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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."

8 comments:

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.

James F. 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.

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.

James F. 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.

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.

Barry Vanhoff 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.