How $3 gas could push US drivers to shift

But consumption habits would only change if prices stay high.

By , Staff writer of The Christian Science Monitor

If there's a silver lining in sky-high gas prices, it ought to be this: The shock at the pump should spur conservation and hasten the quest for alternative fuels.

Whether it does or not, depends on what happens next, economists say.

If today's prices are a temporary spike, then consumer habits are unlikely to change. Some economists have been surprised at how little the nation's gasoline consumption has budged so far, even though prices are double what they were at the beginning of 2004. Americans are buying as many new vehicles as ever, and they have continued to favor light trucks over cars.

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But if gas prices stay high or keep rising, then the current level of around $3 per gallon may be a tipping point that results in new energy policies and fuel-conscious behavior.

"What matters ... is how permanent the [price] change seems to be rather than how high the spike is," says Peter Wilcoxen, an economist at the University of Syracuse in New York State. "Higher gas prices will definitely cause people to change their driving habits."

The price rise has already sent an important signal.

To politicians, high prices have exposed a more urgent need for measures that help the nation diversify beyond oil-based transportation. To consumers and producers of energy, the marketplace is providing an impetus for new products and resource-saving habits.

If current prices stick, experts say those twin forces could be significant.

For years, some policy experts and economists have argued that higher taxes on gasoline - or on fossil fuels in general - would be the most efficient way to curb demand for oil and promote alternatives. What the nation now faces is a kind of involuntary test of those proposals.

But it takes time for the impact to be seen. That's because gasoline is a classic example of a product where demand is, in economists' jargon, "inelastic." If prices rise 10 percent, demand may fall by only about 1 percent, some economists reckon.

In general, people still need to get to work and get their kids to baseball practice, regardless of the price of gas. To dramatically change their driving habits, they might need to buy new vehicles or move or change jobs to cut commuting distances. Those decisions don't happen quickly for most people.

But over a longer stretch, such changes will happen in proportion to the severity of gas prices. Already, there's evidence that drivers are adapting.

Some are shifting to mass transit. At auto dealerships, many have been opting for carlike sport-utility vehicles, while the largest SUVs have become a tougher sell.

And they are conserving. Gas stations pumped a bit less gas in 2005 than in 2004. The change wasn't dramatic, and the amount still totaled a world-leading 3.3 billion barrels. But in an economy growing at better than 3 percent, any decline shows a shift in consumer behavior.

Clearly, the gas-pump squeeze is resonating in Washington, as officials hear from frustrated voters.

That's why many politicians are pushing to offer consumers relief from high gas prices, either by issuing a direct rebate or suspending federal taxes on the fuel.

The federal tax has been 18.4 cents per gallon since 1993.

Instead of talking about how to provide tax relief, however, some economists argue lawmakers should be considering the use of a new tax as a kind of floor for prices. That in turn would affect not only drivers' habits but also corporations' willingness to invest in alternative fuels.

Sen. Richard Lugar (R) of Indiana, in an energy policy speech in March, urged this kind of approach, proposing that the federal government set a floor of $35 a barrel for oil through a revenue-neutral tax.

The idea of a continued high gas prices doesn't seem like a benefit to most consumers. But there's evidence they also recognize the nation's long-term stakes.

In a recent New York Times poll, a majority of Americans said they'd support a gas-tax hike if it reduced the nations dependence on foreign oil, or if it reduced both global warming and US gasoline consumption.

"The debate in Washington seems to be going in exactly the wrong direction, with both parties falling all over themselves to see which can produce the lowest gas prices," says Dr. Wilcoxen, an expert on policies to address climate change.

He supports the idea of a "carbon tax," which might be reduced or eliminated during price spikes. Others say that the carbon tax is a political nonstarter, but that other policies are needed.

America and the world relies too precariously on oil supplies from unstable regimes in the Middle East, they say, to simply wait to see if market forces will do the job.

"I don't think it can be done without policy," says Gal Luft of the Institute for the Analysis of Global Security. He helps run a lobbying campaign called "Set America Free," which envisions incentives for biofuels, promotion for plug-in hybrid vehicles, and cooperation with other nations to reduce oil use.

Some observers, meanwhile, have more confidence in the ability of marketplace forces. "Consumers aren't idiots," says Jerry Taylor, an energy expert at the libertarian Cato Institute. "So they will act."

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