Gas Prices Fall Too Soon – Hobart and William Smith Colleges \
The HWS Update

Gas Prices Fall Too Soon

Associate Professor of Economics Tom Drennen is quoted in a Boston Globe article today that looks at drivers’ habits now that gas prices have started to fall. Drennen, who predicted more five years ago that gasoline would have to reach four dollars before significant driver habit and policies would change, says in the article that the $4 pricing may not have lasted long enough to have a long-term effect.

“I think if they had stayed at four bucks for awhile longer you really would have seen dramatic change in people’s behavior,” Drennen is quoted as saying in the article. “Now we’re being hit with a double whammy. Credit is so bad and the lots are overflowing with SUVs that people sold when prices went up, so now is a really good time to get a deal on a SUV.”

In fact, the article quotes a consumer with a large SUV as shrugging the “gas guzzler” off as being American. The article says Drennen is concerned that the lower prices will cause others to again embrace the larger, less fuel-efficient vehicles.

A member of the HWS faculty since 1995, Drennen earned a B.S. in nuclear engineering from the Massachusetts Institute of Technology, an M.A. in Public Affairs from the University of Minnesota, and a Ph.D. in resource economics from Cornell University. In 2006, he received the Hobart and William Smith Excellence in Teaching Award.

Drennen is the author of a new book, “Pathways to a Hydrogen Future,” which seeks to untangle competing visions of a hydrogen economy, explain the trade-offs and obstacles, and offer recommendations for a path forward. The results are based on “The Hydrogen Futures Simulation Model,” developed at Sandia National Laboratories, where he is senior economist.

 The full article as it appears in the Boston Globe is below.


The Boston Globe
“Old habits return fast

As gas prices fall, some drivers are less worried about being fuel efficient”
By Erin Ailworth and Dave Copeland • Globe Correspondent • October 30, 2008

When gasoline prices soared over the $4-a-gallon mark earlier this year, many drivers hit the brakes. They cut back on consumption by consolidating errands, putting their SUVs in mothballs, flocking to public transportation, and trading in road trips for “staycations.”

But as prices at the pumps have fallen dramatically in recent weeks at Massachusetts gas stations, to as low as $2.19 a gallon, some drivers are returning to their former gas-thirsty habits, as they have historically done when prices spike and then recede. Recent state figures show a modest uptick in gas tax collections, meaning more gas is being sold.

“People get complacent overnight,” said Mary Novak, an energy economist with the Waltham forecasting firm Global Insight. “Every time I have gone by a gas station [recently] there are people in it. And, you know, when it was $4 a gallon, there weren’t. People were conserving.”

The state average is about $2.64, the lowest since April 2007, according to a weekly AAA Southern New England survey.

A change in driving habits is not the only effect of plunging oil prices. In fact, oil closed at $67.50 a barrel yesterday, nearly 54 percent below its July high of $145.29 – a key reason the Federal Reserve said it was comfortable cutting interest rates. The Fed had worried that sharply higher energy prices would cause inflation.

The effects of less expensive oil will also be felt elsewhere in the economy. Homeowners who heat with oil may not have to bundle up quite as much this winter – heating oil now averages $2.98 a gallon in the state, down from $4.71 in July. The trucking and airline industries, both susceptible to swings in fuel costs, also will reap savings.

Overall, as energy prices recede, more money ends up in the pockets of consumers, whose spending accounts for about 70 percent of the US economy.
At the South Bay shopping center in Boston last week, Steve Madden, a Mattapan plumber, said he has never been concerned about burning less fuel. “When gas prices are up, they’re up. You’ve got to get to work, you know,” he said, gesturing toward his Ford Explorer with a shrug. “Gas-guzzler. I’m an American.”

Tom Drennen, an economics professor at Hobart and William Smith Colleges in New York, worries there are lots of drivers like Madden. Because $4-a-gallon gas didn’t stick around long enough to have a lasting impact, he said, consumers are likely to again embrace large, low-mileage vehicles.

“I think if they had stayed at four bucks for awhile longer you really would have seen dramatic change in people’s behavior,” Drennen said. “Now we’re being hit with a double whammy. Credit is so bad and the lots are overflowing with SUVs that people sold when prices went up, so now is a really good time to get a deal on a SUV.”

Kate McGuire, who was loading groceries into her car outside a Boston Stop & Shop last week, admitted she is not as quite vigilant about driving less as she was during the summer when the average price peaked at about $4.09.

“It’s still [about] trying to conserve, but I guess it’s on my mind a little bit less,” said McGuire, who lives in Dorchester.

South Boston resident Mimi Hall, however, has not forgotten how much it cost to fill her car’s gas tank just a few months ago. She began using a supermarket discount card to buy gas when prices were higher and has no plans to stop.

“If you’ve learned how to save a buck, you don’t want to rewind that,” Hall said.
But some drivers seem to be reliving the recent past. Gas tax collections in Massachusetts rose about $461,000, or less than 1 percent, from August to September, according to the state Department of Revenue.

Overall, however, gas consumption nationally still remains down year-over-year. The US Department of Transportation reported last week that Americans drove 15 billion fewer miles in August than they did in August 2007, a 5.6 percent decrease. But those numbers could reflect the slumping economy, which is curbing oil demand.

Consumers saw gasoline prices spike and then fall – with corresponding dips and rises in consumption – following Hurricane Katrina, the terrorist attacks of Sept. 11, 2001, and both Persian Gulf wars. But Phil Flynn, an analyst and oil trader with Alaron Trading Corp. in Chicago, said it took the Middle East oil embargo of the 1970s to really shock drivers, and prompt automakers to develop more fuel-efficient cars. Even though gas prices stayed high for an extended period, Flynn said, demand eventually began to go up again, reflecting “economic good times,” and larger cars returned to the roads.

This time, Flynn is predicting that while gas demand may increase slightly as prices continue to fall, some fundamental changes are taking place because the overall economy is down.

“You have to look at the longer term outlook,” Flynn said. “Detroit is getting rid of the SUVs, fuel efficiency is in.”

As pump prices went up earlier this year, waiting lists for hybrids – especially Toyota’s Prius – got longer, even as sales of other vehicles slowed to a crawl.
Auto magnate Herb Chambers said his dealerships still have waiting lists for hybrids and the recently ended selling season for Vespa motor scooters also was strong.

“We just can’t get enough of them,” Chambers said of the hybrids.

Ray Ciccolo, president of Village Automotive Group, said hybrids also remain in demand at his company’s eight Boston-area dealerships. Unlike Drennen, the economics professor, he believes the summer’s high gas prices, coupled with federal mandates on automakers to improve gas mileage, have made a permanent difference.

“People that began to change their driving habits – taking the T or carpooling – are not going to stop doing that just because there was a precipitous drop in gas prices,” Ciccolo said. “The crisis shocked people into good behavior, and I think people are going to stick with it.”

But Newbury resident Craig Robitaille hopes at least one driver reverts to their old ways soon. He decided to sell his 1997 Chevrolet Suburban when gas hit $4 a gallon, and currently has it posted on Craigslist.

“I definitely don’t want to play that game again,” Robitaille said of his SUV days. “I hope gas prices go down enough that someone decides to take it.”
Erin Ailworth can be reached at eailworth@globe.com.