Why pricey gas doesn't really cut driving or increase transit usageGreat editorial in Forbes on the economics of driving. His provocative title: "$3 Gas? We'll Shrug It Off."
"If your car ran on unrefined $42-a-barrel crude and got 20 miles per gallon, fuel would cost you a nickel a mile. But add in the cost of turning crude into gasoline and gasoline into miles--i.e., the amortized cost of refinery and car, plus taxes (which pay for the highway, among other things) and insurance--and the mile runs you 30 cents to 50 cents. The IRS lets you expense 37.5 cents per mile for business travel in your own car. The American Automobile Association estimates that it cost an average of 56 cents per mile to drive a new car in 2004. Or to put it another way, driving would be only 15% cheaper, at most, if crude oil were free, or if your car engine delivered 1,000 miles per gallon. Grumble though we may at the pump, drivers buy miles, not barrels. And when the price of crude doubles--rising from, say, $28 a barrel to $56--the price of the average mile rises only 10% to 15%. That just isn't enough to impel most of us to change our behavior very much."
"The length of your daily commute is the other key factor that strongly affects how much gas you burn. But if living 10 miles farther from your workplace saves you $5,000 a year in property taxes and other carrying costs on the house you want, that translates into a dollar a mile in savings. If it takes an oversize gas-guzzler to make those extra miles bearable, or even pleasant, you'll buy it."
That stat really hit me between the eyes: free gas only cuts driving costs 15%, which means doubling the price of gas only increases driving costs 15%. This is yet another nail in the coffin for James Howard Knustler's arguments that our civilization is about collapse from higher oil prices. It also means that higher gas prices aren't going to do much in the way of getting more people on transit or living closer to their jobs.