[extropy-chat] Debate on Peak Oil

[Hal Finney]

On Mon, Apr 25, 2005 at 08:40:41PM -0700, spike wrote:
> Has there been sufficient consideration of the great potential
> to cut oil consumption?  An unspoken blessing of the US
> appetite for gas guzzling SUVs is that we have the potential
> to cut way back in short order just by driving the less-used
> second car.

Yes, this can happen to some extent, but not everyone has two cars or
can substitute them in this way.  Still I think you are right that as
gas prices rise there are a number of short-term things that people
can do which can modestly reduce demand - carpooling, taking the bus
or train, shortening vacations, consolidating short shopping trips.
5 or 10 percent reduction is probably possible without too much pain.

One issue is that commercial transportation also uses a pretty good
percentage of imported oil, and that is already very efficient.  Business
has plenty of incentive to pare expenses down to the bare minimum in
order to gain a competitive advantage, even when fuel prices are modest.
Not much savings will be possible in this sector.

Another thing that doesn't work too well is replacement of the vehicle
fleet by higher mileage cars and trucks.  All those SUVs are going
to be on the road for years and years, no matter how high gas gets.
They may be second-hand, they may drop in price, but that just means
that poor people will drive them.

Let's suppose that gas goes up to $5/gallon, and average distance
travelled for personal vehicles drops from 20000 to 15000 miles per year.
An SUV gets maybe 15 mpg, so that is 1000 gallons or $5000 per year.
Now you want to sell that SUV and replace it with a hybrid getting
30 mpg and selling for $25000.  You'll save $2500/year in gas costs.
But the SUV is practically worthless in this environment and has little
resale value.  That means it's going to take ten years to pay off your
investment in the new car, with your savings on gas.  That's not a very
attractive proposition.

Now, you can work these numbers quite a bit and get somewhat more
optimistic or pessimistic payoff times, but the bottom line is that it
is expensive to replace a vehicle and that fuel costs aren't all that
dominant in terms of the total cost of ownership.  This is also why I
say that poor people will buy SUVs if the prices drop enough, because
the savings on the purchase will pay for the higher fuel costs for years
to come.  Either way, we are going to be burdened by SUVs for at least
a decade to come.

And to the extent that high gas prices motivate a faster than usual
replacement of the personal vehicle fleet, that is an economic cost which
we all pay.  All those replacement cars leave us essentially where we
are today.  That is money, capital and labor not spent on improving the
world and making life a better place to live.  And that translates into
reduced economic growth and a slower rise in the quality of life.  It's
a genuine cost.

Of course, it's also possible that Peak Oilers are wrong, gas won't go
up to $5/gallon and that all those people buying SUVs are not idiots.
Ultimately, car purchasers are responding to the price signals they
receive by looking at gas prices.  This gets back to the point I have
made before, that if the smart money thought oil was going to go through
the roof in a few years, it would already be bid up.  Oil would already be
high in anticipation of future shortages; gas prices would already be high
for the same reason; and people would already have stopped buying SUVs.

It's the invisible hand at work.  The fact that this is not happening,
that people are still buying low mileage vehicles, is not evidence
of irrationality. Rather it is direct, visible evidence that Peak Oil
predictions of high oil prices are simply wrong.

Hal