June 21, 2008
Driving Cutbacks Continue In America

American motorists continue to cut back in the face of high gasoline prices. The decline in driving in April was even larger than the decline in March 2008.

WASHINGTON – At a time of record-high gas prices and a corresponding surge in transit ridership, Americans are driving less for the sixth month in a row, highlighting the need to find a more sustainable and effective way to fund highway construction and maintenance, said U.S. Transportation Secretary Mary E. Peters.

The Secretary said that Americans drove 1.4 billion fewer highway miles in April 2008 than at the same time a year earlier and 400 million miles less than in March of this year. She added that vehicle miles traveled (VMT) on all public roads for April 2008 fell 1.8 percent as compared with April 2007 travel. This marks a decline of nearly 20 billion miles traveled this year, and nearly 30 billion miles traveled since November.

While miles driven have fallen only for the last 6 months the shift in driving habits looks even bigger when compared to an over 20 years run of 3% increase in vehicle miles traveled per year.

While total vehicle miles Americans traveled grew by nearly 3 percent a year from 1984 to 2004, the rate of growth slowed suddenly in 2005 and 2006 and has declined since then.

Transportation fuel costs as a percentage of after-tax income are almost as high as 1981.

Americans spent about 4.5 percent of their after-tax income on transportation fuels in 1981, according to Global Insight, a forecasting firm. As gasoline prices dropped and family incomes rose, that percentage dropped to 1.9 percent in 1998. Today, it is back to 4 percent or more.

The national price for unleaded gasoline would need to average $4.23 a gallon “to create the same economic pain as in 1981,” the Cambridge Energy report said. “Once unthinkable, such a level is now within view.” On Wednesday, gasoline averaged nearly $4.08 a gallon.

Gasoline prices have hit a tipping point for big vehicle sales.

Midsize SUV sales nationwide were down 24 percent for the first five months of this year compared to 2007. The decline for May was an especially steep 38 percent, according to Autodata Corp.

The June drop in big vehicle sales may be even steeper.

Sales of pickups and SUVs, the most profitable vehicles, may fall nearly 40 percent in June, said Michaeli, who is also based in New York. GM and Ford may report sales declines of 28 percent and 27 percent, respectively, he said.

Will the US domestic auto makers survive?

The huge shift away from SUVs and big cars has car makers scrambling to make more small cars.

Ford Motor Company, for example is running its Wayne, Mich., assembly plant on overtime and Saturdays in an effort to meet demand for the Focus.

General Motors had planned to add a third shift in September to its small-car plant in Ohio, but recently moved the start date up to August.

A Toyota spokesman said the Japanese automaker was limited by production to selling 175,000 Priuses in the United States this year, no matter how hot the demand.

Honda Motor will open a new plant in Indiana late this year that will increase its output of Civics by 200,000 a year. The automaker has already increased production of the car at factories in Ohio and Canada.

Supplies of smaller cars have shrunk.

Mr. Pipas said that Ford currently has a 20-day supply of Focuses nationwide, well below the 60-day supply that is considered the industry norm.

Ford CEO Alan Mulally does not think high oil prices are temporary.

"We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand," Mulally said. "In the near term, we are adjusting production to the actual demand - increasing small cars and crossovers and reducing large trucks and SUVs. For the long term, we are moving fast to introduce more small cars, crossovers and fuel-efficient powertrains -- including more hybrids -- and we will adjust our manufacturing facilities to match our updated product lineup."

$4 per gallon gasoline is serving as a powerful wake-up call for many Americans. The price shock will get even bigger at $5 per gallon. The vast majority would change their driving habits at $5 per gallon.

As the region's average price per gallon flirts with the $4 level, some Charlotte-area commuters like Gibson are discovering their tipping points – the price at which they say enough is enough – and are changing their driving behavior.

More drivers say they'll follow if the average price breaks through that psychological barrier, recent research shows. Nearly seven of eight said they would change at $5.

More car buyers are expected to buy diesel cars.

Automotive forecasting firm J.D. Power and Associates predicts clean diesel vehicles will comprise 3.5 percent of the U.S. light-vehicle market share this year, 4 percent in 2009 and 10 percent by 2015. It's also predicting the price gap with gasoline will shrink as refineries adapt refining processes to refine more diesel and less gasoline, increasing the supply of diesel and lowering the cost.

"It still makes sense to buy diesel instead of gasoline if all you're looking at is fuel economy," said Michael Omotoso, senior manager of global powertrain for J.D. Power in Troy. "At really the break-even point, if gas is $4 per gallon, diesel would have to be above $5.20 per gallon for it to make sense to buy gas instead of diesel.

Commuter rail usage is up in southern California.

Commuter rail ridership broke an all-time record this week, and Caltrans reported a dip in freeway traffic as commuters across California struggled with record gasoline prices.

Metrolink recorded its highest number of riders in a single day Tuesday -- 50,232 -- a 15.6% increase over the volume on the Tuesday of the same week last year. Metro Rail ridership has also risen, shooting up 6% last month over May 2007, with the downtown L.A.-to-Pasadena Gold Line setting an all-time ridership record, said Dave Sotero, a Metro spokesman.

Although the region's rail lines have seen more commuters lately, bus ridership in Los Angeles is slightly down compared to last year, Sotero said. More than 1.2 million passengers boarded Metro buses on an average weekday in May, but compared with all of May 2007, ridership is down 5.37%.

Public transit usage is up nationally.

A report set for release today by the American Public Transportation Association (APTA) shows trips on public transit January-March rose 3% over the same period last year to 2.6 billion rides. Light rails saw the biggest jump: 10% to 110 million trips.

Early figures for April show ridership going even higher as gas hovers near $4 a gallon, says APTA president William Millar.

In 2007, he says, "we had higher numbers than we've seen in 50 years, and the trend is continuing in 2008."

A survey shows drivers willing to make changes in how they get around as gasoline prices rise.

In a survey released last month by IBM's Institute for Electronic Government, a total of 31% of commuters who normally drive to work said they would change their transportation habits if gas were to cross $4 a gallon.

IBM also found that a total of 66% of drivers would seek other means of transportation if gas hits $5 a gallon.

Before you get excited at the prospects for mass transit options such as commuter rail and buses check out Europe's experience with substituting mass transit for cars. At the following link see Figure 3: Overall mode share of distance travelled (%) in 2003 where it compares many European countries for public transport use. In spite of gasoline prices more than double that of the United States at least 80% of passenger miles traveled on the ground in Europe are done by car (with Denmark, Austria, and Ireland as exceptions). Driving smaller hybrids and living closer to work will do more to cut fuel usage than will mass transit.

Share |      Randall Parker, 2008 June 21 12:45 AM  Energy Transportation

wcw said at June 21, 2008 8:17 AM:

I don't believe those who claim $5 gas will significantly change their driving habits. I'd bet dollars to donuts that a similar survey taken when gas was $1 would have found similar results if it had asked about price levels we have long since seen and passed. My judgment is pretty simple: if $9 gas hasn't stopped the Germans from driving -- and it hasn't -- why would $5 gas stop Americans?

On transit, looking at all travel aggregates the apple of commute with the orange of long-distance travel, and mostly reflects the failure of the European rail network in long-distance travel. Separate out commuting. Driving to work in Basel or larger, sprawlier Vienna instead of using their very functional transit networks would be pretty silly for most there, which the numbers reflect.

Tim said at June 21, 2008 9:56 AM:

If some demand destruction is already happening in the US, would think that would somewhat refute your argument. Word is also that: http://money.cnn.com/2008/06/20/news/international/china_fuel.ap/index.htm
China is apparently scaling back there subsidizing of oil in their country. Curious to see what effect that will have on their comsumption. Hard to see how that won't cause demand destruction in China. It has been previously argued here that any reduction in consumption in the US would be more than made up for by increases in India and China.

Greg said at June 21, 2008 2:46 PM:

"At a time of record-high gas prices and a corresponding surge in transit ridership, Americans are driving less for the sixth month in a row, highlighting the need to find a more sustainable and effective way to fund highway construction and maintenance, said U.S. Transportation Secretary Mary E. Peters."

Why does she want to fund highway construction if highway usage is decreasing? I don't argue about maintenance - but it can also be scaled down to reflect reduced usage.

"Americans spent about 4.5 percent of their after-tax income on transportation fuels in 1981, according to Global Insight, a forecasting firm. As gasoline prices dropped and family incomes rose, that percentage dropped to 1.9 percent in 1998. Today, it is back to 4 percent or more".

I wonder: if gas price grew four-fold since 1998, and miles driven increased by 30% (3% per year - more or less), how come the percentage spent on transportation fuel increased only two-fold? Did our income rise three times since 1998? Mine certainly hasn't.

"Will the US domestic auto makers survive?"

They will not. The drop in new SUV sales will only accelerate. With slightly used SUVs selling for so little, not many people will flock to new cars dealerships. One should be more than dumb to buy a new SUV now - he (she) should be illiterate (and such people usually don't have money for a new car anyway), because the press is full of stories about used car lots bursting from unwanted SUVs. And it's a vicious circle. Granted, there are people who need an SUV - but why pay north of 30K for new if one can have a slightly used for half (if not less) the price? (The situation is somewhat similar to the real estate bubble burst - only it is developing faster and hitting only domestic producers)

Most likely, the domestic auto makers will be bought by private firms and then their foreign arms would get spun off and resold (being sufficiently profitable), while domestic arm would be liquidated.

CNN.com had an article on GM recently - http://money.cnn.com/2008/06/19/news/companies/taylor_gm.fortune/index.htm summarizing GM's woes. "As GM continues to slide downhill, there is going to be plenty of finger pointing to identify who is to blame. There is plenty to go around. Some comes from just plain bad decision-making, like the Fiat deal, the Delphi spinoff and the Saab acquisition. But a lot stems from the poor running of the day-to-day automotive business".
The last statement is interesting. How is it that they are running the US business poorly while at the same time running their overseas business just wonderfully? Anyone knows?

"At really the break-even point, if gas is $4 per gallon, diesel would have to be above $5.20 per gallon for it to make sense to buy gas instead of diesel"

At the nearest gas station, the diesel fuel costs $5.29 while gasoline costs $4.35. Will I pay extra for a diesel powertrain in this situation?

K said at June 21, 2008 2:48 PM:

Certainly Americans will drive less and use less fuel and other energy and adapt. It is amazing how many comments here and elsewhere say otherwise.

Perhaps they indicate an odd belief that economic principles work everywhere except here. Or reflect a Bash-The-US glee. Others think they are smart but "they" out there (usually another part of the country) are not.

Others show the freedom Americans feel to gripe and moan. Or the defiant talk heard among Americans. e.g. 'they will have to pry the gun from my dead cold hands.' Ninety+ percent of this is socialization talk; often preceded by beer consumption.

Or the more generic: "ain't nobody gonna tell me what to do." Which misses the point entirely. No one IS going to tell you. You will just realize you can't afford as much.

We know people are driving less. They will continue to do so. They will also drive more carefully to increase MPG. Some will regress and go back to old habits even at the higher cost. The trend is certain, the exact slope is not.

After cutting 10 to 20 percent individuals will find it very hard to do more without substantial change. Then facts really hurt - you have to be rid of the big SUV (which cost $50K) and buy a car which gets much higher mileage, or use public transportation, or find other alternatives. And that $30K speedboat and the trailer to haul it are suddenly almost worthless (even more so with the SUV gone.)

The wealth destruction in SUVs alone is tremendous. Thousands or millions who thought they would drive 150K miles more before buying again now find otherwise. My neighbor put 190K miles on a Chevrolet Suburban and drove it free of payments for over a decade. That won't be happening again.

The destruction also affects manufacturers who must scrap old assembly lines, redesign every product, retool, and teach workers new techniques. And perhaps build new 'green' plants in which to make them.

There won't be a magical escape most Americans. They will have less, perhaps for a long time. The government can't decree prosperity. It can choose policies, some will make things worse, some will help.

Randall Parker said at June 21, 2008 3:06 PM:


Which argument of mine do you see as refuted by a decrease in driving?


Yes, I see a lot of people (who seem like condescending snobs) claiming that SUV drivers will refuse to change their ways and that therefore these SUV drivers will be the ruin of us all. Yet SUV sales are plummeting.


Federal gasoline taxes have been a fixed cents per gallon for many years. So in inflation-adjusted terms tax revenues haven't kept up with the cost of highway maintenance. A decrease in driving does not solve that problem.

At the same time, the cost of asphalt is skyrocketing - what with asphalt getting made from oil. Some counties in the plains states are going to let rural asphalt roads revert to dirt roads. They can't afford to keep them up.

GM's woes: Their biggest woe is the UAW. The US Congress stuck them with labor union laws. The US Congress is therefore going to be the biggest author of GM's bankruptcy.

Randall Parker said at June 21, 2008 3:51 PM:


I think my argument about Chinese demand for oil must somehow not be clear because the objections to my argument do not seem to address the underlying cause of why China is bidding up oil prices and causing us to use less oil. Let me put it in different terms: Rising wages in China translate into more buying power for gasoline and diesel fuel:

In China, where rural villages are running low on able-bodied young workers to send to factories, wages are rising more than 10 percent a year for many assembly-line workers. And pay is rising even faster for skilled workers, like machinery repair technicians.

In coastal provinces with ready access to ports, even unskilled workers now earn $120 a month for a 40-hour workweek, and often considerably more; wages in inland provinces, where transport is costlier, are somewhat lower but also rising fast. While Chinese wages are still less than $1 an hour, factory workers in Vietnam earn as little as $50 a month for a 48-hour workweek, including Saturdays.

Texhong estimates that average labor costs for each textile worker in China will rise 16 percent this year, including increases in benefits costs — on top of a 12 percent increase last year. New regulations are making it harder for companies to avoid paying for benefits, like pensions, further increasing labor costs.

If their wages continue to rise faster than our wages then they'll be able to bid up oil prices higher and shift more of the total available oil toward them.

To argue that they aren't going to take a larger share of oil in the future one has to argue that their buying power won't grow faster than overall world buying power. Well, they could have an economic panic and even a depression. So it is possible they could suffer a drop in buying power - at least for a few years. But if their economy continues to grow faster than our economy then their buying power will continue to grow relative to ours.

Tim said at June 21, 2008 5:49 PM:

Randal: sorry on my first point I was actually referring to wcw comment of "I don't believe those who claim $5 gas will significantly change their driving habits." not to you. On my second point about the Chinese, the reason they are lifting their subsidy is to curb their ever increasing demand for oil. Even assuming their economy continues to grow at 10% a year, if the price of oil keeps climbing at a much faster rate, they (and us as well) will not be able to sustain our current rates of consumption. I also don't believe such sky-rocketing oil prices will not eventually slow down their economy (and ours). For what is is worth here is what I think will happen...we will eventually drill in ANWR, and off shore(where most of the oil is), the Dems will either have to end their opposition, or they will lose big in November, assuming gas/oil prices continue to climb. I can't see the US government letting that offshore oil being drilled off of America's shores by American oil companies being shipped to china enmasse, while we have gas lines and our paying 8? 9 bucks a gallon..whether the Chinese in theory could out bid us or not. I haven't even mentioned oil converted from coal by Fischer-Tropsch or our vast amounts of oil shale, can't see that being shipped to china either. I agree with you we may have a rough patch for the next few years, until these things and eventually more efficient cars(PHEV or just more fuel efficient than SUV)etc kick in.

chris said at June 21, 2008 6:09 PM:

i wonder if this has caused a spike in the total number of hours spent by americans doing at-home activities like watching youtube.

Peter F said at June 21, 2008 7:49 PM:

wcw: .....if $9 gas hasn't stopped the Germans from driving -- and it hasn't -- why would $5 gas stop Americans?...

Bear in mind, there is always more than meets the eye.
If, by definition, living standard is surplus money in your pocket after paying for all of life's "necessities", then Germ drivers obviously have more of it than Am drivers. And/or better public transport options.

Look at the level of personal debt in the two countries. You'll find the Germs strain their c/c account a lot less than Ams. Many still "save up" to something they want to buy, rather than borrowing the money and thus, paying more in the end.
Then, look at housing speculation - it's next to non existent. The value of housing stays relatively flat over long periods of time - no food for speculators there.

Here in Australia, many mortgage defaults are triggered by a few dollars, suddenly disappearing from the weekly budget....it's just this few dollars and the house becomes one of cards.
In Germany, probably less people live by a weekly household budget. You take out what you need, and what's left, you save.

The rise of oil prices will eventually bite us all though, no matter where we live and how financially secure we are.
Just the timing will be different, starting at the lower end first and then gradually moving up the ladder.

Randall Parker said at June 21, 2008 7:58 PM:

$9 gasoline and Germans driving: They drive fewer miles per year and in much smaller cars with smaller engines (and more diesel) on average.

When gasoline hits $9 per gallon in the US we also will drive shorter distances, use smaller vehicles, etc.

We could cut our miles driven in half by living closer to jobs and by cutting out all optional driving. Plus, we could all shift to hybrids and diesels. In fact, most of us will shift to hybrids and diesels.

David Govett said at June 21, 2008 11:49 PM:

Believe it or don't, the Singularity will give everyone essentially free energy (and much else), despite the dogmatic pessimism of professional doom-and-gloomers. When (and if) our descendants bother to look back upon our generation, they will dismiss us as linear extrapolators at best and technophobes at worst.

redherkey said at June 22, 2008 7:22 AM:

Mary needs to come visit I-29 in Iowa to explore more appropriate funding ideas. Stretches in southwest Iowa are so poor, almost no vehicle traffic passes in the right lane. It's a single lane highway for miles, even after experimental fixes (which ended up lowering or raising whole blocks in the right lane by 1/2" inch to make the lane even more dangerous) were conducted last fall. However, rather than pay attention to the incompetence and neglect of highway officials, I'd invite Mary to sit back and track types of vehicles and license plates. She might just notice the high volume of Mexican, Texas Minnesota and Canada trucks. Thanks to Mary's lack of creativity, foreign transportation firms are running down our interstates while not contributing materially to their use.

My pickup used for farming is assessed the same fuel taxes, yet impacts the road a fraction of what the big rigs do. And with a few hundred gallons of fuel in Mexico before crossing the border, that's another few hundred miles of tax-free driving in the US. Put the toll gates up and make everyone who uses the road pay for it. If maintenance costs more, then charge more. Then again, I forget this is the same group of Republicans and Democrats who are fleecing young families paychecks to give retiring boomers at the peak of their income savings trajectory a prescription drug benefit. Apparently we just can't ask those that use something to pay for it.

Randall Parker said at June 22, 2008 9:19 AM:

David Govett,

Well, can you schedule the Singularity for next year? The price of gasoline is getting pretty expensive and I expect it to get even more expensive next year and still more expensive the year after with oil hitting hundreds of dollars per barrel in the 2010s.

Or how about a time machine? If we only had a time machine we could go forward 40-50 years and get not only cheap energy but rejuvenation therapies.

My argument: Assorted technological advances aren't coming fast enough to save us from a very deep recession as the supply of oil shrinks every year. I watch for all manner of energy tech advances and read far more in this area than I write about. The short to medium term signs are not hopeful as I see it. Some advances (e.g. in solar with thin films) are hopeful. But I do not see all the pieces coming together quickly enough.

The Export Land Model leads me to believe the US and other OECD economies will shrink 10-20-30% before growing again. See figure 17 here for a range of projected exports for the top 5 oil exporters as calculated by Jeffrey Brown and Khebab. If we take the midpoint in that range then oil exports by the biggest oil producers will drop in half by about 2019. Ouch.

The key technology we most need to minimize the shrinkage: cheap and lightweight batteries suitable for vehicles. I can't tell how fast that'll come.

Tim said at June 22, 2008 11:18 AM:

Randall: Here are a few short to mid-range things our government could do 1)obviously the aforementioned drilling(ANWR, off shore) Have heard figures of 80billion barrels of recoverable oil from them all together, enough to replace what we import, say 10million barrels a day for about 20yr.
Maybe 5-8 yrs for this to kick in..but the annoucement of massive off-shore drilling/ANWR by the US itself could lower or at least slow down the increase in prices, after all we know that some of this huge run up (97% in one yr) is short term speculation.
2) Expedite shale oil and conversion from coal (aside there is a proposal to build a big plant along ohio/Penn border, and heard about other places) Vast potential there especially with shale depending on which figures you use for recoverable, but agree these will take awhile to kick in..say maybe 10yr give or take, just in time for your 2019. 3) Government could target large gas users like especially big SUV. Tell the auto dealers to offer trade incentives to people to trade them in for smaller more fuel efficient vehicles. Tell the dealers to scrap not re-sell the SUV's, the gov promising them generous tax right offs, depreciation etc. 4) car pooling..when gas hits 9 dollars a gallon sure alot of people would be looking at that. Sure internet sites would quickly spring up where you input where you live and work the times etc, and the site spits out a list of people whose habits are compatible with yours. This along with the SUV trade ins could conceivably happen very quickly say in an 1-2 year time frame.

Randall Parker said at June 22, 2008 12:44 PM:


I do not know that some of the price run-up is due to speculation. I do know that this run-up in oil prices is due to supply not growing. In fact, net exports have been declining.

See my post Big Oil Producers Cut Exports In 2007. Also, see Jeffrey Brown's post Is a Net Oil Export Hurricane Hitting the US Gulf Coast?

The data show that combined net oil exports from Venezuela & Mexico to the US have dropped by 414,000 bpd from 10/07 to 3/08, an astounding annual decline rate of -32%/year. This decline was at least partially offset by increases in imports from the Persian Gulf.

However, as the decline in net oil exports from Venezuela & Mexico (and elsewhere) has increased, it’s quite likely that the Persian Gulf has not been able to sufficiently offset the decline.

In order to buy more oil from the Persian Gulf we have to bid up the price and outbid other countries that would otherwise have gotten the oil.

US oil going to China: Even after an export ban was lifted very little Alaska oil has been exported:

The end to the export ban never produced the big jump in foreign shipments some predicted, though it did boost prices for Alaskan oil, according to a report from the U.S. General Accounting Office.

Just 4 percent of North Slope oil trickled to Asia between 1996 and 2000, before the flow shut off almost entirely. Since then, the only export was a single tanker in 2004, which delivered a load of oil to China en route to getting repaired at an Asian port.

Given that the US is a big importer and Alaska production is declining that is not surprising. The US would need to cease to be a net importer before much US oil would get exported. I'm not expecting that to happen.

The US ability to buy foreign oil for import is going to go down as the price goes up because the US already has a huge trade deficit. The dollar will weaken further as the price of oil rises.

K said at June 22, 2008 2:33 PM:

Tim: Perhaps our big problem is that we no longer do anything quickly. IMO those decades-long schedules for ANWR and offshore oil could be 40% shorter if government wished it. It is the same for almost any energy production activity including big wind farms, big (utility operated) solar, and geothermal.

Notice I said production activity. We have no problem with research and study grants, least of all those to the in-house national laboratories, to the favored university in each congressional district, and to well connected private firms.

Often overlooked principles: A faster decision is not of itself a worse decision. Bureaucrats and politicians lose clout if they can no longer intervene, interfere, or delay. Funding of work with no clear completion date or defined result will be favored. Inaction can be the costliest part of a venture.

Should we take the courts out of the process by stopping their endless reviews of any and every environmental argument? How much do you take local governments out of the process by making a federal permit end all local review?

And would such expediting be wise?

Perhaps a month ago, I forget some details, a recommendation was made to actually construct a nuclear waste repository at Yucca Mountain. It came from one of the countless groups supposedly wise in such matters. The recommendation went to the NRC. The news article - and I do recall this part accurately - said a review of the recommendation was due within three years. What is the hurry?

Our rulers have been studying, funding, bickering, and generally getting nothing done about YM for about two decades. (My repository of printable words is momentarily exhausted and I await the thoughts of others.)

memomachine said at June 22, 2008 8:24 PM:


1. IMO the smartest thing to do right now is to schedule and fund construction of 100 nuclear power plants of 5 reactors each using a standardized templated pebble bed reactor design and build them on military bases.

We need the electricity and the more homes and businesses shifted away from oil or natural gas and towards electricity the better. Nuclear power is much easier to deal with over the long term, particularly if we lift the ridiculous restrictions against processing spent fuel, using it in reactors and breeder reactors. Plus we'll need the power to recharge the 60+ million electric vehicles that everybody is screaming about.

By building the reactors on US military bases it increases security, allows for the oversight of these reactors by the US Navy, limits NIMBY problems.

2. We could use the nuclear power to provide hydrogen by breaking down water. IMO it's idiotic but then again I've never seen the point of hydrogen in the first place.

3. IMO the smartest overall system would involve fuel/electric vehicles and a *personal rail system*.

One of the biggest problems with any sort of rail system is the inconvenience. Another problem is having to share the transportation space with total strangers. One way to deal with this is to create a system that enables fuel/electric vehicles to travel along a system of elevated rails, that could be stacked on top of one another like a layer cake, powered by the electrical system of the rail itself rather than by burning fuel and controlled by a centralized computer system. Another benefit of this system would be that multiple entry/exit points could be created for skyscrapers as the rail system would extend upwards as well as outwards with ascending/descending rail links.

The benefits would be:

A. increased density of transport.
B. increased convenience
C. increased comfort
D. all electric, no fuel use
E. multiple entry/exit points for very large structures
F. computerized control allowing drivers & passengers to rest

Randall Parker said at June 22, 2008 9:30 PM:


There's a lot of stuff we could do now to start shifting over to power more stuff with electricity. We could start electrifying more rail lines and shift to electric power for moving containers around inside of ports. In fact, the port of Long Beach is going to shift toward electric power for moving containers around in order to escape growth restrictions due to emissions regulations.

I do not expect to see these shifts to start happening until a lot more people become convinced that we've hit Peak Oil.

The US Navy ought to build many more kinds of ships with nuclear reactors. Also, nukes might make sense for some commercial cargo ships. Maybe those ships would need US Navy or ex-US Navy crew in the engine room and security personnel on board.

aaron said at June 23, 2008 10:34 AM:

Driving less, yes. But using just as much gas.

High Gas Prices Drive Down Fuel Efficiency

We are currently enduring a natural experiment on the effects of higher gas prices. While it has spurred movement toward more efficient technology, it has brought about some severe consequences that will need to be dealt with.

Last month it was reported that driving in the US was down 4.3% in March compared to last year. What everyone missed was that gasoline consumption wasn't. It was down less than 2%.

For the year, gasoline consumption is down little more than 1/2%.

We aren't using less fuel, we're getting less done with the fuel we are using.

If the most efficient driving was being eliminated, it still couldn't explain the large difference in fuel efficiency. The driving being cut would need to be several times more efficient than normal to have such a negligible impact on fuel consumption. This is not plausible.

Among the reasons: Less efficient fuel mixtures may be being used; People are acting on bad advice. We've known for awhile now that accelerating faster is more fuel efficient (this is even before considering the beneficial effects on traffic), yet people believe the opposite; People may be driving more at high traffic times to generate needed income and be too tired and poor to drive at other times; And, during the economic slow down, communities may be neglecting good traffic management (e.g. not timing traffic lights properly).

We also need to consider whether higher prices will strengthen the movement toward more efficient technology or have little additional effect (i.e. Has the move has already happened and will further price pressure be of no value?).

Additionally, we need to realize that in the mid-term, our current vehicle fleet and the infrastructure to produce more aren’t suddenly going to disappear. New tech won’t wash out these adverse effects.

[The gasoline consumption data can be found here: http://tonto.eia.doe.gov/dnav/pet/xls/pet_cons_wpsup_k_w.xls

It's in excel format. See U.S. Weekly Finished Motor Gasoline Product Supplied (Thousand Barrels per Day).

The Energy Information Administration defines Production Supplied as their calculation of consumption:

Products Supplied Approximately represents consumption of petroleum products because it measures the disappearance of these products from primary sources, i.e., refineries, natural gas processing plants, blending plants, pipelines, and bulk terminals. In general, product supplied of each product in any given period is computed as follows: field production, plus refinery production, plus imports, plus unaccounted for crude oil, (plus net receipts when calculated on a PAD District basis), minus stock change, minus crude oil losses, minus refinery inputs, minus exports.

More petrol data can be found here: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html]

Paul F. Dietz said at June 24, 2008 9:40 AM:

The market capitalization of GM is now less than that of Starbucks, The Gap, or GameStop.

Nick G said at June 25, 2008 3:05 PM:

"The Export Land Model leads me to believe the US and other OECD economies will shrink 10-20-30% before growing again. See figure 17 here for a range of projected exports for the top 5 oil exporters as calculated by Jeffrey Brown and Khebab. If we take the midpoint in that range then oil exports by the biggest oil producers will drop in half by about 2019. Ouch."

Randall, how did you estimate 10-30% reduction in GDP? For instance, if US imports were to drop by 50% that might reduce overall US oil consumption by 30% (we import 57% of consumption - about 11.6M bpd vs consumption of 20.2M). In 1978-1982 the US reduced it's oil consumption by 19% while growing slightly, for a reduction of about 4% per year. At that rate a 30% reduction would require 8 years.

If GDP were to fall by anything close to 10% I think people would be ready for real emergency measures. Well, emergency measures could easily reduce consumption by 25% in 6 months by conservation (just make all highway lanes HOV, strictly enforced), and drilling (in ANWR and off the coasts) and large-scale CTL could both be done in 3 years under truly emergency conditions.

We keep projecting conditions that reflect a true emergency, and assuming BAU responses. That makes no sense.

Randall Parker said at June 25, 2008 5:53 PM:


Future available oil depends on:

1) Rate of reduction of exports.

2) Rate of demand growth in developing countries (especially China).

3) Rate of decline in US domestic production.

If the 6.2% decline rate for exports (from the middle range forecast of Jeffrey Brown and Khebab) is correct and if China's buying power continues to rise versus that of the US (and I expect that to be the case) then we will lose access to importable oil at a faster rate than 6.2%. Well, what about domestic? Depends on when ANWR and OCS get opened up. But existing Alaska, onshore and existing offshore are going to go down.

We know that Hubbert's projection for the lower 48 has been very accurate. I know less about what Hubbert Linearization shows for OCS and Alaska production. But we know lower 48 onshore production will continue to decline. So how much do you think US production will decline in the 2010s?

The 1978-1982 period included declining oil prices in the last couple of years. We also had a much better trade balance. Whereas this time our oil prices will be going up while we are cutting back consumption. We won't be able to benefit with more buying power for other thing. Instead, oil prices will go far higher, in inflation-adjusted terms, in the 2010s. We might actually produce more stuff than we produce now. But that'll be for export in order to pay for importing the increasingly expensive oil.

Also, efficiency increases get harder as you go along. We had very inefficient and heavy cars in 1979. We could switch to computers to control them and take other measures to improve efficiency. Now we are mostly faced with going smaller and to hybrids. Well, hybrids cost thousands of dollars more per car. Diesel savings are substantial but still small and limited by what fraction of a barrel can be turned into diesel fuel.

Then there is the historical trend in energy intensity per unit of GDP in the United States and other OECD countries:

One of the most significant energy-related changes in the last 20 years has been the significant reduction in energy intensity in the world’s developed countries. Between 1980 and 2001, the OECD’s energy intensity declined 26%; the Group of Seven’s (G-7) fell 29%; and the U.S.’ dropped 34%.

Okay, over 20 years for the US to improve by 34%. Can we do the same in 10 year? Suppose we can. Then can we limit our total energy loss to 34% and just go sideways for 10 years? Maybe. After all, some of our energy comes from other sources besides oil and natural gas. But I'm skeptical. I think the oil availability drop will be too steep for orderly and timely adjustments. Capital costs will go up just as they already have.

We need a clearer view of how fast available oil will decline.

Also, my guess is that the numbers might show the GDP going sideways. But real living standards will decline. That's already happening. Paul Volcker thinks the official inflation rate is too low. I agree.

JoeKing said at June 25, 2008 8:23 PM:

Did anyone notice the ridership of LA Caltrans system? A new daily record of 50,000+ (up 15%). This in a city of 10 million. 1 in 200 people use it daily...what a waste of $billions!!

Randall Parker said at June 25, 2008 9:04 PM:


One of the reason that the energy intensity of OECD economies has gone down is that energy intensive activities have migrated to less developed countries. Well, higher energy costs will therefore show up in the prices of imported goods such as steel. So we are more vulnerable to higher energy prices than the trend in energy intensity in the US would lead one to believe.

I do not have good quantitative data on the extent of this.

Nick G said at June 26, 2008 10:50 AM:

Randall, here are some thoughts.

"If the 6.2% decline rate for exports (from the middle range forecast of Jeffrey Brown and Khebab) is correct"

Well, first, keep in mind what they say just below figure 4: "The current top five net oil exporters—Saudi Arabia, Russia, Norway, Iran and the UAE—account for about half of world net oil exports." So, this doesn't include Canada, for instance, which is likely to increase it's exports. A good analysis would need to cover all exports.

"if China's buying power continues to rise versus that of the US"

That's likely to continue, but how large will the effect be? Keep in mind that Chinese consumers have a lot of alternatives for their buying power, and expensive oil is more expensive than substitutes everywhere, not just in the US. higher prices stop consumption, even in China. We see that China had to cave in and raise price controls, even before the olympics, which is something that they surely didn't want to do. Because of those price controls the effect on Chinese consumption was delayed, but I expect to happen just like anywhere else. Don't forget, much Chinese oil consumption is for diesel electrical generation - we have to think that's unlikely to continue for long in these volumes at these prices.

"what about domestic? Depends on when ANWR and OCS get opened up."

Do you agree that this, along with CTL, could be done quickly (in very roughly 3 years) in a true emergency? Perhaps we'll continue to do our frog-boiling thing, but one way or another I think we'll reach a breaking point on domestic production, including CTL.

"existing Alaska, onshore and existing offshore are going to go down."

That's not at all guaranteed - I'm assuming that you're including new wells in old field in "existing". Tertiary methods, especially CO2 injection, have a lot of promise. There's an enormous amount of oil to be extracted in the US. The Bakken alone has upwards of 200B bbls. Only about 4B are economic now, but that's a $30T incentive - there's a likelihood of more to be extracted there, with a significant chance of a great deal more.

"Hubbert's projection for the lower 48 has been very accurate"

That's been exaggerated a bit. Keep in mind the domestic price controls before and during the price peaks, and the crash in prices immediately thereafter. Sure, drilling went up, but how much earlier, higher and longer-lived would that drilling increase have been if the domestic oil industry had received a strong and persistent price signal? Also, Hubbert was far from prescient: he made a similar projection for natural gas that was completely wrong (he projected a crash roughly in the 1980's, while NG production is still fairly stable).

"how much do you think US production will decline in the 2010s?"

I'm not sure. It will increase when Thunderhorse goes into production, and the EIA projects an substantial increase in the medium (though we don't trust EIA projections much). What I do know is that as discussed above there is a lot of oil to be extracted in the US (a lot of decent prospects are known and just waiting to be exploited), and that the drilling services industry will ramp up with time. I would be very surprised if production fell, and I expect at least a small increase.

"The 1978-1982 period included declining oil prices in the last couple of years. "

If prices had been higher there would have been an effect on both oil consumption and GDP - how much we don't know, but we have pretty good evidence that a 4% annual decline can be done without declining GDP.

"We also had a much better trade balance. "

Actually, if we exclude oil we have a pretty good balance right now - oil is the problem. I agree it's a big problem - right now we're selling the family silver and hocking our furniture to pay for it. OTOH, if oil exporters are sensible, and recycle petrodollars, we'll have some mix of stagnating domestic consumption (transferred to exports) and go into debt, but not suffer declining incomes.

" oil prices will go far higher, in inflation-adjusted terms, in the 2010s."

As I've said before, I think current prices are the ceiling for several years, and that $200 oil is a maximum. Roughly 50% of world GDP has their currencies tied to the dollar (including the yen and yuan), and price signals will indeed work.

"efficiency increases get harder as you go along."

Not really. Telecommuting will have benefits for all, once we get past the cultural barriers (it's kind've like the Norsemen in Greenland who starved rather than eat fish). Carpooling is an inconvenience, but very, very cheap.

"hybrids cost thousands of dollars more per car. "

The Honda Insight was cheap, and got 60-70MPG. The Prius (at $24k) is cheaper than the average US light vehicle (at $28k). The Volt will be below $30k easily, with volume production. NEV's can be $15K.

"over 20 years for the US to improve by 34%. "

Keep in mind that this was in an era of low prices, with efficiency an afterthought.

"I think the oil availability drop will be too steep for orderly and timely adjustments. "

Sure. The real question is how disruptive this will be. We know that there will be premature obsolescence for a lot of capital (like SUV's, and hopefully coal plants). I just think that a depression is not likely. A risk that our policymakes should be paying much, much more attention to, but not likely.

"Paul Volcker thinks the official inflation rate is too low."

What are you referring to here? I found the following: "“It doesn’t feel quite right,” Mr. Volcker said of the so-called core rate, particularly as food and energy prices have been rising for years." That suggests that he's talking about the Fed's emphasis on core vs overall inflation. That's a technical argument about leading inflation indicators, no the accuracy of the CPI.

"One of the reason that the energy intensity of OECD economies has gone down is that energy intensive activities have migrated to less developed countries."

Keep in mind that the energy intensity of the whole world, and especially the "oil intensity" of the whole world, have increased at roughly the same rate. World GDP has been growing at 5% per year for the last several years while oil production has been flat. This is much more a problem of recycling petrodollars than it is of a lack of energy of oil.

Randall Parker said at June 26, 2008 6:24 PM:

Nick G,

Money taken away from people for gasoline is less money to spend on mortgages. Plus, gasoline prices scare people out of the risk of buying somewhere they can afford now but won't be able to afford if fuel goes up further. Did you notice my recent post where I had a quote about how the 3% growth rate in miles driven went from 1985 to 2004 and then dropped off in 2005 and 2006? People were already reacting to higher gasoline prices in 2005. So an impact on housing prices seems obvious.

Jeff Rubin has adjusted his timeline from 2012 to 2010 for $200 per barrel oil:

Oil at $135? That was just the opening skirmish in the “peak oil” wars. The latest smart money? $200 oil in 2010, with gasoline at $7 a gallon. And that is going to turn Americans into car-shunning Europeans once and for all—poor Americans, at least.

That’s the latest gloomy forecast from Jeff Rubin at Canadian brokerage CIBC World Markets, who just a few months ago figured $200 oil would be a thing of the distant future—like 2012.

Jeff Rubin says the poor folks already can't afford gasoline:

Our analysis suggests that about half of the number of cars coming off the road in the next four years will be from low income households who have access to public transit. At their current driving habits, filling up the tank will have risen from about 7% of their income to 20%, an increase that will see many start taking the bus.

I keep hearing anecdotes in my real life of, for an example, an HR person researching existing telecommuting policies in a big corp and people talking to their bosses about it. Commuting costs have got people's attention. They are looking for relief.

Nick G said at June 27, 2008 10:15 AM:

"Money taken away from people for gasoline is less money to spend on mortgages."

Gas costs a lot less than mortgage payments. In the longterm, more efficient cars don't cost any more than less efficient ones (though they might be smaller, or have less leather). Even if you have to buy a more efficient car prematurely, which makes more sense: spending $5K for a premature transition to a much more efficient car, or paying $200K more for your home??

"gasoline prices scare people out of the risk of buying somewhere they can afford now but won't be able to afford if fuel goes up further"

Again, that's only if they keep their 20 MPG vehicle. If people aren't willing to commit to an efficient vehicle, why would they commit to a much, much more expensive housing option because of fuel costs?

"People were already reacting to higher gasoline prices in 2005. So an impact on housing prices seems obvious."

Gas prices were just starting to rise. At the same time, coincidentally, the housing bubble was breaking. Again, if SUV sales weren't affected in 2005 (and they weren't, not even the least bit), why would house prices be affected?

"$200 oil in 2010, with gasoline at $7 a gallon. "

Could be. It depends on consumption behavior - I think he underestimates how much people will reduce consumption. I think oil production will be at least level, exports will drop moderately, and overall world consumption will drop as much or more - Chase-Morgan just predicted a real drop in 2008. That would mean $100-130 oil is sufficiently high to make the market clear under current circumstances (oil production plateau).

"I keep hearing anecdotes in my real life of, for an example, an HR person researching existing telecommuting policies in a big corp and people talking to their bosses about it. Commuting costs have got people's attention. They are looking for relief."

That's good to hear. It's consistent with what I'm seeing.

Randall Parker said at June 27, 2008 6:10 PM:


The SUV sales picture is a lot more complicated than you suggest. Frmo a 2005 or 2006 report the truck-based SUVs peaked in 2000.

The SUV is dead. Long live the SUV. Sales of traditional, truck-based sport utility vehicles have declined by double digits - 13.5 percent overall, dropping by 400,000 units for 2005. The numbers are worse for large SUVs as sales of Ford Expeditions, Chevy Tahoes and Suburbans, GMC Yukons, Toyota Sequoias, Nissan Armadas and Dodge Durangos have plunged an average of 18 percent, dropping from 1 million units in 2004 to about 800,000 today.

Although some automotive journalists and industry analysts are writing epitaphs for the sport utility vehicle based on the declining sales of vehicles such as the Ford Explorer, Ford Motor Co.s U.S. sales analyst provided a different view when
Sales of traditional, truck-based sport utility vehicles have declined by double digits - 13.5 percent overall, dropping by 400,000 units for 2005. (Photo: Trevor Hofmann, American Auto Press)
he spoke to the Automotive Press Association at the Detroit Athletic Club on Dec. 8.

Although sales of truck-based SUVs are down from their peak of nearly 3 million units in 2000, "the total SUV market keeps growing," said Fords George Pipas.

The growth of SUV sales is coming from so-called "crossovers" or CUVs, which are car-based vehicles.

SUV discounting in the early years of the gasoline price rise cut into Big Three profits but kept SUV sales going. Also, more fuel efficient CUVs grew in popularity. So fewer SUVs, more aggressive discounting of SUVs, more CUVs, and smaller SUVs all showed the market responding to higher gasoline prices.

Here from an October 2005 report shows SUV sales dropping for a few years running:

SUV sales have fallen by 2 or 3 percent in each of the last few years, hurt by changing tastes and a rise in smaller car-based crossover vehicles, or CUVs. GM and Ford were hit especially hard this year by the downturn in sales of SUVs, their longtime cash cows, as surging gasoline prices accelerated the trend.

Despite a recent pullback in fuel prices from record highs, America’s big automakers reported significant sales slides in November. Light-truck sales at Ford fell nearly 18 percent last month, with some of its largest SUVs such as the Expedition falling nearly 44 percent in November from year-earlier levels. Sales of Ford’s popular Explorer SUV plunged 52 percent.

Again, the auto makers offered bigger rebates and other sales incentives as people became less willing to buy the big SUVs. The market shifted toward smaller SUVs and CUVs. This plunge in April and May takes the turn of the market to an even higher level. But the shift did not just start recently.

Nick G said at June 28, 2008 8:50 AM:

"Although sales of truck-based SUVs are down from their peak of nearly 3 million units in 2000, "the total SUV market keeps growing""

Yes, we do see a leading edge of response in sales of the very heaviest class of SUV. Makes sense: gas prices rise somewhat, and the very heaviest vehicles suffer, and demand moves to the next weight class down. People Reduce their purchase price and fuel consumption, and perhaps mostly restore their total cost of ownership to it's previous level. It helps restores one's flagging faith in the classical rational consumer.

This is what I was thinking of: http://www.greencarcongress.com/2008/06/light-truck-sal.html . We can see that in 2005 there was a mild overall response, but only in March of 2008 was there a really robust response.

Randall Parker said at June 28, 2008 4:12 PM:

Nick G.

At that link the graph shows a peak of SUV sales in 2004. The car companies couldn't keep increasing sales incentives and already the buyers had shifted to smaller SUVs and CUVs. The response really happened quite gradually.

One's flagging faith: A lot of rhetoric that the market wasn't curbing American driving habits came from people who hate SUV drivers and who hate the suburban lifestyle. They exaggerated the extent to which people were wedded to their SUVs.

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