[enactolaelant]

January 15, 2007, 7:19 pm

Who Cares About the Price of Gas?

The Detroit Auto Show, which is going on right now, is full of cars purporting to solve the problem of the moment: the political, economic and environmental damage done by America’s dependence on oil. GM is showing off an electric Chevy; Ford has an adorable diesel hybrid that gets 65 miles per gallon, and Toyota is parading not only its hybrid Prius but also a huge truck that next year will be available in a model that runs on ethanol.

An overwhelming number of Americans believe that our oil problems can be solved by better auto technology: 78 percent of us want Congress and the president to push for 40 m.p.g. fuel economy standards, according to a recent poll.

What we would rather not do is use less gas. Over the past five years, as gas prices have doubled, fuel consumption has continued climbing upward. In 2006, we spent $364 billion on gasoline, which was double what we spent in 2002, according to Tom Kloza, an analyst who monitors American gasoline-buying behavior for the Oil Price Information Service. (The difference amounts to as much as the entire federal budget for Medicaid in 2006. It’s hard to imagine that we would have swallowed a one-year tax increase of that proportion.)

But the costs don’t accrue only to Americans — the whole world has to live with the high prices we tolerate. We are a country with 140 million pedals to the metal. American drivers buy one of every nine barrels of crude oil pumped from the ground, so we have more power and influence over world prices than any other buyers. Our behavior exacerbates small supply shortages, sending prices even higher. The International Energy Agency now considers drivers’ “insensitivity” to price as a potential threat to the stability of the world oil market.

This numbness to gasoline prices is relatively new. A recent study of consumer behavior by economists at the University of California at Davis found that between 2001 and 2006, as gas prices doubled, we reduced our consumption by only four percent. This is a big change from the last gas crisis, when drivers faced with the same relative price increase between 1975 and 1980, cut back by about 30 percent.

Why? In 1977 the average family traveled 12, 036 miles a year, but by 2001, we were driving 21,171 miles to and from work, soccer practice and the mall. People bought bigger cars to make the longer drives more bearable, and now they’re stuck with both the cars and the commutes. Then too, fuel accounts for a smaller share of the cost of driving today’s cars. (In 2004, gas and oil accounted for 9.5 percent of the cost of driving a mile, down from 19.9 percent in 1985.)

Many Americans subtract the cost of gasoline from other parts of their budgets — by skipping movies, for example, or buying breakfast cereal on sale. Obviously, that’s a good strategy for drivers who don’t want to reduce their gas consumption, but it’s hell on the oil markets.

Why are we like this? American energy policy since the 1930s has been based on ensuring greater supply — first from the Middle East, and later from countries outside of OPEC — rather than on controlling demand. Generations of Americans have come to expect a constant flow of cheap gasoline as a right — and they attribute high prices to oil company shenanigans. Eric Smith, a political scientist at the University of California at Santa Barbara, found that that 85 percent of Californians believe that high gas prices are the result of oil company manipulation, not market pressures. And if there’s no shortage, why conserve?

Kloza, of the Oil Price Information Service, observed that when prices recently hit $3.20, some people did start car pooling, but not for classic economic reasons. They just wanted to get back at the oil companies. They weren’t “making an internal calculation about fuel’s percentage of their disposable income,” he told me in an email. “People drove less to express their wrath, or spite. It’s a combination of the numbers themselves, and the perception (am I getting hosed?) that lead to demand changes.”

To really address our overconsumption of oil, we need to fix the drivers along with the cars. And that will require big new approaches. For years, environmentalists have begged for higher gas taxes as a way to discourage people from wasting gas. But we have demonstrated that we can’t or won’t respond rationally to high prices, so taxes will not push conservation. We need to rethink our supply-based energy policy, and ready to start making changes both big and small in the way we consume oil.

I called Neal Elliot, of the American Council for an Energy Efficient Economy to ask how Americans can change. Elliot said he’s watching the “Don Index,” named after his brother-in-law. Like other well-off Americans, Don is basically impervious to gas prices. “Don is price insensitive” said Elliot, before detailing Don’s S.U.V. history: He replaced his Ford Explorer with a Chevy Tahoe, then got a larger Tahoe, and then a Cadillac Escalade. Recently, that too was replaced, by an even bigger Escalade. But suddenly, Don is feeling guilty. “He’s beginning to realize that unsustainable energy consumption isn’t affecting him yet, but it is making his company less viable,” said Elliot, who believes that the “Don Index” is starting to take hold. Maybe the 2008 Auto Show will include this new model of driver too.

Lisa Margonelli, a journalist in Oakland, Calif., is an Irvine Fellow at the New America Foundation. Her first book, “Oil on the Brain,” will be published in February.