Ask nearly anyone who drives a gasoline-powered vehicle, and they’ll grumble about the sky-high prices at the pump.
Driven largely by world oil prices, gasoline in the United States and other countries has spiked in recent months. It may be little consolation for people paying $80 or more now for a fill-up, but with vehicles getting higher mileage than in decades past, cars are traveling farther today on a tank, lowering the cost-per-mile-traveled. Still, the economic hardship for many people is real. And the issue is likely to factor into November elections.
Daniel Sperling is director of the Institute of Transportation Studies at UC Davis. A professor of civil and environmental engineering, and a member of the California Air Resources Board, he has studied transportation trends for decades, authoring or co-authoring more than 250 technical papers and more than 13 books on transportation and fuels.
This conversation has been condensed and edited for clarity and length.
Q: Nationally, gas prices have gone up about $1.50 a gallon over the past year and about $2 a gallon in California. Why?
A: Certainly the loss of Russian oil in the markets is a part of it. Part of it is uncertainty in the industry. There has been restrained investment in new oil production internationally because of the political dialogue about moving away from carbon energy as well. And the pandemic. Early in the pandemic there was a significant drop in vehicle use, but it has come back.
Q: During the pandemic, oil companies reduced production as demand fell. Have they ramped it up enough to keep pace now?
A: Production is back now to where it was before. A big part of the price surge has as much to do with uncertainty as anything. This is the world oil market at work.
Q: What do you think is the biggest misunderstanding the public has about gas prices?
A: That’s a good question. The biggest controversy is why when oil prices go down, why don’t gasoline prices follow? If you look at global oil prices, they hit about $130 a barrel (in early March), but then went below $100 (in mid-March). But the price of gasoline went up and comes down slowly. This is a well-known phenomenon going way back. It’s always been like that.
Q: Is there price gouging by oil companies? Or just the delay from the weeks it takes to get oil out of the ground, refine it and get it to gas stations?
A: Generally speaking, the concept of gouging is not very useful or relevant. It’s a global market. You have a cartel of countries that try to control the price. They try to keep the price down when it’s high and up when it’s low. They try to moderate the price. No oil company can control the market, so gouging is not really a relevant term, although it might be relevant for California.
The California market is geographically unique. It has a special type of gasoline it uses, and there are a small number of suppliers. Professor Severin Borenstein (at UC Berkeley) refers to the “mystery surcharge.” He says when you look at all of the reasons for price increases, he can explain most of it, but there are 30 cents or 40 cents a gallon that’s not explainable.
In the bigger scheme of things, gasoline prices are not that high today. While it’s true that high gas prices have a severe impact on people with low incomes who need to get to work, or who have older, less-efficient cars, big picture, the price of gasoline even at $5 a gallon is well in line with prices over the last 50 years when adjusted for inflation. And our vehicles are now twice as efficient as they used to be. Gasoline cost per mile is at an all-time low.
Q: What can people do to soften the burden?
A: It’s almost for sure a blip. Prices are already starting to come down. If Russian oil is completely cut off, and other stuff happens, then yes, prices could go up again. But the long-term price trajectory of gasoline is down. What can you do now? The way you drive a car — if you drive more smoothly, gently, you can easily save 10% to 15% off your fuel consumption. Drive 65 instead of 75. Don’t do harsh stops and fast accelerations. You can save that way without any real cost or difficulty.
Q: What impact are gas prices having on electric vehicle sales?
A: It’s not clear they are having an effect yet. But people are hyper-conscious of the price of gas. They see it in their neighborhoods on gas station signs every day. The decision whether to switch to electric vehicles or buy a smaller vehicle is definitely influenced by fuel prices. Erratic fuel prices have very little impact on people’s behavior. But the research shows if there is a sustained price increase, then it clearly has an effect on people’s buying habits.
Q: The overall trend in California is going up. More than 1 million electric vehicles have been sold here — 40% of all EV sales in the United States — even though we only have about 10% of the U.S. population.
A: Auto companies have not been very aggressive in getting electric vehicles into the showroom, and marketing them. That’s starting to change slowly, but it’s still an industry that — other than Tesla — is not yet all in.
Q: Why?
A: Legacy auto companies are making a lot of money on SUVs, and they are losing money on electric vehicles.
Q: What can they do to change that?
A: They are gradually figuring out how to manufacture them more efficiently. They are bringing in-house some of the battery manufacturing. And they are starting to do other things, like over-the-air software updates, so they can fix problems instead of doing a recall where you have to bring in the cars. That saves a lot of money.
Q: We saw electric car ads during the Super Bowl. And GM announced last year that it plans to make only electric passenger vehicles after 2035.
A: People have to want these vehicles. There has to be a demand. Some of these vehicles are getting mark-ups now. The electric Mustang by Ford and their F-150 (electric pickup) — there seems to be a lot of demand for them. But GM has not done as well. They shut down their (Chevy) Volt plug-in hybrid. They are shutting down their (Chevy) Bolt. So it’s been a struggle.
Q: What’s the problem?
A: Consumers are conservative. Even in California. A car is a big purchase. We had our first EV mandate in 1990. California has been committed to electrification since then. And yet after 32 years, what are we up to? 12% or 13% market share for EVs. We are about to adopt regulations requiring 100% by 2035.
Q: How do we get there? Scientists say we need to get fully electric if we are going to seriously address climate change.
A: The three principle strategies are regulations to force automakers to sell them, incentives to consumers so they will buy them, and getting charging infrastructure out there for households and apartment buildings.
For people who drive a lot now, you come out ahead economically. The price of electricity is significantly less than the price of gasoline, and there’s much less maintenance. The total cost of ownership of electric vehicles is getting closer and closer to gasoline vehicles, and if you drive over 15,000 miles a year, an electric vehicle today is a better economic purchase than a gasoline vehicle.
Q: The least-expensive models of electric vehicles, like the Nissan Leaf, cost between $30,000 and $35,000 new. What do you say when people say electric cars are too expensive?
A: The average cost of a new gasoline vehicle is over $40,000 now. Certainly, $30,000 is not trivial. But most people are paying a lot more than that. And except for GM and Tesla, you get a federal rebate of $7,500, and if you are not rich you get a California rebate, and you get another $800 rebate called the clean fuel reward. There are a lot of incentives.
Q: What’s the biggest hurdle right now to the expansion of electric cars?
A: Really the only significant hurdle right now is vehicle availability — dealers actually having vehicles in their showrooms, and models available that people want. The Ford F-150 really is a breakthrough. It means that now we are moving beyond small cars and into electric SUVs and pickup trucks. But it’s really the availability of stock. The other part is people becoming more comfortable. We’ve done research and seen that EV purchases cluster in neighborhoods. Your friend or family member gets it, they explain it to you. They say “it’s no big deal, and there’s lots of good things about it.”
I think we are going to get to 50 to 60 to 70% market share (EVs as a percent of new car sales in California) without too much trouble, once more vehicles become available.
Q: When might California hit that target?
A: Probably by 2030. The California Air Resources Board is going to be adopting rules requiring something like 30% of new vehicle sales to be zero emission by 2026. That’s a signal to the industry that they have to really get serious. Two years from now, in 2024, it’s going to really start taking off.
And in June, the board will be seeing a proposal to go to 100% by 2035.
Q: How is driving going to be different in 10 or 15 years?
A: I see very little difference on the road. The only difference is that there will be a disappearance of gasoline pumps and an increase in charging stations. It might be that a lot of the charging stations will be at gasoline stations. And all houses are going to have chargers and all apartment buildings will have them too.
Q: But we’re still going to have traffic jams, right? The cars just won’t be emitting smog.
A: Right. This is all about energy and pollution, nothing to do with congestion. That’s a different discussion.
Q: California has the highest gas prices in the nation. Some of that is due to our requirements for cleaner-burning gasoline, and our cap-and-trade program. What do you say to people who say those costs are unreasonable?
A: A low-carbon future in transportation is going to save the economy and consumers money. But there’s a bump in the road getting there. We have to make some early investments in infrastructure, in incentives for the transition to low-carbon fuels, and to electric and hydrogen vehicles. The policies we have in place will get us there. But they impose some near-term costs.
Q: And there are societal costs from gasoline, right? Smog. Medical costs. Wildfires and heat waves from climate change?
Exactly.
Q: Anything else you’d like to add about gas prices?
A: The flurry of interest and the fury of interest in Sacramento and Washington is rooted in politics, and to a small extent concern about the lower-income segments of our population. But overall, the increases in gas prices is not a burden on the economy. The economy is still growing.
