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February 2nd, 2010
The No. 13 line
When Gas Becomes a Luxury

By Sam Schwartz, Morgan Whitcomb, and Jacob Mason

gaspricesFirst the bad news: gas will rise to $20 per gallon. Now the good news: gas will rise to $20 per gallon. It’s going to happen whether you like it or not. It doesn’t matter if the Democrats are in control, the Republicans, or even Ron Paul. It doesn’t matter if you believe in global warming or disbelieve in evolution. Christopher Steiner, in his new book “$20 per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better”, points out that in the gas supply and demand relationship, demand is directly related to the size of the middle class. Prior to 1960, that pretty much meant the U.S. middle class. By the 1970’s, Europe’s middle class burgeoned as did car growth. In 2010, experts are predicting that the size of the world’s middle class will soon quadruple, as the masses in China, ex-Soviet bloc countries, and other Asian countries move up the economic ladder and repeat all the West’s same mistakes, promoting the car as the solution to transportation needs. As evidence of this, on January 11, 2010, the New York Times reported that China surpassed the U.S. as the world’s largest car market. The subsequent rise in gas prices will happen rather fast, Steiner predicts, so that by 2020, $20 per gallon gas is quite possible. More importantly, this future change is inevitable.

Soaring fuel prices will trigger a domino effect. Cars will get smaller, public transit use will soar, some airlines will perish, and almost everything will be made more locally. These changes, Steiner argues and we agree, will have an overall positive social and environmental effect. Mind you, though, that many people and businesses will be harmed and lifestyles upended in the process. For that reason, and because we sincerely believe it is better for our country and world, we should start weaning Americans off petroleum now.

The longer we delay, the more could be lost in the inevitable march toward $20 per gallon prices. We will lose opportunity most of all, but also money. People will be paying out of pocket for higher energy prices while they wait for technology and policy to react to the new reality. They will pay at the pump and in their increasing airfare, but many people simply won’t be able to afford mobility. They will have to wait for taxing schemes to change, wait for high speed rail to become a reality, wait for dense, walkable neighborhoods to be built, wait for bike lanes, wait for food distribution to become regional—wait for mobility. We say, why wait?

Well, there are a few people planning ahead. There are significant migrations from suburbs to cities, especially among the very mobile 25-35 year old cohort, where public transportation makes driving less necessary. High speed rail subsidies are beginning, SUVs are rapidly becoming anachronisms, hybrids are wildly popular, and the local produce movement has exploded. Even the most progressive actions taken so far can’t do much to plan for rising gas prices. In fact, in our existing transportation financing system, reductions in fuel use will actually add to the transport infrastructure deficit. The gas tax is charged as a fixed rate for each gallon sold, so even though you will spend more money to fill your tank less often, the government will receive even less in taxes. We should be concerned that this tax is the primary federal funding mechanism for transportation. Roads and bridges already in poor condition will receive less money for maintenance and repairs. Figuring out how to maintain this infrastructure is a big elephant in the room. There are many relevant road infrastructure financing schemes, including a VMT (vehicle miles traveled) tax and regional tolls, but one way that can reasonably sustain road and bridge maintenance is a tax pegged on the price of gas, as a percentage of the price, just like other sales taxes. That way, less driving won’t mean more deteriorating roads. This can be put into place soon, as a safeguard against the plight of decreased gas purchases in the future, by creating a more reliable source of revenue as prices soar. The naysayers will call such tax regressive; we say, why should all the additional money go to OPEC instead of U.S. transportation?

We need to be thinking about how people will get around once car and plane travel become expensive enough to be considered luxuries. Funding for Amtrak has increased recently, thanks to stimulus funding, but while the $8 billion allocated is a big help in maintaining the system, it does little to expand transportation routes nationally. A national rail system needs to be built in a fashion akin to the president’s plan—before people are desperate for it. Without a useful high speed rail network in place when plane travel prices spike, choice will be severely limited. For instance, sending your daughter to another city to attend college can be a burden if it is exorbitant to fly or drive there, especially for school breaks and holidays. Travel within the nation for business and pleasure could come to a standstill. Sure, we could limp by, by limiting our children’s choices to local colleges and relying on conference calls, or we could build a network that will keep our quality of life propelling forward.

Local officials need to legislate and plan for these realities in their jurisdictions. More flexible and forward thinking zoning codes need to be enacted in most areas, which allow for mixed use, so that one day people can walk to the store to get groceries, which they will prefer when driving for even the smallest errand becomes a burden. Greater density should be allowed around transportation hubs so more trips, say to work, can be performed quickly without a car.

If these transportation hubs don’t exist, plans should be made for them. For cities thinking about creating a light rail, subway, or bus rapid transit system, now is the time. These investments take time to plan and build, and they should be completed before large numbers of people need to drastically reduce their car use (and abandon ill-equipped towns, suburbs and cities), not after. National support for local transportation needs to be bolstered and made more accessible so funding for these projects can be a reality. National funding should be used to support more balanced transportation systems rather than prioritizing highway plans over everything else. To complete the picture, transportation departments should create streets that are easy to walk and bike around, extending the reach of the area served by public transit.

Let’s prepare for higher energy prices, whenever that may come, and make the “transition period” as painless as possible by not letting the price of gas dictate our future. Instead of waiting for the rising price of gas to change our lives for the better, we can do it ourselves. We can be in control of our mobility if we guide transportation policies in a sound direction—starting now. In addition to sidestepping a prolonged gas crisis, preemptive changes can also address global warming and stabilize our national economy. Thomas Friedman points this out nicely in his December op-ed:

If we prepare for climate change by building a clean-power economy, but climate change turns out to be a hoax, what would be the result? Well, during a transition period, we would have higher energy prices. But gradually we would be driving battery-powered electric cars and powering more and more of our homes and factories with wind, solar, nuclear and second-generation biofuels. We would be much less dependent on oil dictators who have drawn a bull’s-eye on our backs; our trade deficit would improve; the dollar would strengthen; and the air we breathe would be cleaner. In short, as a country, we would be stronger, more innovative and more energy independent.

We couldn’t have said it better.

  • Owen

    Hello; good article with some good points, but I don’t think our changes will be as sudden. The model of having mass transit as a solution for high fuel prices would fit with urban areas pretty well and is already a great proven solution there. I would expect our rural areas to subscribe more to the now very successful Brazilian model with more bio fuel for transportation being used. Yes; cars will get smaller, but they all may burn a different fuel. Due to this alternative, change to higher fuel costs probably will be more of an evolution because there will be some adaptions similar to how the Brazilian transportation system had adapted.

  • JD Moore

    Someone else besides James Howard Kunstler discussing “The Long Emergency!” Maybe this will get Congress to act on building “the world’s finest rail network.” as I heard then Sen. George McGovern said in a campaign speech back in 1984.

  • Steve L

    It’s a fairly straightforward liberal/malthusian fantasy of politically restricting personal freedom/mobility for our ‘own good’. Much of this European life-style already exists where it is mandated, not through any freedom of choice. Given the choice, free people tend to choose personal mobility, spacious peaceful living with lots of green/natural surroundings etc. Doesn’t make them evil. As with the U.S, investment and prosperity will always flow towards nations that are politically/economically free & productive.

    So as an optimist, I see the opposite vision; even Obama mentioned offshore drilling, Cap and Trade tax is dead, global warming has been thoroughly debunked and is dead last in concerns (behind being attacked by Martians) Long restricted resources will be opened up to the benefit of all, esp. the world’s poor who deserve the same standard of living- mobility and space, as we have enjoyed in the US.

    It’s all a matter of unleashing politically restricted energy sources, and it seems we’re headed in the right direction?

  • Daniel

    The so-called “free market” model and the high-standard of living that we have hitherto enjoyed in the U.S. is rapidly leading to environmental devastation on an unimaginable scale. Encouraging the consumption of every last remaining barrel of oil and the “elevation” of the world’s poor to the unsustainable car-centric American lifestyle will only hasten climate change, resource depletion, pollution, the elimination of biodiversity, and ultimately lead to a lower standard of living for all.

    There is a way out: governmental promotion of the reduction of dependence on petroleum as a fuel, reduction in personal vehicle use, strict standards on emissions and also efficiency of vehicles, incentives to develop fully electric vehicles (not hybrids), development of denser, walkable communities, mandating maximum sizes of homes (large homes waste energy to heat and cool them), divestment from petroleum-based fertilizers, investment in rail as a means of travel. Though some of these ideas may be difficult for us as Americans to embrace, the coming of peak oil will cause us to re-evaluate our priorities and force us to make difficult decisions.

  • Roger Chambers

    Daniel’s comments are very well stated.

    Having by choice been without a car in a small city of 50,000 (100,000 including adjacent suburbs served by transit) requires a great deal of planning to do some things, still requiring use of a car of friends or relatives to reach many areas. With no service on Sundays, and very limited service evenings, there are many things we do not do. Fortunately, I live close to work and walk. Most “main stream middle class” think I am crazy, though a few recognize this as “doing the right thing” and are envious. They would do the same if they lived close to work. There are many others, however, who, though they live less than a mile from work would not seriously consider walking that far.

    Unfortunately, any major change in our transit infrastructure will not come until it gas is SO EXPENSIVE that the person living 10-20 miles away will be really struggling to have enough money for gas for their commute. At some point, this will lead to much less driving of necessity, with a corresponding decline in economic activity at out of the way suburban centers which require a car for access, being built in low density areas where public transit is not practical for economic and logistic reasons. This inability to afford transit to work (or making this so expensive it dominates what was once disposable income for other activities) will lead to much social disruption the likes of which we have not seen since the 1930s. At the same time we will need new infrastructures for transit, the current system will be decayed and be increasingly expensive. The time for planning in this direction was years ago, the hand writing being on the wall as far back as 1973. (Remember the odd / even “rationing” of gas with oil embargo, and short term doubling / quadrupling of the price of oil?) The longer we refuse to recognize the long term unsustainability of our current transportation networks (90% car dependent) the more severe the social and economic disruption that are coming sooner rather than later.

    James Kunstler said it well, and the “Long Emergency” has already begun,

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  • WinSol

    Frankly, the US economy would collapse. And it would happen far sooner than at a cost of $20/gallon. Transportation would be the least of your worries. You’d starve for one thing. Everything in grocery stores and retailers arrives on the bed of a truck. Second, those in the NE in particular would freeze during the winters. If gas was $20/ga. what do you think heating oil would cost? How would Thomas Friedman heat his 12,000 sqr. ft house? With firewood? With Sterno?

    You also left out the price of natural gas. It would skyrocket as well. Even though it’s not ‘oil’. Guess what would happen to your electricity bill? Straight up. Your KWH meter would spin like a blender going off the deep end when you plug in your electric vehicle at night to recharge it too. The environ-mental crowd threw fits decades ago when we wanted to generate electricity with fission, so we only generate ~ 20% of our electricity that way. Gee that’s too bad . . . how short-sighted they were.

    So because of their actions years ago, guess what? We now burn more coal! Lots more. Hope you’re not afraid of the dark! And can do without your computer(s), cell phone, blackberry, iPhone, iPod, Palm, television, DVD’s, air conditioning, refrigeration, hot water, etc. and oh yea . . your electric car.

    But again, these would be the least of your worries. Remember, you’d be starving. All those ‘organic’ fruits & vegetables would be rotting in the fields because the cost of transportation was too high.

    There is no ‘free’ energy lunch!

    Less than half of a barrel of oil is turned into gasoline. Go look it up. Think about it. You’re leaving out the majority of the refined products, just focusing on gas. That’s a major hole in your argument.

    Furthermore, I’m extremely sceptical that we’d all be better off if it did so.

    This reeks of more fear-mongering from the leftists who hate cars and want to force everyone into communal, public transportation.

    You mention Amtrak. When’s the last time Amtrak made a profit? It wouldn’t exist with out heavy gov’t subsidy. Ticket prices would soar if they reflected the true cost of providing the service, even now, at the present cost of diesel. If they couldn’t afford it now, how would they afford it with gas at $20/ga?

    The problem with your argument is you can’t remove a key component, oil, out of the energy market and make it up/account for it in other ways. Not in todays economy. You can’t grow your way out of it either with alcohol. We’re not Brazil.

    Back to your drawing board!

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