With oil prices plummeting, gasoline is cheaper than it's been in five years. At more than 20,000 gas stations around the United States, you can now fill up your car's tank for less than $2 per gallon.
So does that mean Americans will start driving more in the coming months — taking more trips to the store, going on long drives, using more gasoline, and adding more to global warming? That would certainly be a reasonable guess.
Yet some experts are skeptical that driving in America will increase hugely — at least in the short term. A recent report from the Energy Information Administration points out that Americans have been driving less and less in recent years thanks to all sorts of cultural and demographic shifts (see chart). And these driving habits have been remarkably insensitive to swings in gas prices. So forecasters don't expect a surge of driving in 2015, even if gas prices stay low.
Demand for gasoline in the US is inelastic — for now
One key concept here is price elasticity — how much the demand for gasoline changes in response to changes in price. The EIA estimates that, in the very short run, Americans' demand for gasoline is fairly inelastic. The price of gas would have to fall 25 to 50 percent for US driving to rise by just 1 percent. (That is, the elasticity is -0.02 to -0.04.)
This makes some intuitive sense. A great many car trips — to work, to school, to the grocery store — are indispensable, and there aren't always readily available alternatives. Only about one-quarter of jobs in the 100 biggest US metropolitan areas are easily accessible to their workers by public transit, for example.
So people have to make these trips. And when gas prices rise, Americans keep driving in the short term — though they do often go out and buy smaller, more fuel-efficient cars. By the same token, when prices fall, driving habits don't change immediately. People just have extra money in their pockets all of the sudden. (Spending on gasoline makes up around 5 percent of US household budgets.)
Either way, it takes a really big swing in prices to change driving habits in the short term.
And US driving has been in long-term decline
On top of that, overall driving in the United States has been declining steadily since 2005 for a variety of structural reasons that won't all go away just because gas is getting cheaper:
Driving is on the downswing for a few reasons: 1) The US population is getting older, and retirees tend to drive less. 2) More and more young people are moving to cities, where there are better transit options. 3) It's become much harder for teenagers to acquire drivers' licenses. 4) Young people may be driving less for cultural reasons (possibly they prefer to hang out with their friends on Facebook than piling into a car and driving around aimlessly).
That may explain why American driving habits today seem to be less responsive to changes in gas prices than they were in the 1990s. Back then, the EIA estimates, it only took a 12 percent drop in gas prices to boost driving by 1 percent (elasticity was -0.08). Nowadays it takes a 25 to 50 percent drop.
(Note that these numbers only apply to driving. Air travel, by contrast, is much more sensitive to changes in price — which, again, makes sense, since a bigger fraction of air travel is for vacation and relatively optional. According to the EIA's figures, a 10 percent increase in plane ticket prices causes air travel to fall by more than 10 percent.)
But will driving habits change in the long term?
So what does that mean for next year? EIA currently projects US gasoline prices to be 23 percent lower in 2015. If that pans out — and assuming that the agency's elasticity numbers are correct — US driving would only rise by around 1 percent or less.
At the same time, US cars and light trucks are getting steadily more efficient thanks to nationwide fuel-economy standards that are ratcheting up. Add those together, and the EIA doesn't expect overall US gasoline consumption to change much in 2015 (compared with 2014).
Given that transportation accounts for about 28 percent of US greenhouse-gas emissions, that's a relief for those worried about global warming. Instead, the main impact will be economic — the average US household is expected to save about $550 on gasoline next year (assuming oil prices stay low).
But there's a caveat here: This is only a projection for 2015. If gasoline stays cheap for a long time — several years or a decade — then the price elasticity could change in the future and driving habits could start to shift more dramatically. Maybe more people will decide to move to the suburbs, say. Or more young people will decide to start driving again. The future, as always, is hard to predict.
And what about China and India?
Another caveat: The EIA only looked at what would happen in the United States. The places where driving is really on the rise are countries like China or India. But figuring out the ramifications of low oil prices is much harder in these countries.
China has strict price controls on gasoline, so any drop in oil prices below $80 per barrel may have little impact on driving. And in India, Narendra Modi's government has used the fall in oil prices as an opportunity to pare back fuel subsidies and raise the gas tax — which may mute the impact of oil prices. But, again, those are just short term factors.
At the margins, one would expect low gas prices to increase demand for driving and increase greenhouse-gas emissions around the world. But figuring out the exact effect can be fairly difficult.
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