It’s finally happened!
We’ve reached the elasticity conversion point!
According to a leftover press release I found floating in the piles of pulp on my desk (I was on jury duty; let me do the judging here.), gasoline consumption in California dropped for the first time since 1992.
In econo-speak, we are such slaves to our internal combustion climate-changers that demand for gasoline doesn’t follow the standard economic model. Normally, prices get very high for a commodity, people buy less of it. Gasoline, however, is inelastic, so we have for decades continued to buy the same amount when prices were down as we did when they seemed way too high.
Those who follow the ups and downs of gasoline prices have wondered, then, how ridiculously high prices would have to go before demand started to flex a bit, i.e., the elasticity conversion point.
In short, we’ve felt the pain and we’re there.
Only in California were gas prices close to or above $3 for the nine months that ended in December. While the rest of the nation continued to slurp up petrol, California cut back a little. It’s just 1 percent, but it shows a convincing (to me, anyway) link between $3+ gas prices and consumption.
We drove less for a change. We started driving hybrids. We got new tires. I don’t know how it happened, but I know that it did.
Perhaps the oil companies, as some conspiracy theorists will suggest, have been probing to find that conversion point. If so, they found it. From here, the theory dictates that they will now have to back off the price so it’s just a tick below $3 all the time.
I’m not much for conspiracy theories, however, except the one about the election. That one’s hard to shake. What I do believe is what I read in the newspapers, which tell me that oil production isn’t going to get much better than it is now, but demand is going to keep going up, if not in California, in China, India and the developing world.
As dire as that sounds, it means that here in California, and soon in other parts of the world’s biggest CO2 producer, people will find ways to do more with less.
Graph from www.eia.doe.gov.