Chris Steiner: Priming For $20/Gallon Gas

July 10, 2009

Author and Forbes magazine writer says top-dollar gas prices will dramatically change every aspect of life as we know it.
  • How China will drive up gas prices
  • What's behind the death (and rebirth) of globalization
  • Why Wal-Mart is doomed to extinction


As you're filling up your tank this weekend, it'll be hard not to think about the cost. Back when gas was $4/gallon, many of us made seemingly radical changes to our lifestyle, cutting back how much we went out to eat, riding the subway more, even moving closer to work.

But $4 gas was only the tip of the iceberg, says Chris Steiner, author of the new book "$20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better" (Hachette Book Group, June 2009). According to Steiner, a staff writer at Forbes magazine, gas prices could top $20 per gallon soon - dramatically changing every aspect of life as we know it.

Recently, HAI's associate editor Lara Crigger sat down with Steiner to discuss why the Chinese will drive up gas prices, what's behind the death (and rebirth) of globalization, and why Wal-Mart is doomed to extinction.


Lara Crigger, associate editor, (Crigger): So tell us a little about "$20 Per Gallon."

Chris Steiner, author, "$20 Per Gallon" (Steiner): Simply put, the book is a thought experiment on what life would be like at higher gas prices. The chapters of the book are arranged by increasingly higher prices - Chapter $4, Chapter $6 and so on, up to Chapter $20 - and they address changes that happen at each level. Some changes happen gradually; it's not like you hit $12/gallon and boom, the suburbs disappear. But I pick critical inflection points for each event and describe what the future would be like as the price of oil marches up. 

Crigger: In your book, you pinpoint the rising middle class in emerging markets, like China and India, as a key factor in higher gas prices (something Hal Sirkin also said when we interviewed him a few weeks ago). How do these new consumers affect gas prices?

Steiner: It's pretty simple: Right now, between the U.S., Europe and select parts of Asia, South America and Africa, there are about a billion people living what we would consider an "American lifestyle." By 2050, you're talking about 3 billion people living that lifestyle. China's middle class will actually be the largest by 2025; India's will be 10 times its current size.

Those people will need oil or some other form of energy. So even if American demand remained flat - or went down - you'd still see this giant mass of people joining our ranks, adding to demand.

For example: The U.S. has 750 cars for every thousand people. China has four. Even if China got to half of what we have, you're talking an additional two Americas worth of cars entering the world market.

Crigger: But as oil prices rise, won't that dampen these consumers' ability to keep purchasing oil, thus reducing this increasing demand somewhat?

Steiner: Certainly as the price goes up, I think you're going to have some demand destruction. That's something that's going to balance out over time.

But that being said, the changes the book forecasts are going to happen no matter what. Whether it happens at $20/gallon or $12, these things must happen in order for humankind to advance and stay on its current vector. Maybe we'll never see $20/gallon, per se, but the changes we portray - those are most certainly going to happen.

Crigger: Wouldn't the kind of higher gas prices you're talking about wreak havoc on our current commodities markets?

Steiner: I wouldn't call it havoc. We're not going to $10 overnight; it's going to be gradual, not this anarchy that some people have projected, like the pump just turns off. It will be a gradual whittling of supply that will give us a chance to adjust. It will give our cities a chance to morph and our country a chance to change how it lives life day to day.



Crigger: But it sounds like much higher gas prices would drastically change the ways our markets currently function. The Internet made it possible for a grower in Brazil or China to find and ship to buyers all over the world, but under a situation of $20/gallon gas, that ends.

Steiner: Certainly I think you'd see an ebbing in the effects of globalization, although I don't think globalization will go away totally. Still, as far as shipping iron ore from Minnesota to China, that's going to be a pretty tall order in the future.

I think this will just lead us to value our resources more, leading to more recycling, local materials, better designs. The free markets will prove their effectiveness here. There are levels of efficiency that we haven't yet reached.

Crigger: So the days of China importing insane quantities of commodities from all over the world will be over, right?

Steiner: They'll have to adapt. There are materials close to them: Russia's eastern flank is full of raw materials that haven't been fully exposed. China will still import materials, I'm sure, but things will get more expensive, and they'll just find ways to be more efficient.

Crigger: Won't the return to more localized economies devastate some of the emerging markets that export lots of commodities, like Brazil?

Steiner: Going strictly off oil prices, people strictly exporting cheap, bulky, raw materials certainly won't be helped. But eventually you'll see alternatives. At some point in the future, decades maybe, I think globalization will make a slight comeback, as new technologies allow us to transport things at lower cost again. Whether it's through biofuels or nuclear-powered ships or electric, whatever, there may be a breakthrough when that happens.

Crigger: Speaking of alternative energy, I'll ask the obvious question: How does $20/gallon gas impact renewable energy?

Steiner: I think the future of renewable energies is obviously very bright, and very much linked to the price of gas. Obviously everyone was feeling really good about these when gas was $4.50 across the country. Interest as far as venture capitalists has ebbed, but it'll pick up again. I think we all realize that the price of gas won't stay at $3 forever.

But as far as reaching critical mass, that takes time. It will take decades, not years, for things to change. Even if we put a million electric vehicles on the road every year, which is an insane amount, it would still take 100 years to replace our fleet. We're going to rely on oil for a long time to come.

Crigger: So even as alternative energy sources become viable, we'll still see these effects you talk about. Basically, the electric car can't stop the mass exodus from the suburbs.

Steiner: Yes. [Alternative energy] will be able to pick up some of the slack, but not all of it. For one, we can't get enough electric cars on the streets fast enough; and two, they're going to be expensive. You're not going to be able to pick up an electric car for $15,000. Maybe you will eventually, but not in the next decade. Besides, I think people will take the path of least resistance: Rather than cut back in all facets of their life to afford an electric car, they'll just move somewhere they can walk.

Some suburbs will remain quite tenable situations, certainly ones where there are lots of stores and they're close to trains and so on. But I think the far-out ones, where you're driving five miles to get milk - you don't even have sidewalks in half these places - these are the places I wouldn't want to own a house in the future.



Crigger: Do you think developed markets like the U.S. will remain the leaders in renewable energy development? Or will it fall to the emerging markets, which have this incredible new middle class demand?

Steiner: I think that remains to be seen. I certainly hope the United States takes the lead, but I think China now looks like they're putting their leg out first, as far as getting electric cars out and as a major part of their infrastructure. They're able to effect mass change slightly easier than we are, partly because of the structure of their government. But I don't know who's going to take the lead.

Crigger: As gas prices rise, you argue that the huge big-box retailers, like Wal-Mart, will die off. Why?

Steiner: Right now, Wal-Mart's model is strictly untenable in a future with gas over $10 per gallon. They really depend on globalization; Wal-Mart has 6,000 suppliers, 80% of whom are in China. More than anyone else, Wal-Mart milks this globalized world and giant container ships; that's how they're able to offer so many things at so cheap a price. But when your economies get too localized, Wal-Mart really loses their advantage.

Crigger: So it's not that demand for cheap goods will dry up. It's that the cost of getting goods to consumers will shoot through the roof.

Steiner: Right. Wal-Mart is built on gasoline. Even after they bring in the goods from China, they have 7,000 trucks in the United States to crank these things to 150 different distribution centers, and then the trucks take them from these distribution centers to the different Wal-Marts. As the price of gas rises, they're going to lose their advantage.

Plus, most of these Wal-Marts are built not in walkable neighborhoods, but in the fringes of places. That's where Wal-Mart got cheap land, and that's where their clients are. But as the price of gas rises, we're going to live in smaller homes; we're going to live in walkable communities. Certainly some people will have giant houses; that's never going to go away. But most of us are not going to have McMansions anymore; we're not going to have room for lots of junk. What Wal-Mart sells is a lot of junk, and we won't need it.

Crigger: All this being said, in the book, you take an optimistic - even hopeful - tone, suggesting that rising gas prices could actually be a good thing in the long run.

Steiner: That's exactly the point of the book. Certainly there will be some changes that not everybody's going to like, but overall you're going to see a healthier America. We're going to use fewer resources because we'll be forced to, but that's going to result in a bevy of positive changes: more local food, less pollution, better mass transit, less obesity. It's amazing how many changes filter out from the price of gas. And that's not just me rubbing my chin and thinking that might happen; there's been a lot of academic work linking the price of gas to other effects in society. Higher gas prices will affect everything from the way people go out to eat, where they live, how much they walk, how much they use mass transport - everything.


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