<![CDATA[Grist - Comment Feed for Why it took us so long to internalize the rise in gas prices]]> Grist Comment Feed en Comment #1 by Colin Wright http://www.grist.org/article/gasoline-demand-explained/ Tue, 13 May 2008 15:46:10 -0700 http://www.grist.org/article/gasoline-demand-explained/1 Imagine too if people were educated about peak oil

As Steve Andrews and Randy Udall, two of the co-founders of ASPO-USA, put it:Because they don't understand peak oil, many reporters keep getting the story wrong.

]]> Imagine too if people were educated about peak oil

As Steve Andrews and Randy Udall, two of the co-founders of ASPO-USA, put it:Because they don't understand peak oil, many reporters keep getting the story wrong.

]]> Comment #2 by amazingdrx http://www.grist.org/article/gasoline-demand-explained/ Tue, 13 May 2008 17:17:23 -0700 http://www.grist.org/article/gasoline-demand-explained/2 Tax neutral

A way to price carbon without a tax?  Take away the subsidies from fossil fuel.  Subsidize GHG free energy.

Peak oil?  No problem if cars transition to renewable electric plugin hybrid.  Oil demand will dip.  To meet up with supply.

Who cares about all the complexities of oil markets and oil wars?  

Start a subsidy diversion now.  66 cents per electric equivalent to a gallon of gas, sounds like an antidote to gasoline fueled economic disaster.

http://amazngdrx.blogharbor.com/blog

]]> Tax neutral

A way to price carbon without a tax?  Take away the subsidies from fossil fuel.  Subsidize GHG free energy.

Peak oil?  No problem if cars transition to renewable electric plugin hybrid.  Oil demand will dip.  To meet up with supply.

Who cares about all the complexities of oil markets and oil wars?  

Start a subsidy diversion now.  66 cents per electric equivalent to a gallon of gas, sounds like an antidote to gasoline fueled economic disaster.

http://amazngdrx.blogharbor.com/blog

]]> Comment #3 by Sean Casten http://www.grist.org/article/gasoline-demand-explained/ Wed, 14 May 2008 07:12:27 -0700 http://www.grist.org/article/gasoline-demand-explained/3 Hmm..

Interesting analysis.  A couple contrarian observations that I'd welcome your thoughts on:

I agree that volatility confuses the elasticity calculation, but in my experience it behaves contrary to the way you suggest.  ACEEE has done some nifty analysis (that I wish I could lay my hands on) showing that volatility is a much better predictor of when people will invest in energy efficiency than absolute price.  Which makes intuitive sense, in a frog-in-a-pot way.  The frog doesn't move with slow, steady temperature increases, but hops when it swings.  Similarly, energy users learn to live with expensive energy, but have - at least in my experience - been much more prone to spend money on efficiency when the price is bouncing.  This would seem contrary to your analysis.

Gasoline as a transportation fuel always seems to have an inherent inelasticity simply by virtue of the fact that most of the cost of a car is capital recovery.  (Or, to put it another way, a car spends most of it's lifetime parked.)  Compare that to a boiler or power plant that runs 24 hours a day, and it becomes rather apparent that while owners of the latter have a very strong incentive to invest in capital that will lower energy costs, the relative incentive for vehicles is much smaller.  (Hell, even at $4 gas, an average, 15,000 mile/year driver with a 20 mpg car "only" spends $3000/yr on gasoline.  Doubling their fuel economy would therefore save them $1500 a year - which makes it hard for that driver to justify much in the way of capital or lifestyle changes beyond a couple thousand bucks.)  This seems to me to explain much of why fuel oil shows so much greater elasticity and - at least until we get to European level fuel prices - will hold gasoline elasticity down.

Finally, a theory that I can't prove.  I don't think it is entirely coincidental that the massive increase in commodity volatility (not just oil, but also gas, copper, and corn) has coincided with a general lack of decent investment opporutnities elsewhere.  Equity investments stink.  Mortgage markets have imploded.  Even US treasuries are lousy.  But all that money in the financial system needs to flow somewhere - and in a lot of cases, we're seeing commodity pricing that really can't be explained on the basis of historic fundamentals.  Natural gas and fuel oil have completely decoupled from one another.  Natural gas prices don't make any sense relative to reserve/demand ratios.  Copper prices are absurd.  This leads me to the nagging feeling that - concerns about peak oil and carbon notwithstanding - the current high commodity prices are a bit of a mirage, likely to come down as other investment opportunities arise.  Not because I can prove it, but because when prices are increasing and historic fundamentals no longer make sense, it's usually a pretty good warning sign that a speculate bubble is getting set to pop.

Your thoughts?

]]> Hmm..

Interesting analysis.  A couple contrarian observations that I'd welcome your thoughts on:

I agree that volatility confuses the elasticity calculation, but in my experience it behaves contrary to the way you suggest.  ACEEE has done some nifty analysis (that I wish I could lay my hands on) showing that volatility is a much better predictor of when people will invest in energy efficiency than absolute price.  Which makes intuitive sense, in a frog-in-a-pot way.  The frog doesn't move with slow, steady temperature increases, but hops when it swings.  Similarly, energy users learn to live with expensive energy, but have - at least in my experience - been much more prone to spend money on efficiency when the price is bouncing.  This would seem contrary to your analysis.

Gasoline as a transportation fuel always seems to have an inherent inelasticity simply by virtue of the fact that most of the cost of a car is capital recovery.  (Or, to put it another way, a car spends most of it's lifetime parked.)  Compare that to a boiler or power plant that runs 24 hours a day, and it becomes rather apparent that while owners of the latter have a very strong incentive to invest in capital that will lower energy costs, the relative incentive for vehicles is much smaller.  (Hell, even at $4 gas, an average, 15,000 mile/year driver with a 20 mpg car "only" spends $3000/yr on gasoline.  Doubling their fuel economy would therefore save them $1500 a year - which makes it hard for that driver to justify much in the way of capital or lifestyle changes beyond a couple thousand bucks.)  This seems to me to explain much of why fuel oil shows so much greater elasticity and - at least until we get to European level fuel prices - will hold gasoline elasticity down.

Finally, a theory that I can't prove.  I don't think it is entirely coincidental that the massive increase in commodity volatility (not just oil, but also gas, copper, and corn) has coincided with a general lack of decent investment opporutnities elsewhere.  Equity investments stink.  Mortgage markets have imploded.  Even US treasuries are lousy.  But all that money in the financial system needs to flow somewhere - and in a lot of cases, we're seeing commodity pricing that really can't be explained on the basis of historic fundamentals.  Natural gas and fuel oil have completely decoupled from one another.  Natural gas prices don't make any sense relative to reserve/demand ratios.  Copper prices are absurd.  This leads me to the nagging feeling that - concerns about peak oil and carbon notwithstanding - the current high commodity prices are a bit of a mirage, likely to come down as other investment opportunities arise.  Not because I can prove it, but because when prices are increasing and historic fundamentals no longer make sense, it's usually a pretty good warning sign that a speculate bubble is getting set to pop.

Your thoughts?

]]> Comment #4 by Charles Komanoff http://www.grist.org/article/gasoline-demand-explained/ Wed, 14 May 2008 08:10:57 -0700 http://www.grist.org/article/gasoline-demand-explained/4 Author Replies

To Sean: Interesting questions! I'll take a whack:

I'd love to see that ACEEE analysis too. It would rattle my world if you're right about volatility driving EE investment more than do increasing energy prices per se (I've said it a little differently than you, please note.) Indeed, the standard line about OPEC is that they always open up the pumps to drop the price just as Americans and other oil consumers start seriously investing in alternatives. Anyway, until I see counter-evidence, I'm sticking with the idea that steadily rising prices historically have been the strongest price signals for EE investment.

Your exposition helps explain why even the long-run price-elasticity for gasoline is probably no greater than (negative) 0.4, whereas for fuel oil it's 0.6 or 0.7. FYI, in my analyses I generally crank gasoline costs into a generalized cost-to-travel function that includes other variable but not fixed costs. You're certainly right that few can afford or otherwise prematurely retire a serviceable vehicle solely to save on fuel costs. OTOH, rising fuel costs will prompt less driving, consumer selection of more fuel-efficient cars, and mfg'er design and provision of same. Which is why gasoline's price-elasticity differs from zero.

That's an interesting hypothesis about commodity prices. As it happens, I share your skepticism that prices for metals; construction staples like conduit, pipe and rebar; and machinery will keep rising or even stay at present "high" levels.

Amazingdrx -- When you say We can "price carbon without a tax [by removing] the subsidies from fossil fuel," you're either envisioning a far lower carbon tax than we at the Carbon Tax Center feel is necessary, or neglecting to do some math. Please allow me: In very round numbers, the U.S. economy uses 80 quads a year of fossil fuels and these are fiscally subsidized (e.g., tax dodges) at no more than $30 Billion a year. The subsidy thus equates to around 40 cents per million Btu, then, which, for gasoline, say, is just a nickel a gallon, which in turn corresponds to a carbon charge of just $5 per ton of CO2. Peanuts, no?

Charles http://www.komanoff.net

]]> Author Replies

To Sean: Interesting questions! I'll take a whack:

I'd love to see that ACEEE analysis too. It would rattle my world if you're right about volatility driving EE investment more than do increasing energy prices per se (I've said it a little differently than you, please note.) Indeed, the standard line about OPEC is that they always open up the pumps to drop the price just as Americans and other oil consumers start seriously investing in alternatives. Anyway, until I see counter-evidence, I'm sticking with the idea that steadily rising prices historically have been the strongest price signals for EE investment.

Your exposition helps explain why even the long-run price-elasticity for gasoline is probably no greater than (negative) 0.4, whereas for fuel oil it's 0.6 or 0.7. FYI, in my analyses I generally crank gasoline costs into a generalized cost-to-travel function that includes other variable but not fixed costs. You're certainly right that few can afford or otherwise prematurely retire a serviceable vehicle solely to save on fuel costs. OTOH, rising fuel costs will prompt less driving, consumer selection of more fuel-efficient cars, and mfg'er design and provision of same. Which is why gasoline's price-elasticity differs from zero.

That's an interesting hypothesis about commodity prices. As it happens, I share your skepticism that prices for metals; construction staples like conduit, pipe and rebar; and machinery will keep rising or even stay at present "high" levels.

Amazingdrx -- When you say We can "price carbon without a tax [by removing] the subsidies from fossil fuel," you're either envisioning a far lower carbon tax than we at the Carbon Tax Center feel is necessary, or neglecting to do some math. Please allow me: In very round numbers, the U.S. economy uses 80 quads a year of fossil fuels and these are fiscally subsidized (e.g., tax dodges) at no more than $30 Billion a year. The subsidy thus equates to around 40 cents per million Btu, then, which, for gasoline, say, is just a nickel a gallon, which in turn corresponds to a carbon charge of just $5 per ton of CO2. Peanuts, no?

Charles http://www.komanoff.net

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