When gas prices stopped diving, Americans again began to drive less

The most fundamental point in economics is that people respond to incentives. Make something cheaper to buy, and people will buy more of it. Make something more expensive, and they’ll buy less. That’s plainly the case when it comes to driving, and one of the biggest and most visible costs of driving is the price of a gallon of gas.

The relationship between prices and driving isn’t perfect and instantaneous. People make decisions about where to live, how far they’re willing to commute to work, whether to own a car (or a second car) and whether to use various other modes (cycling, transit and walking) on a long-term basis. But, especially over time, prices influence all of these decisions.

There’s a tendency in much of the literature to treat the elasticity of vehicle miles traveled relative to gas prices as something that adjust quickly on a daily or weekly basis.  But consumers are more influenced by larger and longer term changes in prices than short term fluctuations.  Day-to-day and week-to-week price changes are likely to be “infra-marginal”–too small to notice, and therefore too small to affect behavior. If the price of gas this week is a nickel or a dime less per gallon that a week ago, I’m not likely to do anything different.  But when prices are either much higher or much lower for an extended period of time–say a dollar a gallon higher than last year at this time, I’m much more likely to factor that into my decisions about how much to drive, what kind of vehicle I buy, where I look for housing or my next job and so on.  In essence, we can and should safely ignore the short term fluctuations, but pay a lot of attention to the longer term patterns.

Let’s take a look at the connection between gas prices and driving in the US over the past couple of decades. Our data come from the US Department of Transportation (which produces monthly estimates of the total number of miles driven in the US) and from the US Department of Energy, which tracks the retail price of gasoline on a weekly basis. To account for the effects of population growth over time, we’ve divided total miles driven by the US population, and estimated the number of miles driven per person per day in the nation. Gas prices are expressed in current dollars (i.e. not adjusted for inflation). On the following chart, gas prices are shown in red, and per person daily vehicle miles of travel are shown in blue.

Long Term Patterns of Vehicle Travel:  Four Phases

Over the past two decades, we’ve experienced four distinct phases in the price of gasoline and the attendant patterns of American driving.

Phase 1:  2000-2005:  The era of cheap gas.  Until 2004, gas prices in the US were less than $2 per gallon.  The consistent low price of gasoline led to steady increases in driving by Americans.  Toward the end of this phase, gas prices had risen somewhat, but these rises only slowly had an effect on travel behavior. By this measure, “peak driving” in the US was in June 2005, when Americans drove 27.7 miles per person per day. At the time, gasoline cost an average of about $2.13 per gallon. But by 2005, with gas prices exceeding $2 per gallon, the growth of travel slowed and then flattened out entirely.

Phase 2:  2005-2014:  Expensive gas:  From 2005 onward, gas prices were much higher than in the previous era.  American’s travel started to decline on a sustained basis, and then, with a spike of gas prices to more than $4 per gallon, combined with the great recession, vehicle miles traveled per person fell dramatically.  And even as the recession ended (in 2009), per person travel continued to decline.  During the first five years of the recovery, through 2014, gas prices rose back to more than $3.50 per gallon, and driving continued its slow and steady decline. By 2013, the typical American was driving about 25.7 miles, more than 2 miles per person per day less than at the peak.By 2015, Americans were driving fewer miles than any time in the previous 15 years.

Phase 3:  2014-2016:  Cheaper gas again. In the middle of 2014, oil prices–which had hovered near $100 a barrel––suddenly collapsed to less than half that level, and gas prices fell with them. Consumers reacted quickly. In April 2014, gas prices averaged more than $3.70 a gallon, and people drove an average of 25.7 miles per day. Some 22 months later, in February 2016, with prices averaging about $1.75 a gallon, consumers were driving about 26.7 miles per day, about 4 percent more.

Phase 4:  2016-2018:  A rebound in gas prices.  Over the past two years, gas prices have again trended upward, rising from less than $2 per gallon to nearly $3 per gallon.  As they’ve done so, the growth in per capita driving has slowed, and–once again–reversed.  Vehicle miles traveled per person peaked in late 2017, and have been trending down again since then.

The lesson here is clear:  Cheap gas produces more driving; Expensive gas leads Americans to drive less.  That fundamental relationship has important implications for the fiscal, social, and environmental consequences of car transportation.  As we’ve noted at City Observatory, more driving is directly implicated for the surge in road fatalities in the past five years. Cheap gas also generates more car traffic, congesting roadways and taxing infrastructure.  And with more miles driven by heavier vehicles, cheap gas is directly responsible for the growth in greenhouse gas emissions.

There’s a tendency to dismiss the importance of the price elasticity of travel demand by overemphasizing the weak short term relationship between gas prices and driving. But as the lesson of these four phases clearly illustrates, that’s a mistake.  Sustained high prices for gasoline lead to real reductions in vehicle miles traveled, in pollution and in car deaths.  If we price travel appropriately, consumers will make different decisions–one’s that significantly reduce the social and environmental costs of car travel.  Prices matter and should be at the heart of all of our efforts to cope with climate change and build stronger and safer communities.