Monday, 26 May 2008

Gas Price - How much is too much?

A very unscientific and informal polling of close circle of friends found out that the gasoline price would have to double to have a significant impact on the amount of driving my friends do.

Now, that doubling would mean that premium gasoline would have to cost a c. 3.1 EUR/litre (roughly 5 USD / litre).

Considering Americans are crying bloody murder already and they are paying a mere 4 USD/gallon (c. 1.3 USD / litre) for their gas - well, one has to pause to think.

Yes, Americans drive a lot. Everywhere. Some even drive to walk the dog.

Yes, Americans drive fuel hogs that slurp up a gallon of gas just to get started.

If Europeans, with much less GDP/citizen are already paying more than twice for their fuel could stomach another doubling of gasoline prices, then Americans still have a long way to go before any gas price hikes starts really to cut down on driving. Meaning that 90% switches to a lower fuel consumption car, second car (and third and fourth) car is sold, rides are shared and miles driven per year is reduced permanently by at least a quarter.

So, yes please, bring on the $200 barrel of oil. It's long overdue.

Of course the transport industry will be hurting by then and lobbying for gasoline tax breaks through transport strikes.

And if the UK and France 2000 experiences are any indication, governments everywhere will cave in. They will have to and transport is the lifeblood of the global JIT economy.

So, if in Europe the price of gasoline has a significant tax portion, which is likely to get reduced as oil prices rise, the question remains whether even $200 per barrel enough?

What is the real limit that breaks our silly driving habits - both in the US and in Europe - not to mention the developing countries that are subsidizing domestic gasoline use like madmen.

Only time will tell - and not a moment too soon.