gas prices

EIA: Making the same mistake again and again

If you believe the Energy Information Administration, U.S. gas prices will peak at $4.15 per gallon in August.

Whew. That's a suprise for most Americans, 86 percent of whom believe that prices will top $5 by the end of the year. We can be confident that the EIA -- the agency that does the country's official projection of oil prices -- knows what they're talking about. Yessiree.

If you detect a note of sarcasm in my post maybe that's because the EIA has a hilarious record of forecasting world oil prices. And even when it comes to domestic gasoline prices, it's as if their forecasts are completely impervious to reality. To wit:

Swing states need green manufacturing

Suppose you just became the presumptive presidential nominee of the Democratic party, and suppose you really could use some of those Midwestern swing states in order to win the general election. Suppose, further, that you have mentioned how it would be a good thing to have high-speed rail coming out of Chicago, and that "the fight for American manufacturing is the fight for America's future." And further, suppose that there is a Midwest Interstate Passenger Rail Commission that has plans in place to construct just such a network.

Well, whaddaya know, all of those things have actually happened! In fact, according to an excellent study I found called "High-speed Rail Projects in the United States," coming out of the Mineta Transportation Institute at San Jose State University, there are a whole basket full of such proposals, some further along than others, spread all over the United States -- and many plans are in swing states.

Consider the pathetic level of rail funding that the report highlights -- and transit isn't much better:

Today’s gas consumption shows that price increases are only one part of the solution

As SUV sales plummet and gasoline use finally drops, one meme spreading around is, "Looks like people respond to price after all." The implication seems to be that any demand response other than zero proves that prices are wonderfully effective.

The problem, however, is not response is or might be zero. (I can think of few who ever claimed that.) The problem is that it takes a big price increase to produce a small response.

The current data support the conventional wisdom: 40 to 50 percent long-term elasticity, low enough to discourage us from relying on price as the main means of reducing emissions, high enough encourage us to use price as one among many means. At first glance, the raw data are even more discouraging than the conventional wisdom: Inflation adjusted gasoline prices have risen almost two-and-a-half times since 2000. Gasoline demand has dropped by slightly over 20 percent. But long-term elasticity is, by definition, a delayed response -- at least three years.

Also, if we are interested in price response as opposed to income response, we have to adjust for growth in GDP. So a rough calculation yields 45 percent long-term elasticity (with some biases that probably overstate the result). Here are two graphs, the first of raw data, the second after adjustment (click for larger versions):

Energy prices

Conservatives want to terrify voters at the prospect of climate policy raising energy prices. Meanwhile: “Wealth Evaporates as Gas Prices Clobber McMansions.” How long will we stay on this sinking ship?

High oil prices are our lot until demand is destroyed, but no peak

Goldman Sachs analyst Arjun Murti predicted the recent spike in oil prices, so it's worth looking at his recent interview in Barron's:

Focusing population growth in the right places will make us both

The New York Times looks at the impact of high gas prices in communities across the nation today and concludes that increases are most painful in rural areas. Part of this analysis involves an examination of money spent on gas as a share of total income. The big middle of the country does badly, and […]

Five nations agree to think about ending oil subsidies

The day after markets registered the highest single-day rise in crude oil prices ever, the United States and Asia's four largest economies (Japan, China, India and South Korea), meeting in Aomori, Japan in advance of the G8 Energy Ministers summit, have formed a sort of Petro-holics non-Anonymous club, calling for an end to oil subsidies in their countries.

Consumer subsidies (subsidized fuel prices), that is, not producer subsidies.

OK, what they actually agreed upon was "the need" to remove fuel-price subsidies. Eventually.

According to a report by Agence France-Presse, the five nations announced in a joint statement:

"We recognize that, moving forward, phased and gradual withdrawal of price subsidies for conventional energies is desirable. Undistorted and market-based energy pricing" would help "enhance energy efficiency and increase investment in alternative sources of energy." They said that subsidies "should be replaced wherever possible by better targeted policies for intended beneficiaries. Such a move "could also lead to reduction in the government cost and greater integration of the domestic and global energy economies."

A carbon policy is likely to be less devastating than nature, or oil markets

Reihan responds. Let me just say a few more things. First, I described his characterization of carbon pricing as “insane” based on this: What we need is a $100 billion prize or set of prizes to the person or firm or non-profit entity that can devise a cost-effective means of scrubbing the atmosphere of carbon […]

USA Today: oil prices drive up asphalt costs, derail road maintenance

For decades, public cash has gushed into building infrastructure designed to get us around in those little (or not-so-little) privatized pods. Indeed, the mobilization to create and maintain our road and highway network probably counts as our greatest public achievement of the last half-century. Meanwhile, while the highway rode high, our rail-transportation network crashed. Attacked […]