Environmental Economics

Big deal? With fewer miles driven state road funds won't need so much money

From the southernmost midwestern city (excluding St. Louis*) paper (Fall gas sales could hurt state road projeccts [sic]):

Reflecting a national trend, drivers bought fewer gallons of gas and traveled less on Kentucky roads this spring compared to last spring, according to new data gathered even before gas prices jumped to $4 a gallon [click on the thumbnail to the right for a graphic representation of gas demand].

And while the drop may be good for air quality, it's bad for the government pocketbook: Fuel sales are tied directly to funding for state and federal road projects, raising questions about paying for new roads and bridges and repairs to existing highways.

Already, the Kentucky Transportation Cabinet is predicting the state road fund won't meet projected collections for the fiscal year that ends this month.

The road fund would have to bring in $119 million in June to meet economists' January estimates that it would have $1.3 billion by June 30, the end of the fiscal year. That would be more than the $106 million average from the past 11 months, and more than the $117 million peak in August.

*Note: I suppose parts of Missouri could be considered in "the south."

I qualify as an experimental economics lab subject

From the inbox:

You were registrated [sic] at the experiment participant recruitment system of the Appalachian State University Experimental Economics Laboratory (APPEEL).

They'll remember walking 10 miles both ways (uphill)

Fuel costs may force some kids to walk:

Here's how rising fuel prices affect an organization with a fleet of 1,273 school buses: The Montgomery County school board today will consider giving Superintendent Jerry D. Weast emergency powers to make students walk farther to school, if need be, in the coming academic year.

Hat tip: TM

Gasoline demand is inelastic, says an economist (who could have been me)

The change in quantity demanded in response to $4 gas is not a question of "if" but "how much" (and "when"):

But figuring gasoline prices have jumped 25 percent just since Christmas, it seems logical to expect an even bigger dip in highway traffic. But Douglas Pearce, head of the economics department at N.C. State University, said gas isn’t like other consumer products.

“Gasoline has a demand curve that we would call ‘inelastic,’ which implies that if prices go up demand goes down, but not by very much,” he said.

Pearce said that’s likely because most people are locked into their lifestyle patterns, at least in the short term.

Changes that could significantly alter someone’s fuel consumption pattern, such as buying a more fuel-efficient car or living closer to work, aren’t short-term decisions.

Then there’s the inherent uncertainty of basing a decision on something as fluid as the price of gasoline.

“These are adjustments that take a lot of thinking, a lot of time, and you may not want to make those adjustments if you don’t know that the price is going to stay high or keep going up,” Pearce said.

That quote could've been mine! I called Gareth McGrath a bit too late I guess.

Brother, can you spare a dollar*?

Incentives matter.  John McCain understands that.  That's why he proposed this:

The Arizona senator proposed a $300 million prize for whoever can develop a better automobile battery, and $5,000 tax credits for consumers who buy new zero-emission vehicles. The latest proposal is in addition to his support for overturning the federal ban on offshore oil drilling.

"In the quest for alternatives to oil, our government has thrown around enough money subsidizing special interests and excusing failure. From now on, we will encourage heroic efforts in engineering, and we will reward the greatest success," McCain said in a speech at Fresno State University.

But, why does the government have to provide the incentive?  Shouldn't markets do that?  What am I missing? 

Must be time for a government bailout*

From CNN.com:

The skyrocketing price of fuel could "devastate" the airline industry and hurt the economy, according to a report from the Business Travel Coalition released Monday.

Pressured by rising fuel costs, major airlines could collapse as early as this year, the coalition said. The failure of just one airline could disrupt travel for 200,000 to 300,000 daily passengers and cause between 30,000 and 75,000 immediate job losses, said the coalition.

*Sarc

The long run elasticity of demand for gas

In the short run, the demand for gas is highly inelastic.  People have a hard time adjusting to higher gas prices quickly.  The first thing you might expect to see is people finding ways to adjust behavior to consumer less gas--like combining errands into a single trip, or walking more (check and check).  But in the long run, people have time to make bigger adjustments: like switching to more fuel efficient cars (check),  But how high do prices have to go before people start taking even more drastic measures like moving closer to work?  I don't know for sure, but if this story is any indication, it looks like about $4.00 per gallon.

It may seem a bit drastic, but more and more people are taking what is perhaps the ultimate step in cutting gas prices: They're moving.

And who would we expect to move first?  Those with more flexibility.  Renters.

Gas prices: 1979 vs 2008

Share this one with your intro micro students:

Joe Nagy, a 74-year-old Wilmington resident, has a different perspective, saying he is tired of all of the complaining about gas. He recalls the lines outside gas stations in Brooklyn, N.Y., during the gas shortage of 1979.

Lines were long - he waited 2 or 3 hours at times for 3 gallons - and tempers were short. Nagy said he witnessed fistfights.

"There was always some jerk trying to jump the line," he said. "The price is high now, but at least it's still available. That's a big improvement."

The effect of gas prices on recreational fishing

In southeastern NC:

Many charter fishing and recreational boat captains are selling their boats or staying closer to shore to save gas. Others are docking their boats, hoping gas prices will drop.

Our three year anniversary is today ...

... and I didn't get you anything.

On June 21, 2005 we launched this blog with incredible chutzpah (blog name: Environmental Economics [i.e., we are the voice of an entire field of study]) and these three posts:

1. New environmental economics blog
2. Environmental economics defined
3. Weblog defined

Since then we've enjoyed 1,263,582 page views (an average of 1153.96 per day, the exponentially smoothed trend line is to the right) and an untold number of minor humiliations.

I'm fully prepared to try this for another year. Par-tee-on!