It Won't Be So Bad: A Q&A With the Author of $20 Per Gallon

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It’s notoriously hard to predict gas prices. Who would have thought in 2006 that we’d be paying $4 a gallon in 2008? Or, as prices peaked last year, that we’d be filling up for $2.50 a gallon this summer?

That said, civil engineer and Forbes reporter Chris Steiner argues that prices will rise precipitously over the next few decades. (It would probably make as much sense to argue that electric cars will take over and gas prices will fall, but that’s another argument for another day.) In his book $20 Per Gallon Steiner talks about how super-expensive gas would change everything — from the cars we drive to the price of sushi (if you can still buy it at all); whether Wal-Mart stays in business, and how often the average family can afford Disney World (if it still exists).

On balance, Steiner argues that dramatically high gas prices would actually be good for society. He predicts what would happen if gas prices rise drastically, and explains why he thinks that could actually be good for society. (Related: see this quorum on suburbs.) We asked him to give us his predictions for what our lives might look like with gas at $8 and $18 per gallon, respectively.

$8 per gallon (predicted year: 2019):

Q

If I go out to eat, what sorts of restaurants will I most likely be able to choose from? Where will most of the food on the menu come from?

A

Our restaurant world won’t be terribly different from what we’re used to now. We’ll always have Chinese food — or at least the Americanized version of it (batter it, fry it, smother it in sweet and tangy sauce).

The tricky part of the question concerns foods like sushi. When gas is $8 per gallon, sushi will still be hanging around. Things get interesting, however, at $18 per gallon.

Q

If I have kids, how will they get to school?

A

How you live largely depends on where you live. For people who live in walkable communities, life at $8-per-gallon gas will be far easier. Their kids will just hoof it.

What most kids won’t be doing, though, is riding a school bus every morning. Just last year, when gas was $4, school districts across the country made huge cuts to busing programs. Maryland’s Montgomery County, outside Washington, buses 96,000 children to school every day, burning 3.3 million gallons of diesel fuel a year. When the price of gas goes up a penny, the county is out another $33,000. So the price of that program would increase nearly $20 million in a world of $8 gas. School board officials last year authorized Montgomery’s superintendent to increase the maximum walking distances for high school students, which were set at two miles. Generally, students who live within the limits are expected to find their own way to school.

In a future of $8 gas, those limits will go up across the country. In fact, it’s possible that places such as Montgomery County would cut busing almost completely. Capistrano School District in California’s Orange County dumped 44 of its 62 bus routes when gasoline spiked, saving the district $3.5 million.

America’s schools face tough choices in the future: do they cut sorely needed teachers and programs, or do they cut busing — something whose price is capricious and likely to keep increasing?

Q

How much will I have to save up for a round-trip flight from New York to France? What airline would I most likely fly on? How about from New York to Disney World?

A

At $8, a trip from JFK to Paris will cost around $2,000. When gas prices reached $4 last year, jet fuel comprised 40 percent of most big airlines’ operating expenses. When gas goes to $8, they’ll set aside 60 percent of their operating costs for aviation kerosene, an untenable model. These companies built their networks paying 10 percent of costs toward fuel. We will lose at least half of our domestic airline capacity at $8, as the legacy carriers (United, America, Delta/Northwest, US Air) surrender America’s skies to JetBlue and Southwest. Continental, the best-run of the legacies, may hold on and become the lone carrier of international consequence. So, as a result, you’ll either fly Continental or Air France for your trip.

At $8, traveling from New York to Disney World will be on a JetBlue flight. The cost: $800. The only problem is that, when you arrive, you may find the gates to Disney World locked up. Disney World is a mammoth operation — more than 50,000 employees across 47 square miles — utterly dependent on people making the pilgrimage to it from across the country and world. When just getting the family to Orlando takes $4,000, Disney World’s visitor count will crash. Day-tripping Orlando folk can’t keep the place open. The good news is that Disney, its movies, and its characters will persevere, so the children of the future will still understand who Cinderella and Mickey are.

Q

What’s the likelihood I’ll have a car in the driveway?

A

You’ll drive a hybrid at $8. Consider this: driving will cost about three times as much as it does now at $8. That’s a giant difference. A family who now drives two cars 15,000 miles per year currently pays $325 a month for gasoline (assuming $2.60 and 20 m.p.g.). In a world of $8 gas, their monthly gas bill would be $1,000. That’s like a second mortgage. Costs like that will drive hybrids to be wildly popular — and so, too, will be the practice of cutting down on miles driven. The easiest way to do that, of course, is to get rid of your car, assuming you live in a place that will allow it (a lot of places don’t, obviously).

Q

What industry will everyone want a job in?

A

Remember when everybody fell all over themselves trying to land a gig at an internet company during the late 1990’s? Those jobs were instant tickets to riches, or so we thought. When gasoline reaches $8 per gallon, energy-related startups will form the new craze. That’s where the hot jobs will be. IPO’s, wild sums of venture money, 23-year-old C.E.O.s — all of it will be resurrected from that movie called 1999. Or perhaps the market will recall the mistakes we made in the past and dial back its reaction … or perhaps not.

Either way, the energy revolutions that begin at $8 will change our lives indelibly. And just as many of the companies to emerge from the dot.com craze turned out to be legitimate, brilliant, and successful (Google, eBay, Yahoo!, etc.), so too will some of the companies that find their genesis in $8 gasoline.

$18 per gallon (predicted year range: 2029-2039):

Q

What will have happened to my sushi options now?

A

One of two things will have happened at this point: either we’ll have fished out most of the wild tuna and other fish stocks we depend on for sushi or, if those stocks still exist, it won’t be affordable to chase them around the world’s oceans on a large scale (this exercise requires convoys of boats gulping copious amounts of fuel; and transporting the fish in a fresh manner means air freight, something whose price will have increased four- to five-fold by then).

The ocean’s fish stocks have shrunk more than 50 percent during the last 40 years while global demand for seafood has doubled during the last 25 years. Basically, what we have is a race pitting the price of gas against dwindling fish populations. If gas stays cheap long enough — under $10 per gallon or so — we may drive fish stocks to utter collapse. But if the price of gas increases quickly enough, the world’s fish will finally, for once, catch a break.

Regardless of who wins (loses) the race, the $25 plate of sashimi cuts will be lost to history when gas costs $18 per gallon, which is perhaps two to three decades away, which really isn’t that far off. Some contemporary idea of sushi, I think, will always be around, but it will morph to forms more like the California roll than maguro sashimi. Local fish from farms may take the place of those buttery cuts of ocean-going salmon and yellowtail. Catfish sushi? I haven’t tried it. Not yet.

Q

How will kids get to school now?

A

By the time gas has reached $18, most people will live in places where density dictates that schools be grouped closer together, putting them within an easy walk or a brief bike ride.

Q

How much for that round-trip flight from New York to France and on what airline?

A

You’ll either fly Continental or Air France for your trip. At $18, this flight will be $4,000 to $5,000. The dearth of capacity will allow the existing airlines to charge large premiums and, unlike now, make a steady profit.

Q

What car’s in my driveway now?

A

At $18, you won’t have a driveway. There will be a whole generation of Americans growing up without cars at this point. They’ll live close to schools, close to new train lines, and close to places like restaurants and grocery stores. Electric cars will make an impact, but they won’t come in with the pricing power nor the volume to prevent massive changes in where we live and how we live.

Q

What’ll be the new hot job field?

A

At $18 per gallon, a new way of efficient living will have settled in across much of the developed world. What we’ll still need, however, is what we always need, in fact: civil engineers. As our world transforms from one built around the car to one again built around the person and forms of mass transit, civil engineers will reshape society and the way we move and the way we live.

Additional questions:

Q

Life will change drastically for Americans if the price of gas rises as you predict. What are some things you suggest people enjoy now before they’re gone?

A

Eat sushi. Drive the trans-Canadian highway (in summer). Go to Australia. Go see Tokyo and take notes — life will be more like that and less like, say, Omaha, in the future.

Q

Will rising gas prices affect the impact of climate change?

A

It’s likely we’ll burn most of the easy-to-get oil no matter what. Expensive or cheap, we’ll burn it. There’s probably no saving the atmosphere from the carbon locked in the oil of places such as Saudi Arabia and Russia; it will get burned. What high gas prices can lead us toward, however, is a more efficient world where coal (climate enemy No. 1) plays a smaller role in our energy needs. For this to be possible, we’ll need more cogeneration (combined heat and electricity projects), solar, wind, and nuclear.

Q

You predict that gas will hit $6 by 2010. This will probably be a life/lifestyle changing event for a lot of people, so why doesn’t it look like anyone is preparing now? Is it apathy, denial, or something else?

A

If the current economic malaise the world finds itself in continues much longer, we probably won’t see gas prices that high so soon. But the important thing to realize is that higher gas prices will come and it won’t be a pure function of inflation, it will be one of supply and demand.

People typically don’t change, especially on this kind of scale, until they’re forced to change. Cheap gas has been a function of abundance. It’s not an entitlement. I think people sometimes forget that. What I’ve tried to do is forecast how those changes will unfold as we’re forced to make them at different price points of gasoline.

That said, it’s hard to plan for something so transformative when we have so much in our lives to worry about already. Just like some people would rather ignore their credit card bill than pay it, some people would rather ignore this problem until it’s taken them by the collar and thrown them against the wall. Six-dollar gas will be that moment for a lot of people. They may not like it — and why would they? — but they’ll accept the fact that higher gas prices are real and they’ll adapt. And most them, I think, will be surprised at how well they adapt.


Ken

I notice several comments from folks in various parts of Europe, both across the Continent and from the UK and Ireland. Having lived for several years in Brussels and worked across western Europe, I can identify with their comments. Life goes on with $8.00 automotive fuel just fine. But, it does look different:

- Cities across all of Europe are much more compact than in the US. The Frankfurt/Main metro region is roughly comparable to the Dallas/Ft. Worth Metroplex (5.3M population vs. 6.3M). Yet the density is over 1,000 per sq. mile in the Franfurt region and just over 600 per sq. mile in the Metroplex.

- People own far fewer cars per capita and drive much less. Europe, with nearly 500 million people, has an annual automotive market just 10% - 15% larger that the US, with its 40% fewer people.

- European cities have much more developed and used public transportation systems, especially light rail, suburban rail, and underground systems. For example, Munich, with its 5 million population across the metro region, has a subway and suburban rail system that rivals, or even exceeds New York's in certain respects.

- Homes are smaller and more densely packed. The 3,000 - 4,000 sq. foot "ideal" manse in affluent US suburbs, compares with 2,000 sq. foot homes considered very large and luxurious across Europe.

Would people adapt to $8.00 gasoline, or even $18.00? Of course! They already have across all of Europe, and with reasonable, even attractive differences in lifestyle, at least on certain important dimensions. Such adaptations take time, as much as one, two, even three generations.

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Uthor

Man, I'm gonna go out and drive my car as long and as fast as I can while I can still afford it.

George

Cities are more compact in Europe, but the whole world relys on convenient travel. I wouldnt consider getting rid of my car for the bus in a million years.

Other alternatives will become viable when gas prices increase. For example electric cars or alcohol fuel cars. The world won't collapse.

As is said in Freakonomics the book, fear is one of the strongest emotions, which can be easily triggered. Steiner is just using it to sell a book.

Chance

I see several comparisons to high European fuel costs, but are they valid comparisons? Weren't costs there almost always higher than here in the states? Weren't most of the communities built centuries ago, and so are already the relatively dense, easier to get around on foot/bike places he predicts we will evolve into? Don't they have superior mass transit in many parts? Since Europe is not one single sprawling country like ours, my understanding is that the infrastructure different in ways both dramatic and subtle. Having never lived there though, I'd welcome views from some who have.

Also, he doesn't actually seem to be that doom and gloom to me. He isn't suggesting the end of the world, just that some of our lifestyle choices are going to have to evolve, albeit more than many of us are probably comfortable with.

Chance

Ken beat me to it.

Cheryl

I live in NYC--many of us do not care how much gas costs, as we do not drive (or own cars). Life did not change between $2.5/gallon vs $4/gallon.

Arjun G

Levitt writes all the time about how peak oil is not a big deal, and I think the same argument applies here as well. Although the demand for gas is relatively inelastic in the short run, in the long run it is relatively elastic. Prices won't change drastically, and as they change slowly, it will give people time to shift their consumption away from gas as well as give companies the time and incentives to produce alternative energies. As Kitt said, $18 gasoline may never happen due to alternative fuels, and by the time gas can even reach $18 a gallon, researching alternatives to gas will become so much cheaper that some company will have found a solution.

dav

At $6 a gallon or so converting my truck to electric suddenly makes economic sense and I will do so. I suspect a lot of other people will too reducing demand and dropping the price.

It seems like these predictions are made about a lot of things, but when the price starts up people find alternatives and price stops climbing.

Dale S.

He forgot to mention the part where Mel Gibson comes to our rescue in his interceptor and helps us get away with our precious fuel.

Seriously though, doom and gloom sell, but it's been proven repeatedly that we always find a way to make things more efficient, finds new sources of energy, etc.

We don't hold doomsayers accountable for their fearmongering often enough.

lloyd667

On $8 per barrel, Steiner is dreaming in technicolor. Europe has had gas prices running $5-$8 a gallon since the 1970s, when taxes were raised after the first oil shock, precisely to lower gasoline consumption. It worked, too (and it did not take 2 or 3 generations, either).

But, as traffic jams attest, lots of Europeans still drive lots of places. And they don't drive electric cars. Of course, adjustments have been made at the margin. European cars are on average much more fuel efficient (that is, have smaller engines) than American cars, and diesels, which are much more fuel efficient, are common. And, as someone pointed out, Europeans also invested much more in public transit, both within cities and between them (passenger rail).

So, $8 a gallon will have, for any practical purposes, almost no effect for most of us.

However, one effect, not mentioned by Steiner, is the income effect. Gas prices are high in Europe essentially because of taxes, which one way or another go back into household incomes (maybe different households than those who paid the taxes, but still). World prices at $8 will either mean a transfer of income to oil producing countries from oil using countries--making us poorer--or will relfect the actual cost of producing the oil, making us all poorer. How much poorer? I don't have the numbers at hand, but an easy calculation of the maximum amount poorer would be to multiply current oil consumption by the increase in the oil price consistent with $8 a gallon (say, $200 a barrel) and divide the result by world GDP. (It is the maximum because, as in Europe, we would end up using somewhat less oil.)

As for $18 a gallon, well, we enter into a more speculative realm. Still, I doubt it will be as apocalyptic as Steiner suggests.

For one thing, as many have mentioned, we will have more electric cars and the like by 2020--certainly if gas is $18 a gallon. Suburban school busses would be ideal candidates for electrification, given generally limited routes and ample time for recharging.

I think he is right about air travel, which will not be electrified anytime soon. Air travel as we have come to know it in the past 20 years depends on cheap fuel--jet fuel is not taxed, by international treaty. But cross Atlantic flights were a luxury not so long ago (40 years, maybe). Again, I have not worked it out, but I would guess that a $4000 flight today is not much higher, deflated by average wages or income, than is was 40 years ago. So, the change won't be all that wrenching, except, as Steiner says, for Disney, which depends on flying masses of people to an obscure location in the middle of Florida. Too bad for them, I say.

Fishing may also decline, but since we have massively over fished and reduced stocks of many fish well below maximum catch levels, the result is likely to be larger catches and maybe even cheaper fish, not the other way around. Sushi will become poor man's food.

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Brian

$18/gal gasoline? No problem. I think by then the Dow is supposed to be at 32,000 so we'll all be rich.

Player Hater

" the children of the future will still understand who Cinderella and Mickey are." ~ whew! Thank goodness.

"Catfish Sushi" - OMG ROFL!

Dude, 2012 will take care of all this, don't worry.

Seriously, I believe that the internet is underrated here. If I did not have to drive to the office everyday, I could use my gas to go to Disney. My employer would not have to provide an office for me, so then he too, could drive/fly/bus/train to Disney.

The monolithic energy industry will evolve (i.e. gasoline employees will become solar/battery/wind/geothermal employees) but continue to provide energy.

There will always be cheap energy - that's what humans do - make tools to maximize energy use.

Toby Ross

In America you believe that the world will stop when the US gallon hits 8 dollars.
In Europe we've been used to this price for a while. The world has not come to an end. Its about time that the press stopped trying to frighten everyone into just staying at home.
TR

Rod Panhard

He's wrong on his population density points. When fuel gets expensive, farmers will only be able to grow and not distribute. People will choose to live near food.

City folks will be hosed, big time.

James

Re: "You'll drive a hybrid at $8. Consider this: driving will cost about three times as much as it does now at $8."

Err... But I drive a hybrid NOW - and have been for the last six years. So if gas was still $4/gal, my cost per mile is less than what you SUV drivers paid at $1/gal. (And I have more fun, too :-))

With any luck at all, by the time gas hits $8/gal I'll be driving an Aptera, and my per-mile costs will be even less than they are now.

Rei

Seing as oil can be made from water, CO2, and electricity for under $10/barrel -- and that's about the worst case possible (making oil from bitumen, coal, shale, biomass, etc, is far cheaper), this guy is off his rocker.

Keep in mind that there is nothing magical about oil. It is a mix of chemicals with two properties of note: A) it's an energy source, and B) it's chains of hydrogen-studded carbons. Barring natural sources, A) means you have to invest other forms of energy to produce it -- more expensive, sure, but not a showstopper, as natural oil is an unusually expensive form of energy to begin with -- and B) means that you need to make it from a polymerization reaction whose inputs are cheap/common and provide a source of carbon and hydrogen. The typical approach is either the Fischer-Tropsch reaction (carbon monoxide and hydrogen) or the Sabatier reaction (carbon dioxide and hydrogen). In both cases, the hydrogen can be provided from electrolysis (hence your energy input is electricity, meaning coal, nuclear, wind, hydroelectric, solar, or any other such source).

The Fischer-Tropsch reaction is a particularly convenient one because there's an easy way to get it's reagents: burn almost any carbon-based matter with insufficient oxygen. The resultant mixture has several names -- wood gas, town gas, syngas, etc, but it's all the same stuff: a mixture of carbon monoxide and hydrogen.

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Kenn Fong

I think another consequence will be a huge rise in food costs in cities, particularly in the Northeast. It might cost three or four bucks a head for lettuce if it has to come in from Florida or Texas in the winter.

Fresh fruit and vegetables which used to come in from Mexico, Central America, and the Southern Hemisphere in the winter will be be prohibitively expensive. This may cause obesity rates to rise even further if the cost of fresh fruit and vegetables is dwarfed by processed convenience foods.

This might have an unexpected boon in environmental terms if it's too expensive to ship produce and meat, large tracts of farmed land might return to the rain forest.

Mark

The European commenters here fail to realize that the price they pay for gasoline at a gas station is not the price that a large shipping company or an airline pays for the fuel used to ship our food. Europe may penalize individual driving, but that does not mean that it penalizes the transport of fish from Japan, for example. If we have minimal GDP and income growth over the next five years but oil costs $250 or $300 a gallon, it will have a substantially larger impact on our lives than merely raising taxes on gasoline has.

Jonathan D. Abolins

I was recently talking with a freind about international travel and what may happen as petro price rise. What Chris Steiner describes about air travel is very likely to happen.

But jet aircraft are not the only way to travel long distances. There is a good likelihood that other modes of transportation, such as wind power ships may make a comeback (albeit with new materials and technologies to improve efficiencies). Lighter than air aircraft may also be an option since they can use less fuel.

This, however, would mean people have to adjust their thinking about fuel & price versus time. So, the round trip across the Atlantic might take a month or two, but the cost -- even with the lodging & food included, might still be less than the air fare. Steerage, anybody?

Long distance business travel would be drastically changed. No longer would companies have their people fly out for sales call, training, etc. as they having doing now. More reliance on teleconferencing and other tele-presence approaches. If long distance physical travel is done, it will most likely entail much more time and work. Maybe sending a tech consultant overseas to work a region for a year, then shift the person to a nearby region, etc. Like a travelling salesman of older days who worked along the train routes, selling at each station.

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Philm

Gasoline already DOES cost us over $15 per gallon. We just don't pay it all at the pump.

When you factor in the cost of our wars in the middle East (primarily about protecting our oil interests), the future cost of global warming and other environmental damage caused by our use of oil, government subsidies for oil exploration and production, US military protection of oil shipping, irreparable damage to the oceans and coasts from oil spills, the health costs incurred from inhaling polluted air in urban areas and all of the other hidden costs... We're paying up to $15.14 per gallon. Today.

Source: http://www.icta.org/press/release.cfm?news_id=12