Wednesday, December 24, 2014

Cheap Gas May Not Mean More Driving This Winter

Gas prices have been dropping throughout the country since June. (Credit: Casey Florig/flickr) Click to Enlarge.
The transportation sector — in other words, planes, trains, automobiles and big rigs  — is the second-largest source of climate change-fueling greenhouse gas emissions in the U.S., accounting for about 28 percent of all GHG emissions nationwide.  Only electric power plants emit more greenhouse gases.

The EIA is forecasting that annual U.S. gasoline consumption will remain almost completely flat between 2014 and 2015, despite that the average gasoline price for the year is expected to drop about 23 percent in that time.

The agency considerers gasoline “inelastic,” which means demand doesn’t change much when prices fluctuate, at least over the short term and even when prices are high.  It takes between a 25 percent and 50 percent decrease in gasoline prices to raise auto travel by 1 percent, according to the EIA.

The average price of gasoline in the U.S. fell more than 28 percent between June and December.

Cheap gas isn’t leading to more consumption for several reasons, according to the report: People are generally driving less as baby boomers raised in cars are now retiring, populations are migrating from the suburbs back into cities where cars are needed less often, and teens are delaying getting drivers’ licenses, meaning they’re driving less, too.

And, for those who do travel more because of lower gasoline prices, better vehicle fuel economy can help balance the greater number of miles driven.

Average vehicle fuel economy increased nearly 5 miles per gallon, or 25 percent, between 2004 and 2014, U.S. Environmental Protection Agency data show.

Some economists see gasoline consumption growing despite these factors.

James D. Hamilton, professor of economics at the University of California-San Diego, said that lifestyle changes affecting gasoline use that came about as a result of the recession are likely permanent.  Those include young people moving to cities and fewer people in the workforce, he said.
However, the EIA’s findings were bolstered by a Bloomberg New Energy Finance analysis released Monday, focusing on falling oil prices and clean energy.

Though the U.S. economy has grown nearly 9 percent since 2007, demand for gasoline and other finished petroleum products has dropped by 10.5 percent, according to the analysis.

A shift to clean energy may actually be driving down oil prices today, Bloomberg New Energy Finance advisory board chairman Michael Liebreich said in the analysis.

Read more at Cheap Gas May Not Mean More Driving This Winter

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