The Price of Gas


Virginia Postrel says:

It's infuriating how all three presidential candidates prattle on about the need to fight global warming while also complaining about the high price of gasoline. The candidates treat CO2 emissions as a social issue like gay marriage, with no economic ramifications. In the real world, barring a massive buildup of nuclear plants, reducing carbon dioxide emissions means consuming less energy and that means raising prices a lot, either directly with a tax or indirectly with a cap-and-trade permitting system. (Alternatively, the government could just ration energy, but fortunately we aren't going in that direction.) The last thing you'd want to do is reduce gas taxes during the summer, as John McCain has proposed. That would just encourage people to burn more gas on extra vacation trips--as any straight talker would admit.

McCain has, as she notes, been the worst offender on this score. But then again as a liberal I do kind of expect more from the Democrats. Rising gas prices clearly carry a lot of sting for a lot of folks, but the responsible reaction is to come up with policies that make it easier for people to cope with higher gas prices by making it easier to get along while using less fuel. More transit and intercity rail, more and better sidewalks and bike paths, more fuel efficient vehicles, etc. leading over the long run to different patterns of development and living so that a high price on carbon remains consistent with a high quality of life.

Meanwhile, note that though the short-term price elasticity of gas consumption is low because changing your behavior takes some time, consumption does respond to sustained price incentives. This is one reason why it's important for politicians to stop BSing around about gas prices. If people think future prices will fall, they won't invest in less fuel-intensive lifestyles. If people believe that future prices will rise but that the policy environment will evolve to try to make it easier for people to live in ways that don't require quite so much driving, then people will adapt to higher prices in constructive ways.

UPDATE: Further note that the decline in gas consumption was largest in the northeast since this is the part of the country where the built environment makes the most alternatives to driving available. Build more transit, more bike-friendly routes, and more walkable neighborhoods and people will respond to higher gas prices by driving less.

Photo by Flickr user rnugraha used under a Creative Commons license