EIA: Gas prices don’t affect miles traveled

| December 17, 2014

The price of gas has little impact on how much people travel by car, reports the U.S. Energy Information Administration, though Americans certainly seem to think it does. Gas is a “relatively inelastic product,” which means that price drops (or hikes) don’t influence demand much. The EIA’s report may run counter to commonly held logic, yet recent data will provide a compelling case: the average price of gas in the U.S. fell 28% from its average peak of $3.70 this year to $2.68 on December 8, but the EIA expects car travel to remain the static.

Standard gas station

Gasoline cost $0.265/gallon in 1966. Let that sink in a little bit. Image from the Orange County Archives.

Americans themselves seem to think differently. A U.S. Travel Association survey in 2012 found that the majority of those polled claimed they would change their car travel plans due to then-rising gas prices. As USA Today reported, “54%, of leisure travelers who planned to travel by car say higher fuel prices would affect their plans. A smaller percentage, 26.8%, of business travelers would reconsider their plans.”

This holiday season, there are more predictions that falling gas prices will lead to higher car travel rates. As the Los Angeles Times reports, AAA is expecting a 4% increase in the number of Americans traveling 50-plus miles from home during the season. And a GasBuddy.com survey suggests that gas prices will impact car trips, with nearly a quarter of the polled travelers claiming that cheaper gas will allow them to travel further. (The price drop will also allow them to buy more gifts (35%); spend more on food (11%), and upgrade their accommodations (8%).)

As the EIA reports in its research, auto travel in the U.S. is not very elastic, and it’s becoming even less so. (Check out graphs comparing regular gasoline price with U.S. vehicle miles traveled here.) While the gas price elasticity is currently estimated “in the range of -0.02 to -0.04 in the short term, meaning it takes a 25% to 50% decrease in the price of gasoline to raise automobile travel 1%.” But in the 1990s the price of gas was actually more elastic. Back then, “it only took a 12% decrease in the price of gasoline to raise automobile travel by 1%.”

Time and analysis will tell whether Americans traveled more this season as a result of the falling costs of car travel. But, in the meantime, as the EIA reports, there are other interesting factors that lead to the decrease in gas’ price elasticity — beyond the price you pay at the pump. There is no absolute rule in determining how elastic a price is: factors like income, fuel efficiency, demographics and driver behavior, among others, all wield influence. But there are a few potential reasons for why gas price elasticity has dropped over the last few decades, including:

  • We’re traveling fewer miles by car. By and large, VMT stalled in the late 1990s and has continued to decline recently.
  • Baby boomers are retiring, and driving less than working-age generations.
  • We’re moving to cities. The population is increasingly moving to urban areas, where cars are less necessary (or even undesirable), over suburban and rural areas.
  • There are fewer younger drivers. Young people are delaying or avoiding getting drivers’ permits and licenses.
  • Households are spending less income on auto gas expenses. EIA explains: “As gasoline represents a smaller share of household expenditures, drivers may be less sensitive to fluctuations in price.”

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Category: Transportation

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