Gina, I'd second the wagon for a commuter but look at a VW Jetta or Passat with the TDI. If you've never driven a turbodiesel in the hills like you describe around home, you would be amazed at how effortlessly they cruise on up. plus, you'd be pulling nearly twice the mileage you get now with the Element, I'm sure.
Keep the Element for towing and if you upgrade trailers in the future you could trade it in on a higher-capacity rig then.
Because you live in Kalifornia, the State in all of it's wisdom says you cannot buy a new diesel, but you can buy a lightly used one. At least see if you can find someone that would let you borrow one to try - you may be very pleasantly surprised.
I hear that Subaru will likely be introducing a diesel in the next few years - that would be an awesome combination, too. Heck, you could probably tow just as well if not better with one of those!
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