"There is always a philosophy for lack of courage."—Albert Camus

Thursday, September 22, 2005

Cheaper Fuel = More Fuel Consumed

In his latest Boston Globe column, Jeff Jacoby explains "The Paradox of Fuel Efficiency," as the article's title calls it. Jacoby points out that people have been pushing for the production and use of more-fuel-efficient cars for several decades:

If the vehicles on our roads got more miles to the gallon, we have been told again and again, we could dramatically reduce the amount of oil we depend on -- and from that would flow benefits equally dramatic:

America's foreign policy would be strengthened, it is said, since we would no longer have to appease the unsavory regimes that control most of the world's crude oil. The economy would surge as money now spent on fuel was channeled to more productive uses. Mother Earth would be better off, since less fuel would mean less pollution and less drilling for oil. And at a time of $3-a-gallon gasoline, motorists would have particular reason to rejoice: Higher-mileage cars would need fewer expensive fill-ups.

The Bush administration, Jacoby notes, has proposed new regulations to require increased gas mileage in passenger cars, saying "the plan would save 10 billion gallons of gasoline by 2011." But Jacoby points out the the expected fuel savings will not come, and in fact the opposite will happen:

[The Bush proposal and other such measures] might be worth considering if using fuel more efficiently really would result in less fuel being used. But it won't. It will result in more fuel being used.

If that sounds counterintuitive, think about it this way: Would lowering the price of operating an automobile -- i.e., making driving cheaper -- lead to higher or lower consumption? Higher, of course: The cheaper something is, the more of it we generally want. Cars that run more efficiently make transportation cheaper by getting more miles out of each gallon of gas. Result: more miles driven and more gasoline consumed.

Jacoby points out that the creation of more efficient computers has brought not less use of computers but far more use of them. Just so with passenger cars, the evidence shows:

In The Bottomless Well, a myth-busting new book on energy and how we use it, Peter Huber, a scholar at the Manhattan Institute, and Mark Mills, a physicist and technology expert, acknowledge that this paradox -- ''the more efficient our technology, the more energy we consume" -- strikes many people as heretical. But the numbers bear it out. Thirty years ago, the energy cost of transportation was nine gallons per 100 vehicle miles. Today it is six gallons -- a 33 percent drop. Yet over the same period, the total amount of fuel consumed rose 56 percent -- from 115 billion gallons a year to more than 180 billion gallons.

This ''paradox of efficiency" is as true of cars and computers as of light bulbs, jet turbines, and air conditioners, Huber and Mills write. ''The more efficient they grew, the more of them we built, and the more we used them -- and the more energy they consumed overall."

Both Jacoby and I are drivers of fuel-efficient cars, as it happens, and we both support the quest for increased fuel efficiency. But it is important for all of us to know the real reasons for supporting this particular choice, and to recognize what the real social and economic consequences will be. As Jacoby notes, "fuel-efficient cars do have their advantages. Reducing American dependence on oil just doesn't happen to be one of them."

17 comments:

Tlaloc said...

The problem with this argument is that it ignores the fact that not all markets are equally elastic when it comes to supply and demand relationships.

The vast majority of gas usage is to commute to and from work and jobs for whom commuting is work (truckers, taxis, etc) or for trips to the store. That market doesn't change one iota if gas prices go down. People won't suddenly work an extra day a week. There won't magically be more goods that need to be shipped or more fares that need taxis.

You may see a rise in recreational driving but to be frank that's such a minor piece of the puzzle as to be beyond caring about. And it's not even likely because when people make those evaluations of how much they really want to drive they do it at the pump where they see the obscene prices. Fuel efficiency is not in the forefront of their minds as they see the dial keep spinning round. They may be able to go twice as many days between filling up but when they do the pain is the same and so the overall effect feels the same to them.

Tlaloc said...

"Thirty years ago, the energy cost of transportation was nine gallons per 100 vehicle miles. Today it is six gallons -- a 33 percent drop. Yet over the same period, the total amount of fuel consumed rose 56 percent -- from 115 billion gallons a year to more than 180 billion gallons."


thirty years and we use 56% more? Wow. That's great except in thirty years our population also increased 35% (using figures from 1998 and 1968). On top of that in 1968 it was far less common to find two car families and families where both adults worked. Changes in population, the proliferation of cars, and social aspects would seem to account for the vast majority if not all of this supposed increase in usage DESPITE increasing fuel efficiency.

Kathy Hutchins said...

Tlaloc, part of Huber's argument is that "cars have proliferated" because of increased fuel efficiency. I know your opinion of economics, but really, the concept that people consume more of something when it's cheaper is not exactly going out on a limb.

You seem to be arguing that because people drive to work, instead of for pleasure, that there is no relationship between the effective price of gasoline and the demand for it. That's just silly. People have arranged their lives, including their commuting distances, the way they transport goods, and the mix of transport options they use, based on economic factors. If those factors change, then the decisions will change at the margin. If taxi rides are cheaper, I won't take the Metro. If car trips are cheaper, I won't fly on that business trip. (Or suffer through another bug-ridden episode of Microsoft Net Meeting.) If it's cheaper to transport that piece of furniture from California, I won't settle for the one I don't like quite as much that was made in Virginia. Multiply that by 280 million people, and you're talking real fuel.

Tlaloc said...

"Tlaloc, part of Huber's argument is that "cars have proliferated" because of increased fuel efficiency."

They proliferated because of the rise of the suburb and exurb coupled with the decreasing cost of the car compared to the average family wealth as well as the rise of the two income household. None of those factors incorporated fuel efficiency at all. The very rise of SUVs despite terrible fuel efficiency runs counter to that notion.



"I know your opinion of economics, but really, the concept that people consume more of something when it's cheaper is not exactly going out on a limb."

No it's not but it's also not automatically true. Come on Kathy you can't seriously be telling me you got a degree in economics without ever studying elastic vs inelastic markets. Not every market works on a 1:1 price to demand ratio.



"You seem to be arguing that because people drive to work, instead of for pleasure, that there is no relationship between the effective price of gasoline and the demand for it. That's just silly."

It would be silly to say there is no relationship. What I'm saying is that the relationship is not the same as say for a luxury item or an item for which there are alternatives. And frankly that's a fact. Gas prices have gone up as high as $5 a gallon in some places which is at least a 2x change in price. Have we sen a 2x drop in gas use in those areas? Not even close.



"People have arranged their lives, including their commuting distances, the way they transport goods, and the mix of transport options they use, based on economic factors. If those factors change, then the decisions will change at the margin."

Don't be ridiculous, the vast majority of americans cannot just uproot their lives and move closer to work in the course of a couple years based on gas prices. They need the gas to survive because of those choices you mentioned and they will have a hard time rearranging their lives to do without and so they cut corners in other places.

Surely you understand that people have mortgages, families, and other roots which keep them from moving around at whim. Besides which the inflated housing market makes that more difficult than ever.



"If taxi rides are cheaper, I won't take the Metro. If car trips are cheaper, I won't fly on that business trip."

Certainly but not everyone lives in a sizable city with mass transit features. Truckers have no choice but to buy gas unless they are willing to give up their career entirely. People living in the average mid sized town are unlikely to have the option to bus to work (as much as I wished that wasn't true).

The proof is in the pudding as always. Auto sales were level in 2004 and have risen to records in 2005. Granted this has been increased by car salesmen giving very good deals but obviously if you plan to bus or bike because of high gas prices you don't go buy a new car, no matter how good a deal it is. And according to the API gas demand still grew .4% during the first half of 2005. They consider that a dramatic reduction in demand to be sure but it's still GROWING. We aren't using less we are just using slowing down the acceleration of our usage despite the average price rising about 50% nationwide in the last year.

This is precisely what I mean, yes there is a change but it's vastly disproportionate to the price change. And similarly going the other way (by increasing fuel efficiency) will see very minor increases in fuel usage.

James Elliott said...

Kathy, that was a wonderful theoretical economics land example. Out here in the real world, things don't quite work like that.

Let's just take the Bay Area for example:

Housing costs here. In fact, of prospective buyers, only 14% can afford the housing prices. So, most people go live in places like Tracy and Los Banos. However, the jobs are all in places like San Jose, San Francisco, and Palo Alto, which are a good hour-plus drive away in light traffic. During the typical driving times, commutes stretch to two to three hours, each way. Since public transportation SUCKS in America (especially in the Bay Area), people HAVE to own cars so they can afford to live in BFE, let alone within the Bay Area proper, because this is America, dammit, and we must own houses. And let's not forget that dual-income families are on the rise not because of feminism but because people don't want to starve to death (hyperbolic, I know). So, EVERYONE drives here out of economic necessity.

It's not like as gas prices go up and housing prices stay up while wages remain stagnant that people are going to magically find their work is closer to their home. Or that work is going to magically migrate to where the people are. Maybe if the CPA decides that he can accept working at Wal-Mart in the shoes department so he can work close to home, but somehow that doesn't seem to be the most economically efficient use of his earning potential.

I swear, univariate economic analysis is driving me insane.

Kathy Hutchins said...

There is a reason that economists always say "at the margin" as if it were tattooed on their foreheads. No, of course not everyone is going to sell his house and move closer to work tomorrow. Not everyone will trade in his car tomorrow. Not everyone will replace his furnace tomorrow. But tomorrow will be the day that some number of people make those decisions, and their decisions will be affected in part by fuel costs, including the efficiency of the machines run on that fuel.

James, you seem to have overlooked the fact that living in the Bay Area is in fact a choice. People do not get planted there like trees. I have it on good authority that there is no Marin County Wall with a Checkpoint Pelosi shooting people who attempt to leave. (It is a choice that John and I personally declined about two weeks ago, and living costs were the primary factor.)

If univariate analysis drives you crazy, maybe you should stop setting up the straw man example that demands it. No one, not Huber, not I, not any economist anywhere, would claim that choices are made with respect to only one factor in the production frontier. But you seem to think if a factor doesn't explain everything, it explains nothing.

Matt Huisman said...

James...good to see that the term BFE is still in use! I haven't seen that in a while.

Tlaloc...I'm with you on this one.

ChETHB said...

Now this is dirty statistics but let's very crudely look at an example. If I factor usage down by the ratio of 6 over 9 in the first year, 30 years ago, the usage would have been 77 billion gallons (ok, I know that's not valid but the real situation only helps my argument). I looked for vehicle registration data using Google and one of the first I noted was Iowa (I couldn't find a figure for the US as a whole and I certainly didn't wish to track down each state individually). It seems that over the past 3 or 4 years, the number of vehicle registrations has increased by 4% per year. Now, just for sake of argument, assume that the number of registrations in the US has, in fact, increased by 4% each year over the past 30 years. Using the efficient 77 billion gallons as a basis, the 2nd year would be up by 4% which is 80 billion, the next year is up another 4% which is 83 billion, and so forth. Continue for 30 years and the number is ...tada...240 billion. Don't you think this more than explains the "increased efficiency, higher usage" paradox? It's simply that there are many more vehicles on the road.

Kathy Hutchins said...

Don't you think this more than explains the "increased efficiency, higher usage" paradox? It's simply that there are many more vehicles on the road.

But why, why, why are there more vehicles on the road? Do space aliens from Mars drop them from the skies? NO. Consumers demand them. Why do they demand more cars? Could it be in part that it's because they're more efficient? All of you are positing all these "reasons" that are not exogenous to the matter at hand -- all these choices are affected by how expensive it is to move about, which is affected by the efficiency with which machines convert energy to work.

Tlaloc said...

"James, you seem to have overlooked the fact that living in the Bay Area is in fact a choice."

Most certainly but moving to another region of the country is not as simple a choice as "this laundry detergent is more expensive than the one down the aisle so maybe I should walk down and pick that one instead."

Again we get back to the idea of elastic and inelastic. Changing gas prices will affect consumer usage but only a tiny bit compared to the change in price.

To use a miniscule increase in usage to argue against increaed fuel efficiency is madness.

Tlaloc said...

"But why, why, why are there more vehicles on the road? Do space aliens from Mars drop them from the skies? NO. Consumers demand them. Why do they demand more cars? Could it be in part that it's because they're more efficient?"

Of course not. Nobody demands a car because a car is more efficient than last years model. That's an incidental. They demand a car because they need to get around. That's the primary purpose, remember?

Would you honestly buy a food processor just beacuse it was 10% faster than last years model or would you buy one because you needed to chop veggies? Now having decided to buy a food processor you may very well decide to get the faster model but that's a secondary consideration.

James Elliott said...

But you seem to think if a factor doesn't explain everything, it explains nothing.


Funny, that was precisely my critique of yours and Huber's "analysis."

It's all in the eye of the beholder, apparently.

ChETHB said...

I wonder how many copies of "The Bottomless Well" have been sold? I would guess "not many" based on the premise that Jacoby presents in his article. Surely Peter Huber and Mark Mills have more substance in their analysis than Jacoby gives us. I would like to see the data that they used to draw their conclusions. How much is a copy of that book on Amazon? Might they have a slightly used copy for less?

More numbers for consideration - how many new cars are added to the US car population each year as compared to the number that go to the salvage yard? I'll bet that the number of new cars is greater than the number of dead ones. More cars added to the fleet each year increase the baseline fuel consumption - it doesn't have anything to do with fuel efficiency, whether or not people live in the Bay area, or whether space aliens from Mars are involved - just more cars. In the US, one of the most important things is to be able to get around so a lot of emphasis is placed on having a car. Thirty or forty years ago, very few kids had cars and most families only had one car. I didn't have a car of my own until I bought it after college but both my kids received a car when they reached the age of 16. I'm sure it's that way for many, many families. Look at the number of households where both parents have a car plus one or more kids have cars. I think tlaloc has already covered it all. As he said, "Changes in population, the proliferation of cars, and social aspects would seem to account for the vast majority..."

ChETHB said...

Never mind about the book comment. It costs $17.16 new and $6.72 and up used from Amazon. Also, I think the Jacoby article may have misrepresented the book based on customer reviews of the book on Amazon. Stay tuned.

Hunter Baker said...

Just a quick note: When we argue about figures in articles or books discussing percentage increases or other interesting metrics, I don't think it should be assumed the numbers haven't been adjusted for factors like population increase or inflation. I can't imagine performing an analysis and discussing it publicly without taking care of those kinds of details.

The Classic Liberal Anonymous said...

Tlaloc says that the market for gasoline is relatively inelastic and he is right ... in the short term.

In the long term, however, the market becomes more elastic. Decisions about buying cars, moving, where to work are all long term decisions.


"Nobody demands a car because a car is more efficient than last years model. That's an incidental. They demand a car because they need to get around. That's the primary purpose, remember?"


In my department, people buy new cars precisely because they are more efficient; it makes them feel better. Of course these purchasers typically already have a car for transportation, but they are moving towards a more efficient model.


chethb: "More cars added to the fleet each year increase the baseline fuel consumption - it doesn't have anything to do with fuel efficiency..."


If you were to qualify this statement with "on the margin" as so eloquently put by Kathy above, it *might* have validity.

In order for there to be a proliferation of anything, whether it be PC's, iPod's, or autos, they must be affordable.

Because the price of fuel is a variable in transportation costs, you cannot arbitrarily discount fuel efficiency.

Tlaloc said...

"Just a quick note: When we argue about figures in articles or books discussing percentage increases or other interesting metrics, I don't think it should be assumed the numbers haven't been adjusted for factors like population increase or inflation. I can't imagine performing an analysis and discussing it publicly without taking care of those kinds of details."

Hunter they gave the number in just straigh gallons used per year. Not gallos per capita or dollars per year.

Unless I'm mistaken there is no inflation on the size of a gallon- it stays the same year over year.