Clap your hands for cheap gas. Everyone else is. Allow me to prick the happy oil-price balloon. Prices have declined rather quickly from well over $4 a gallon last summer to—supposedly—$2 somewhere. (I am never where super cheap gas is.) But don’t cheer too hard. The “good” news is hype.
Myth 1: Lower oil prices boost the economy
Dropping oil prices are described as a “windfall” and a “stimulus package” for American consumers in stories like this one. This is exactly the language that oil and gas producers use in unrelenting advertising in every media promoting supposedly clean and abundant oil and gas.
The actual benefit offered in the New York Times story linked above—$400 per annum on average—works out to less than $8 a week. That’s an almost meaningless benefit, even for low-income families.
Energy prices don’t make that much difference to most people and businesses. Wonder why we don’t hear more about this? Because the received wisdom is that energy is a huge cost for most of us when the pundits have simply been too lazy to look at how America’s energy use has changed. Energy is a tiny fraction of a typical service-business budget (the kind of business that employs most Americans), say 7 percent or thereabouts. And that’s because America’s energy-use intensity (meaning the amount of energy it takes per unit of output) has declined steadily since the oil-embargo days of the 1970s. This is a triumph of efficiency, even in a country that is still energy profligate, using about twice as much per capita as peer nations.
When we spend so little, only big price swings make any difference to most of us. It’s also why efficiency investments that seem no-brainers in most countries seem costly here. Of course price hikes are meaningful for energy-intense businesses (the kind of businesses who saw the “windfall” in the linked story), but the volatility of prices over decades has motivated smart energy-dependent companies to embrace efficiency.
Myth 2: America’s energy appetite is increasing.
This is an oft-repeated Big Lie. The almost unreported story is how much money we are already saving, almost entirely by using less fuel. Both fuel consumption and miles driven peaked in 2007. Consumption has crept up recently but is still about the level it was in 2002.
In electrical energy used in business, industry and homes the story is similar. Oil and coal use are down; natural gas use is modestly up, thanks to its relative cleanness and lower relative cost.
America’s energy demand is flat or declining because of the choices people are making, mainly for economic reasons. If we actually bent the demand curve down, which we could by discarding fossil-fuel subsidies and installing incentives to reward job-creating efficiency measures across the economy, think how the arrogant likes of Vladimir Putin would squirm. When we choose to drive high-mileage cars less, we reduce greenhouse-gas emissions, pollution, congestion, and undermine petro-despots the world over.
Myth 3: Time to buy the big SUV
Anyone who buys a gas-guzzling vehicle on the assumption that low prices will stick around is—not to put too fine a point on it—a fool. When prices rise, as they inevitably will, we will have to endure media sob stories of people sinking into debt because they can no longer afford to commute 60 miles every day in an overpowered pickup truck. People who make such decisions do not deserve our sympathy (though government policies amply subsidize them). While sales of pickups and SUVs are said to be strong, these vehicles are also appealing because they now get much better mileage. (And mileage is only improving, thanks to efficiency mandates Americans have embraced.)
Myth 4: Thank fracking for low prices.
Bloviators will encourage us to think that increased American oil and gas production, significantly enhanced by fracking, has driven prices down. But the frackers have complained for years that prices for both oil and natural gas are too low to make fracking (and shamelessly destructive Canadian oil-sands extraction) profitable. The recent price plunge is not based on long-term structural change in the markets, but reflects the pump-at-any-cost desperation of petro-states around the world—Russia, Venezuela, Iraq, and many others. They pump to shore-up military adventures and dysfunctional economies. OPEC brazenly keeps prices low to bankrupt US drillers. No one can predict how long this will last. Should American consumption jump to take advantage of low prices, fuel will become more expensive, reinforcing bad actors like Valdimir Putin. For now, he’s counting on American consumption to bail out his imploding economy.
Myth 5: High mileage cars don’t pay back
Even at a time of low fuel prices, consumers derive vastly more value from driving high-mileage cars fewer miles, but you will rarely see the benefits to consumers’ wallets described as the windfall they actually are.
- If you trade in your 18 mpg SUV for a nice car that gets 32 mpg, you will save $875 annually at 12,000 miles, if gas averages around $3 per gallon
- If you cut your driving to 10,000 miles, you will save more than $1,000. And you will save more when prices go up—as is inevitable.
- If walkable communities and better transit were more readily available (they are now pricey because demand much outstrips supply), more people could avoid car ownership entirely. Savings start at $10,000 per annum, which is an actual windfall for a low-income person.
If we ignore the lessons of history and pretend cheap fuel is a license to consume, all the political, environmental, and economic costs will rise even if the pump price remains low, and no one should ignore that, just because oil companies hope we will.