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Flexibility and Elasticity of Car-Travel Demand
04/03/2004

I've been enjoying reading Urban Archi-Texture, a relatively new blog by a Toronto "transportation planner with an eye on urban planning issues".

Today there is a post about Canada hitting its Kyoto targets by managing fuel consumption with the gas tax.

An article by the Centre for Sustainable Transportation (link PDF, see page 12) is cited that suggests that the price elasticity of travel demand is about 0.5, which means that a 30% increase in the price of fuel will result in a 15% decrease in consumption.

The price in 1997 (when the report was written) was about 60 cents per litre. That's "before GST", so I guess they mean 64 cents. If we then assume an inflation rate of 2% (because I'm too lazy to look up the real number), the equivalent price in 2004-dollars is about 74 cents.

The Centre for Sustainable Transportation was hoping for a real (constant dollar) increase of 30% in order to decrease driving by 15%. So far it looks like gas prices are flat in constant dollars (based on my lazy inflation assumption). So, we're not there yet. But, on the other hand, I sure don't believe those elasticity numbers either. If gas was at 96 cents (30% more than the 74 cents) I don't believe we would be operating at 15% less travel demand compared to 1997.

People who have invested in cars and houses and who are committed to the jobs that pay their way are pretty well stuck. Houses and offices are where they are, and moving them isn't easy. Much of the country is arranged in patterns that could never be transit-efficient. I think people would just pay the higher cost and keep moving.

Gradually, people might choose to buy vehicles that consume less, but I think it would take a long time. Switching to less car-oriented lifestyles would take even longer.

I bet the real price elasticity of travel demand is closer to 0.1. That is, a 100% increase in the real price of fuel might cause a 10% decrease in travel/consumption. Meanwhile, we would first see intense outrage -- directed at "gas company conspiracies" and "massive overtaxation".

Reducing the consumption of carbon-based fuels is going to be a long battle. Or, we're just going to keep burning them as fast as we can until we hit a wall of diminishing supply.


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