$2 gas dampens enthusiasm for hybrids … no kidding.

Excerpted from:WSJ,”Americans Drive Less, Creating a Problem”, NOVEMBER 24, 2008

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When gasoline prices shot over $4 a gallon this summer, Americans … took action on their own by driving less and switching to more fuel-efficient cars.

The good news is that gasoline consumption has fallen … vehicle miles traveled — the wonky term for how much we drive — have dropped for 11 straight months, and fell 4.4% in September, according to the Department of Transportation.

In short, many Americans, by choice or by default, did what the people who worry about the climate and U.S. dependence on petroleum wanted them to do. They burned about 5% less gasoline than a year ago.

By jamming the brakes on driving, rediscovering mass transit and walking past Hummers to buy compact cars like the Honda Fit, American consumers caused big trouble for powerful interests.

The oil industry and oil-producing nations have an acute problem, because the combination of conservation and the worst world-wide economic slump in decades has once again made a mockery of recent projections that oil would remain expensive and scarce forever.

The short term looks like a re-run of the late 1970s and early 1980s, when … oil prices soared, interest in electric cars, windmills, solar heating panels and other petroleum alternatives accelerated. When conservation and new oil discoveries caused oil prices to collapse, the economic justification for expensive, immature oil replacement technology collapsed as well, and it was a skip and a jump to the age of the SUV.

The federal government is conflicted, too. Yes, policy makers want us to conserve oil. But now that we have, the funds that pay for roads, bridges, rail transit and other transportation infrastructure are falling right along with gasoline tax receipts … gasoline taxes paid into the highway trust fund fell by $3 billion in the 2008 fiscal year.

One approach (for funding infrastructure) would be to raise the federal gasoline tax from its current 18.4 cents a gallon. By comparison, the tax rate in the U.K. is about $2.85 a gallon. Higher gas taxes could finance improvements to roads and mass transit, encourage further conservation or offset the costs of the various federal bailouts.

The collapse of gasoline prices since the summer — a drop of more than $2 a gallon — is an economic stimulus worth more than $200 billion a year.

* * * * *

All of this puts the people who seized on the recent gas price shocks as the moment to push green vehicle strategies in a bind.

At current gasoline prices, however, consumers who buy expensive electric or plug-in hybrid cars would find it smarter financially to buy a reasonably efficient, conventional subcompact and work from home one day a week.

If gasoline prices stay low, demand for vehicles that use sophisticated technology to consume less gasoline per mile will depend on consumers making long-term decisions that aren’t in their short-term economic interests. Otherwise, these new high-mileage cars might not sell for high enough prices to cover their higher costs.

A lot depends on whether Americans keep doing what they’re doing, regardless of what the numbers are on the gas station signs.

General Motors Corp. has insisted that its plug-in hybrid Chevy Volt, due in 2010, will survive the cost-cutting as the auto giant struggles to survive.

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