In January 2003 the average retail price for a gallon of gasoline in the United States was $1.50–roughly equal to the real (inflation-adjusted) price during much of the preceding half-century. Since then, the price of gasoline has risen sharply. It was last below $2 per gallon in February 2005, and for much of 2007, prices topped $3 per gallon. This Congressional Budget Office (CBO) study examines the scope and intensity of consumers’ responses to the upward trend in gasoline prices that began in 2003. Those responses have been large enough to interrupt a pattern of steady growth in total gasoline consumption dating back to 1990, the last time U.S. gasoline prices rose substantially. If current high prices–and consumers’ responses to them–persist, the effect on overall gasoline consumption will grow stronger as older, less-fuel-efficient vehicles are retired and as consumers consider other, less easily implemented adjustments to their patterns of consumption. The 100 percent increase in real U.S. gasoline prices since 2003, which is larger even than the record increases of the early 1980s, has induced motorists to adjust their driving habits and the types of vehicles they purchase. Those responses have important implications for the future fuel efficiency of the passenger vehicle fleet, for the way vehicles are driven, and for the use of the nation’s highway and mass transit networks should higher gasoline prices persist. The findings of this study are thus relevant in assessing the impact of policies that seek to encourage greater fuel economy and promote more-efficient patterns of driving. In preparing this study, CBO analysed data on trip frequencies and speeds on several California highways from 2003 to 2006. CBO also gathered and analysed data on U.S. sales of new and used vehicles over the same period. The data show that consumers have responded in a variety of ways to higher gasoline prices. The effect has thus far been small, which is consistent with current estimates of the short-run responsiveness of gasoline consumption to changes in price. That effect would be expected to increase if prices remained high. (Author/publisher)
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