Françoise Sagan, Restricted Gasoline Markets and Alternative Fuels

expensive gas“I’d rather be rich than poor, like I’d rather cry in a Lamborghini than a truck.” I recalled this quote from noted French author Françoise Sagan when reviewing the latest U.S. household spending on gasoline and its likely impact on low and near-low income households.

According to the U.S. Energy Information Agency, household costs for vehicular fuel accounted for 4% of pretax income for all Americans, or an average of $2,912 a year. These figures, both percentage and average pretax income, were the highest in almost thirty years, except, as EIA indicates, in 2008 when the numbers were equal. While overall gas consumption has recently decreased, the escalation in the price of gas per gallon has generated higher costs for consumers: you and I, the guy down the street and many of our nearby lower-income residents.

Listen to this. EIA’s average city retail gasoline costs rose by just over 26.1 percent in 2011. More important perhaps, this large percentage increase according to EIA was six times — yes that’s six times — larger than the 3.4% rise in nominal household income. Further, the 3.3% gas price rise in 2012 outran the 2.9% estimated increase in income.

What does this all mean for the least advantaged among us? Remember that the 4% pretax cost of gasoline to income is an average for all Americans. Isabel V. Sawmill, a noted and very respected Brookings Institute scholar and policy analyst, notes that rising gas prices do affect both consumers and the economy adversely, and they are especially harmful to lower and moderate-income households. Four out of five households own automobiles and drove nearly 10,000 miles on average, and according to Sawmill, spent $1,500 in fuel costs in 2010 when gas was only $2.80 a gallon. Currently, given the price of fuel at the pump, the annual cost likely ranges from $2,100-2,400 annually, or nearly 15% of the income of families below the poverty line. Even for those above poverty but below a real living wage or income — let’s say $30,000 — the cost of fuel approximates 7-8% of income. But again, we are dealing with averages, and the percentage of poor and near-poor folks who pay much higher than 7-15% is quite large.

While access to transit, where it exists, may lower the cost burden of fuel for automobiles, even the cost of transit because of the increased cost of oil has gone up in most areas of the nation. Further, there are very few transit systems in rural areas that provide convenient mobility for low-income households and even in suburban as well as urban areas transit systems are often not easily accessible to the poor.

During my former tenure at HUD, proposals were made to subsidize or provide low interest-rate loans to low-income households so they could more easily secure older, but still sound, automobiles. Today, given concern for GHG emissions and budget constraints, the idea probably would not win kudos from some groups. But the individuals who proposed it were more concerned with finding workable strategies linking the poor to good jobs — jobs that were decentralizing throughout metro areas and hard to get to for people with minimal incomes and deteriorating, high-maintenance vehicles (or no vehicles at all).

gasolineAt the present time, higher proportional fuel costs faced by low- and near-low income households (more likely to be minorities) limit opportunities to find work. Indeed, many low-income adults in Orange County have indicated to me that, sometimes, they must regrettably make a choice between securing work (beyond walking distance from their homes), affordable and decent housing, sufficient food, medical care and quality education for themselves and their families. In this context, because most low-income people have inefficient older cars, they often have to pay more for gas than more affluent individuals.

The nation has spent over 50 years thinking through ways to ameliorate poverty. Some policies and programs have worked better than others. But, in part, because of economic sluggishness and in part because the nation has yet to agree on its responsibilities to the poor, no consensus exists as to future initiatives. The percentage of low-income people has begun to rise to, and exceed, 1960s levels.

Macro solutions may not be within our grasp, given our knowledge base and presently divided country. But we can easily use free markets to at least lessen the burden on the poor. A market approach should win approval from both liberals and conservatives, the far-right and the far-left and the unaffiliated middle. The nation, perhaps led by Orange County, should move toward opening up now-restricted gasoline markets. Oil companies should not be protected by outmoded regulations and statutes. As I have said many times, why not provide consumers a choice of alternative transitional fuels — ethanol, methanol, natural gas, biofuels? Why not enable car owners with older cars to convert their vehicles to flex-fuel automobiles and flex fuels? The costs range from $200-300. The criteria for decision-making on flex-fuels should be: are they safer and cheaper than gasoline and, until we find renewable fuels that can be scaled up as fuel options for most Americans, are they environmentally better than gasoline? I am fuel neutral. Let gasoline compete on an even playing field…the American way! All Americans will win and low-income households will be able to retain more of their wages at the pump and their choices concerning at least a threshold standard of living, will be less draconian.