, so I can't say I really blame people. There but for the grace of God...

Indeed it's good to see commuter bikes getting some attention. I'm one of those excited about these new bikes because they're what I've always wanted :-) I don't know if the bike industry is really to blame -- they built what they thought customers would buy.
 
Yeah, Fritz, in your spare time would you please get on that NAHBS City Bikes write-up???
 
Elasticity argument notwithstanding, the skyrocketing oil barrel is also inversely proportional to the descent of the dollar in sub-toilet paper values. I am afraid the black gold producers like to be paid in real currencies. This is absolutely obvious, but few in the US seem to notice it.
 
...i'd have to side more w/ fritz than brother yam in regard to the industry & it's conceptualizing...

...you spend all your capital building what you want or think people should buy & it will sit on the floor unsold...it's a delicate balance of educating, prodding, paying close attention to both needs & trends...

...there are people better versed than i, on this site, who might explain it but the bottom line right now is: commuting by bike is bigger within the industry than perhaps ever before...& it's a win/ win situation for the customers...
 
Nansen Saleri writes an opinion piece for the WSJ titled "The World Has Plenty of Oil" and it is one of the most popular emailed articles.

OPEC Prez Khelil told reporters the global market is being affected by what he called "the mismanagement of the U.S. economy...There is sufficient supply. There's plenty of oil there."

W complains "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices."

Meanwhile oil is up $4.98 per barrel today, another new high.

Somebody is wrong...

Jack
 
If gas consumption is shrinking, I'm still not sure it's about demand elasticity, or even really economics.

The fact is, gas is a small enough part of the cost of driving that going from $3 to $4 per gallon doesn't raise the whole cost that much.

Of course, it's the cost that people are most aware of paying.

Maybe it's actually a combination of trying to save money and (gasp!) idealism.

Or maybe people are just trying to start making adjustments now so they'll be able to deal with life when gas gets to $10!
 
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