As Americans enjoyed a dip in fuel prices for Thanksgiving, a reminder that travel alternatives will matter if prices spike again

If pump prices again reached painful levels, most Americans say they would use a different form of transportation, or just drive less. Only 20% of consumers say they would switch to a smaller, more fuel-efficient or electric car. 

Gas prices dropped in time for the holiday season, with the South and Midwest seeing prices as low as $2.28 to $2.52 per gallon last week. But as a decade-high 54 million Americans hit the road travelling 50 miles or more for their Thanksgiving plans, it’s worth pondering our options if the country were again hit with much higher oil prices.

One of the questions we ask in the U-M Energy Survey is about how Americans would change their travel choices if they felt really pinched by gasoline prices. Using nationally-representative data from the past five years, including periods when pump prices were much higher than they have been recently, here’s what we found.

The most frequent response, given by 46% of American consumers, was that they would use a different form of transportation to get around. That could include buses, trains or other forms of public transportation as well as biking or walking. The number two choice was combining trips or driving less, the answer given by 36% of consumers. 

Notably, only 20% said they would drive a more fuel-efficient vehicle, such as a smaller car, an electric vehicle (EV), or even a motorcycle, moped or the like. This figure stands in stark contrast to the high levels of publicity around efforts to rapidly shift mass-market consumers to alternative powertrain technologies. 

Source: University of Michigan Energy Survey data through Summer 2018

Early this year we added a specific option for respondents to denote whether they’d use a ride-hailing service such as Uber or Lyft, or what is termed “mobility as a service,” if gasoline became too costly. Only 2% of consumers said they would turn to these options, or use home delivery alternatives (such as ordering things online) or even ditch their cars altogether if gasoline became too expensive.

While most Americans likely won’t be abandoning their personal cars and hailing a ride-for-hire to get to where they need to go even if pump prices spike again, the use of such services is growing among many millennials, who seem happy to ditch car ownership and find other ways to get around. Moreover, ordering everyday goods from Amazon and using other home delivery options are increasingly popular. These services clearly offer value to consumers due to their convenience. Nevertheless, our survey results suggest that, at least so far, few consumers say they would turn to new mobility services if fuel prices began to pinch. 

These survey responses are broadly consistent with economic studies of gasoline prices and consumer behavior showing that higher fuel costs result in both decreased driving and increased fuel economy. This signal of expected behavior change, or elasticity to fuel price, is why a carbon tax or a cap-and-trade program that covers the transportation sector is one way that policy makers could move the needle on alleviating transportation emissions. 

Regional differences in expected travel behavior changes

Gasoline prices can vary considerably state-to-state. Likewise, some regions have more public transit available or higher presence of shared mobility services than others. Using the same pooled U-M Energy Survey data, the graph below shows consumers’ top three responses broken out by census division, with all central U.S. regions combined given the similarity in their responses. We find some significant differences across the country in how consumers expect they would change their travel behavior if faced with too much pain at the pump. 

Source: University of Michigan Energy Survey data through Summer 2018

Roughly 55% of Pacific Coast (California, Oregon,Washington) residents said they would start walking, biking or using public transit more. Interestingly, consumers located in Mountain region states were next most likely to give such a response. Another obvious way to mitigate high fuel costs is to just drive fewer miles in one’s own vehicle, and regions varied notably on the extent to which consumers said they’d likely drive less if fuel become more difficult to afford. Residents in central region states (Dakotas and the Midwest down to Texas through Alabama) were least likely to say they would switch to different modes of transportation while being most likely to say they would respond by driving less. 

One transportation alternative of interest is switching to a more efficient, smaller or electric vehicle. New England and Pacific consumers were the most willing to make such a choice. This heightened willingness could reflect greater awareness of such options in these regions, where a number of states have programs to promote EVs and build networks of charging stations. Moreover, the denser populations in coastal areas are better matched well for battery ranges. On the other hand, residents in the Mid-Atlantic states (NJ, NY, PA) were least likely to say they would use a smaller, more fuel-efficient or electric vehicle. Less surprisingly, a low level of interest in such options was found in the central states, which generally have seen less promotion of alternative vehicles and supporting infrastructure, and where consumers may feel a need to have more highly capable vehicles and be able to drive long distances. 

American travel behavior is in flux as new options emerge and transportation becomes part of the internet of things. Lyft is rumored to pursue an IPO next year while autonomous vehicles are eyeing center stage. How Americans make these choices down the road will have significant implications for transportation sector greenhouse gas emissions. And if higher prices return while new mobility alternatives become more available and accepted, we may see the acceleration of a new era in transportation that, in the minds of most consumers, has barely begun to unfold. 

 

Consumers remain comfortable with home energy costs while pump prices edge up

Source: GM Media Stock ImageAlthough the recent rise in pump prices has dampened views on the affordability of gasoline, Americans remain generally content with what they pay for home energy. Our latest analysis, using the Spring (April) 2018 data from the U-M Energy Survey, yields a home energy affordability index of 126 (±10). Although the previous quarter (Winter 2018) saw a nominal dip in this measured of perceived affordability, this latest value remains in line with what the index has been for some time now. In short, consumers are on average comfortable with what they pay to heat their homes and run the appliances, lights, electronics and other energy-consuming devices they use in their everyday lives.

As seen in the chart below, which compares the Energy Survey’s affordability metric for home energy with that for gasoline, the Spring 2018 value is quite close to the long-term average index of 125. That means that monthly energy bills would have to rise by 125% — that is, more than double — before average consumers feel that they would have to make some changes in their day-to-day lives because of home energy costs.

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Carbon taxes and the affordability of gasoline

One of the options on the table as policymakers grapple with climate disruption is a carbon tax. Many economists favor such an approach, which would motivate businesses and consumers to make choices that progressively lower the net emissions of carbon dioxide (CO2) and other greenhouse gases that cause global warming. But how would Americans feel about a policy that, among other effects, will raise the price of gasoline?

The U-M Energy Survey routinely asks consumers how much they feel they can afford to pay before their costs, for both home energy and gasoline, become so high that they would have to make changes in their daily lives. The resulting answers about consumers’ thresholds for “pain at the pump” enable us to assess how a carbon tax would affect American consumers’ feelings about the affordability of gasoline.

This report describes the findings, focusing on the carbon tax level of $40 per ton of CO2 that has been proposed by the Climate Leadership Council. The analysis also examines the effect of lower and higher carbon taxes, of $10 and $100 per ton, respectively, as well as how such taxes would affect different groups of consumers by income.

It turns out that with a $40 per ton carbon tax — which translates to an added 36¢ per gallon at the pump, gasoline would still be considered affordable by over 90% of Americans. That finding is based on survey responses relative to an average base gasoline price of $2.80 per gallon, which such a carbon tax would bump up to $3.16 per gallon.

Over the nearly four years of U-M Energy Survey data analyzed to date, the gasoline price that consumers say they would find unaffordable has generally been more than $5 per gallon. So that leaves a good bit of leeway between recent prices and the price levels likely to result from low to moderate levels of a carbon tax.

Looking more closely at the data, however, reveals how views on fuel affordability vary by household income. A $40 per ton carbon tax would push 14% of low-income consumers into the zone where they feel that they would need to make changes in how they travel. However, such a tax would just put 7% of middle-income and only 4% of high-income consumers into a situation where, according to their survey responses, they would feel that gasoline becomes costly enough for them to change how they get around.

For further details, download our full report on Carbon Taxes and the Affordability of Gasoline

 

A carbon tax would not cause too much grief at the gas pump

ANN ARBOR — A new report from the University of Michigan Energy Survey offers insight into how American consumers would react to a carbon tax. A tax of $40 per ton of carbon — which adds 36¢ per gallon to the price of gasoline — still leaves more than 90% of U.S. consumers inside their comfort zones for fuel prices and travel choices. But the report, based on asking consumers how much they feel they can afford to pay for fuel, also finds that much greater pressure would be felt by consumers in the lower third of the distribution by household income.

Launched in fall 2013 when fuel prices were much higher than they are now, the U-M Energy Survey polls a nationally representative sample of Americans about their views on the affordability, reliability and environmental impact of energy. These energy-related questions are appended four times a year to the University of Michigan Surveys of Consumers, the in-depth telephone interviews that are the source of the well-known Index of Consumer Sentiment.

Interviewers ask consumers how much the price of gasoline would have to rise before it would cause them to change how they get around. Researchers compare those responses to actual gasoline prices and to consumers’ self-reported incomes as also tallied by the surveys.

“On average, consumers said that gasoline would have to be over $5.00 per gallon before they would consider it unaffordable,” says John DeCicco, the survey director and a research professor at the University of Michigan Energy Institute. “So there is a good bit of leeway for a carbon tax to be added before most Americans would experience serious pain at the pump.”

Earlier this year, a group of Republican elders and business leaders formed the Climate Leadership Council to advance a carbon tax, which would place a levy on energy sources in proportion to how much carbon dioxide (CO2) they emit, as a conservative solution to global warming. Their proposal calls for taxing carbon at $40 per ton while rebating revenues back to consumers through dividends and reducing the regulations imposed on business.

Relative to a base level of $2.80 per gallon, that would push the pump price up to $3.16 per gallon. The number of Americans who would then find fuel to be unaffordable would rise from 2% to 7.5%, still keeping over 90% of consumers below their thresholds for pain at the pump.

“However, these average findings mask significant differences in consumer views,” DeCicco points out. “We found a wide range of answers to our question about the price of gasoline.”

The new report takes a close look at the responses of consumers from across the spectrum. Some consumers already feel that gasoline is unaffordable at $2.80 per gallon, the average price over the nearly four years since the survey was launched. On the other hand, every survey sample found some consumers who replied that gasoline would have to exceed $10, $20 and even in some cases over $50 per gallon before it would prod them to make significant changes in how they get around.

Because consumers’ views of affordability depend on their income, the U-M analysis grouped survey respondents into thirds (terciles) — low, middle and high — according to self-reported income.

“A carbon tax of $40 per ton would push 14% of low-income consumers to where they feel they would have to significantly change their travel choices,” DeCicco noted. “In contrast, 7% of middle-income and only 4% of high-income consumers would find themselves in that situation.”

The study also examined lower and higher taxes of $10 and $100 per ton of carbon, implying 9¢ and 89¢ more per gallon, respectively. The $10 tax would have little effect. But at $100 per ton — a level that some economists say is needed to deeply cut carbon — 21% of low-income consumers would feel that gasoline is unaffordable.

Many carbon tax proposals, including the one from the Climate Leadership Council, include dividends for consumers. But policymakers can find many ways to use new tax revenues. The survey findings highlight how targeting rebates for low-income households would help the Americans who most feel that higher pump prices will impact their daily lives.

Regarding the unique approach taken by the U-M Energy Survey, “We assess each individual’s personal feelings about the price of fuel based on their own needs and experience,” DeCicco explains. “Moreover, we do so independently of the reason for a price change, so that we avoid pushing  people’s buttons, so to speak, by framing the survey in terms of taxes, climate action or other potentially volatile policy issues.”

For more on these findings, see https://www.umenergysurvey.com/carbon-tax-how-much-too-much/ and download the full report, “Carbon Taxes and the Affordability of Gasoline,” at http://www.umenergysurvey.com/assets/C-taxG-aff_12Sep2017.pdf

The Energy Survey is a quarterly rider on the University of Michigan Surveys of Consumers, which can be accessed at http://www.sca.isr.umich.edu/. For more information about the participating research units, visit the websites for the Energy Institute at http://energy.umich.edu/ and for the Institute for Social Research at http://home.isr.umich.edu/.

Contact:

Amy Mast, Energy Institute communications director, at amymast@umich.edu, 734-615-5678

John M. DeCicco, Ph.D., U-M Energy Survey director, at DeCicco@umich.edu, 734-764-6757

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Download this press release in PDF format here

A carbon tax: how much would be too much?

Even in a debate as heated as the one over global warming, recent proposals by some Republican elders offer hope that cooler heads might one day prevail. They propose a conservative way to address climate risk: harnessing market forces with a carbon tax while refunding dividends to consumers. If such an approach is in the cards, what would it mean for consumers, particularly for buying gasoline without too much pain at the pump?

The University of Michigan Energy Survey asks consumers how much they can afford to pay for energy before the cost becomes so high that they would have to significantly change their lifestyle. The responses are the basis for the affordability indices we publish seasonally, one for home energy and the other for gasoline. Although we don’t ask explicitly about a carbon tax, our data equip us to estimate how many consumers would be pushed outside their comfort zones by a tax of a given magnitude.

Photos of James A. Baker III, Bill McKibben, George P. Shultz and Laurene Powell Jobs

Supporters of a carbon tax include (clockwise from upper right): Bill McKibben, George Shultz, Laurene Powell Jobs and James Baker.

The Climate Leadership Council — whose headliners include former GOP cabinet members James A. Baker III, George P. Shultz and Henry M. Paulson, Jr. — has floated a proposal to tax carbon dioxide (CO2) at $40 per ton. A carbon tax of that level translates to an added 36¢ per gallon at the pump.

Motor fuel is less expensive now than it was three years ago; the national average spanning the period of higher prices through the most recent data is $2.80 per gallon. A $40 per ton carbon tax would bump the price to $3.16 per gallon. Based on our survey responses, that price would still be considered affordable by more than 90% of Americans. It is well below the $5.00 per gallon level typical of the average response to our survey question, which asks:

At what price per gallon would gasoline get so high that it becomes unaffordable to you (and your family)? 

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Consumers’ perceived affordability of gasoline rises with income, but not by as much as one might think

Results from the U-M Energy Survey give us unique insights into how consumers feel about the affordability of motor fuel, which is a major concern for many Americans. The overall gasoline affordability index — which we update quarterly in Energy Survey Indices sidebar on our home page — reflects the average view of all consumers nationwide. It blends together the responses of our diverse, nationally representative sample, averaging over their socioeconomic backgrounds as well as gender, race, age and geographic location. 

Naturally, we expect consumers’ incomes to affect how affordable they perceive energy to be. This is true in general, with higher income consumers reporting higher levels of affordability. However, we also find that the perceived affordability of gasoline does not rise as much as one might think given the large spread in household income across the population. 

The chart below shows how the affordability of gasoline varies according to the five income quintiles, where each quintile represents 20% of the population. It plots the gasoline affordability index by quintile of self-reported household income over the 11 quarters of Energy Survey data gathered to date. The patterns through time are similar to the overall trends in the affordability index as previously reported. All consumers felt that motor fuel became much more affordable after gasoline prices fell in late 2014. Perceived affordability peaked this past January, when pump prices had fallen to a national average of $2.09 per gallon. Continue Reading

Consumers feel that gasoline is a bit less affordable than they said it was last winter

The affordability index for gasoline fell by 23 points from its mid-winter value of 152, which was based on the University of Michigan Energy Survey taken in January 2016. Although by April pump prices only went up 13 cents, to $2.19 per gallon, that was enough to push the gasoline affordability index down to 129. Back in January, when the U.S. average retail price of gasoline dipped to $2.09 per gallon, American consumers  felt that gasoline was more affordable than any time since our quarterly surveys started in October 2013.
pump-prices_2-19_06nov2016
Our affordability index is based on comparing the energy costs that consumers say they would find to be unaffordable to the actual costs — in this case, the average gasoline price — they experience when each quarterly survey is taken. As explained in our Overview of how the indices are calculated, an affordability index of 100 means that consumers believe energy prices would have to double (i.e., see a 100% increase) before they were considered unaffordable. In this context, “unaffordable” means that the energy cost has become so high that consumers feel they would need to change their day-to-day activities in some way. When consumers report that the price they find unaffordable is the same as what they currently pay, then the affordability index is zero.

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How affordable is our energy? Here’s what consumers say as of January 2016

The January 2016 University of Michigan Energy Survey finds a record high in how consumers perceive the affordability of gasoline. 

Over the past six months, consumers’ beliefs about the maximum price of gasoline that they feel they can afford has been on the rise.  The latest quarter of energy survey data — gathered from polling conducted in January 2016 — reveals a 40 point jump in the gasoline affordability index, from 112 in October to 152 in January.  On average across the United States, consumers paid $2.41 per gasoline for gallon.  Averaged across all demographic groups, Americans believe that gasoline would become unaffordable if it reached $5.48 per gallon.

Aff-indices-thru-Jan2016

A year ago, the January 2015 energy survey pegged the gasoline affordability index at 138, which was a new high at the time and reflected a large gain in consumer comfort about pump prices compared to the previous two years.  After dipping again over the remainder of 2015, the January 2016 data sets the new high at 152. Now, consumers believe that gasoline would still be affordable if its price increased by a factor of 2.5, corresponding to the 152% increase represented by the affordability index. (Background on how the the index is calculated from the survey data is given in our Affordability Indices Overview report.)

For home energy,  the affordability index of 137 in January 2016 remained similar to that of the previous quarters.  On average, survey respondents said that they paid $159 per month for their home energy. They told us that a monthly energy bill of $356 would be unaffordable. In other words, even if its cost were to slightly more than double, most Americans would still find home energy to be affordable in terms of their current lifestyle.

See our latest energy affordability report for more details.

Americans feeling much better about the price at the pump

The latest University of Michigan Energy Survey finds a 27 point increase in the gasoline affordability index; home energy affordability remains similar to what it was in the previous quarter. 

Last quarter, in July 2015, consumers believed that a doubling in the per-gallon price of gasoline would not quite be affordable. However, based on polling conducted during October 2015, the energy survey’s latest data reveal that consumers now feel that motor fuel is much more affordable. The gasoline affordability index jumped by 27 points, from a value of 85 in July 2015 to 112 as of October. Federal data show that nationwide, consumers paid an average of $2.41 per gallon in October. When we asked consumers how high the price would have to get before they thought it was unaffordable, the average response was $5.44 per gallon. The resulting affordability index of 112 indicates that, as of October, consumers believe that the price of gasoline would still be affordable even if it were to double.

Aff-indices-thru-Oct2015

Although the gasoline affordability index increased from the last quarter to the present, 112 was still significantly below its high of 138 in January 2015.

Consumers’ views of home energy affordability in October are similar to what they were over the previous eight quarters. In October, the home energy affordability index was 122, indicating survey participants believe more than a doubling in monthly costs would still be considered affordable.  In other words, consumers paid an average of $170 per month for their home energy needs and believed $342 per month would be their max affordability.

According to the latest energy survey data, Americans find gasoline and home energy to be similarly affordable, as seen in how the two trend lines nearly touch as of this past October.

See the Affordability Indices Overview for background on how each index is calculated.