With gas and diesel prices soaring due to the war on Iran, we decided to check in with USC Price Professor Marlon Boarnet, Director of METRANS Transportation Consortium, to see how they may affect the transportation sector.
Boarnet is a renowned authority on urban economics, urban growth patterns, transportation, and regional science. He is an expert in transportation and land use, and has served on the National Research Council committee that authored “Driving and the Built Environment.”
METRANS is the center for transportation research at USC and has partnerships with over a dozen universities worldwide.
What are the long-term implications for the transportation sector from the spike in gas prices?
Gas prices move up and down all the time. In the 2000s, the within-year change in gas prices was never smaller than 45 cents per gallon, which was around 15-20 percent of gas prices at the time. Of course, what we are seeing now has happened more quickly.
I say all that to note that if gas prices return to the pre-February level, there may not be any long-term implications for the transportation sector. The implications are for people’s pocketbooks, and quick increases in prices are never welcomed.
Oil trades on a global market and is subject to a large number of factors that create price movements. We have done little in the U.S. to think about how we might shield consumers from these fluctuations, of which the most recent round is, to repeat, only the most recent.
How might a suspension in the federal tax on gas and diesel affect transportation?
The gas tax is the primary source of federal transportation funding, and in many states the primary source of state transportation funding. Suspending the gas tax will mean less revenue for transportation. Depending on the length of time and the revenues lost, that could mean less maintenance or fewer projects built.
Do policymakers have any other options for lowering the cost of fuel?
Not really. Oil trades on a global market, and the price is set by global supply and demand. The federal gas tax is 18.4 cents per gallon and has not changed since 1993, meaning that its buying power has been considerably eroded by 33 years of inflation. California’s gas tax was set to 18 cents per gallon in 1994 and similarly did not change until 2017, at which time Senate Bill 1 increased the gas tax and allowed future adjustments for inflation. California’s state gas tax is now 61.2 cents per gallon, but remember much of that increase was catching up from 23 years of inflation.
Oil, and hence gasoline, trade in volatile markets subject to global pressures. Interestingly, the best long-term protection that governments could give would be to create circumstances where people have alternatives to buying gasoline. A future of electric vehicles, charged by renewable energy (in most cases the cheapest source of power generation), could give more price certainty. And it is the uncertainty – the world where gas cost $4 per gallon last year and is over $6 per gallon now – is what really hurts consumers.
Will this latest price shock have any lasting implications for the transition to renewable energy?
The answer depends on what lessons car buyers draw. If gas prices drop in a few months and if people think that lower prices are normal, there may be no long-term change in consumer demand for EVs powered from renewable energy. There may be some short-term increase in demand for EVs, but vehicle purchases are a long-term decision.
More likely factors that will spur a transition to EVs include increasing car options at the lower end of the price spectrum and the growth of a second-hand (used) EV market. And charging solutions. Finding ways to bring at-home charging to more households, including the 50% of Los Angeles County households who live in rental units, would likely help spur demand for EVs.
