The Oil Drum

In the short term, I don't see a drop in subsidies significantly affecting consumption. In the longer term, it will. In Europe, we have had high fuel taxes for twenty years, and as a result we drive smaller, more efficient cars than the US. However, the trend for the last ten years has been for larger, more powerful, heavier cars in general, and a fashion for SUVs in particular, because disposable income has been rising way ahead of the cost of fuel. We do not drive any LESS because of the fuel price. We are now just beginning to see a reduction in fuel consumption, due to changed driving behaviour. I suspect this effect is limited and short term, it is due to people driving more slowly and smoothly, etc., and cutting out a few unnecessary journeys, because of the price shock. However, our attention span is short, and behaviour will return to normal soon, if the shocks do not continue.

Our shocks are less steep than yours, precisely because of our high taxes. Indeed, our government has been reducing the taxes in real terms these last two years.

I think that a sudden removal of very high subsidies might cause a short term economic dislocation, as it would be difficult for people to adapt at short notice. However, that would simply make efficient transition to a reduced oil society even harder to implement.

Of course, we know price shocks will continue, and soon shortages. Those WILL reduce consumption.