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Energy Insights: Energy News: Oil Prices Are Dropping. Will We Turn Into Gas-Guzzling, Energy Monsters Again?

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Oil Prices Are Dropping. Will We Turn Into Gas-Guzzling, Energy Monsters Again?


Oil Prices Are Dropping. Will We Turn Into Gas-Guzzling, Energy Monsters Again?

Oil Prices Are Dropping. Will We Turn Into Gas-Guzzling, Energy Monsters Again?
Oil Prices Are Dropping. Will We Turn Into Gas-Guzzling, Energy Monsters Again?

By Jeffrey Ball „J @jeff_ball

Photo: Tim Boyle/Getty Images

In the 1970s, years of high oil prices forced the United States to get more strategic about how it used fossil fuel. Drivers switched from Detroit-made gas-guzzlers to Japanese econo-boxes. House builders began putting more insulation in walls. Washington and a bevy of states threw taxpayer subsidies at then-wacky ideas like wind and solar power.

But by the early 1980s, oil prices cratered, and Americaˇ¦s energy consciousness did, too. Over the next 20 years, sport-utility vehicles eclipsed small sedans, the size of the average suburban house soared, and subsidies for renewable energy waned. Energy was cheap againˇXand so was talk of America having shed its profligate ways.

Now, as oil prices drop againˇXthey were at $81 a barrel on Wednesday, down 23% from $105 in JuneˇXitˇ¦s fair to suspect that history is about to repeat itself. If past is prologue, that would be bad for the environment. It could cause a host of green shoots achieved over the past decadeˇXfrom more-fuel-efficient cars, to a lurch from coal to natural gas as the fuel of choice for electricity, to an unprecedented, though still nascent, rise in renewable energyˇXto whither. But this time, there are intriguing signs that those green shoots will survive a cheap-oil winter.


First, a quick energy primer. Oil in the United States is overwhelmingly a transportation fuel; planes, trains, boats, and automobiles burn seven of ten barrels of oil the United States uses, according to the federal government. Industry is the countryˇ¦s second-biggest oil user, consuming two-and-a-half of ten barrels to make things such as chemicals and asphalt. Electricity generation, which consumes more total energy than any other U.S. sector, uses only a negligible bit of oil. Thatˇ¦s an important change from the 1970s, the last time oil prices in the United States shot up and stayed high. Back then, the power sector used one in ten barrels of oil the United States burned. But today, most U.S. electricity comes from burning natural gas and coal.

Oil-price changes affect the power sector only indirectly. Historically, natural-gas prices have tracked oil prices closely, because natural gas traditionally has been produced from the same sort of geological formations that have produced oil. But today, in the age of fracking, a technology that makes it easier to produce vast quantities of natural gas from shale formations that often donˇ¦t give up much oil, natural-gas prices move increasingly independently of oil prices. Fracking has slashed U.S. natural-gas prices over the past few years even as oil prices remained sky-high. The power sector thus has been shifting from coal to lower-carbon natural gas, undergoing a cleanup that now will be hard to reverse. Itˇ¦s conceivable that, if natural-gas prices rose even as oil prices continued to fall, the power sector could revert from natural gas to coal. But the prospects for that were made more difficult earlier this year, when the federal government essentially codified the dash to gas by rolling out new nationwide limits on coal-fired-power-plant emissionsˇXcaps that are likely to hasten the shutdown of more U.S. coal-fired power plants. Natural-gas prices may rise and they may fall, but whatever they do is less a function than ever before of fluctuations in the price of oil.

Just as it has moved to natural gas, the U.S. power sector also is using unprecedented levels of renewable energy. That transition is linked indirectly to expensive oil. Though oil isnˇ¦t much used in electricity generation, that nuance is lost on many politicians and the public. Because, for most Americans, the periodic trip to the corner filling station is the most visceral interaction they have with the extraordinarily complex energy system, their interest in energy tends to rise or fall with fluctuations in prices at the pump. Thus rising oil prices typically have pushed policymakers to ramp up spending on subsidies for renewable sources, such as solar and wind. And itˇ¦s why the last big drop in oil prices, in the early 1980s, prompted the United States to roll back renewable-energy spending.

But solar, wind, and several other renewable sources have grown up dramatically in the quarter-century since oil prices last cratered. Propelled largely by government subsidies, they have made big technological strides, and in turn theyˇ¦ve gotten more affordable. (In most places, solar and wind still require subsidies to compete against coal and natural gas, but the price gap is narrowing.) Moreover, as the number of solar and wind farms has multiplied, the solar and wind industries have become savvy political powers. The renewable-energy industry today employs expensive lobbyists who do what expensive lobbyists in every industry do: twist politiciansˇ¦ arms to grab government largesse. For instance, representatives of the wind and solar industries want to renew or extend certain federal tax credits that have expired or are due to expireˇXcredits that defray the cost of building wind and solar farms. Falling oil prices arenˇ¦t likely to fundamentally change this new political order.

The road is where the drop in oil prices should have its biggest impact. The average pump price of a gallon of regular gasoline in the United States was $3.12 this week, down from $3.80 in October 2012 and down from $3.70 just four months ago. Typically, cheaper gasoline has two environmentally problematic effects: It leads people to drive thirstier cars and trucks and to drive them more miles. But since the drop in oil prices, and thus in gasoline prices, began only a couple of months ago, itˇ¦s too soon to know whether this will prompt Americans to return to their 1990s-era hard-driving ways.

At least two factors, though, suggest it wonˇ¦t. The number of miles Americans drive per capita has declined for nine straight years; it dropped to about 9,400 miles in 2013 from roughly 10,100 miles in 2004, according to federal figures. A change that significant suggests a change in lifestyleˇXone that would be hard to upend. In addition, the average fuel economy of new cars and trucks sold in the United States has increased markedly over the past decadeˇXin contrast to the 1990s, when new-vehicle fuel economy essentially flat-lined. Today, the average new car sold in this country goes 36 miles on a gallon of gasoline, up from 29.5 mpg in 2004. The average new truck gets 25.3 mpg, up from 21.5 mpg in 2004. Those improvements came in large part because Americans were clamoring for more-efficient vehicles amid high oil prices. Automakers who rolled out new technologies and retooled their assembly lines to crank out thriftier vehicles are unlikely now to go back, despite fluctuations in oil prices. Theyˇ¦re particularly unlikely to do so because, two years ago, the federal government required that, by 2025, automakers basically double the fuel economy of their new vehicles.

Times have changed since the dawn of the last era of cheap oil. Even assuming low oil prices are the new normal, a cleaner energy system probably is too.

Jeffrey Ball is scholar-in-residence at Stanford Universityˇ¦s Steyer-Taylor Center for Energy Policy and Finance. Formerly The Wall Street Journal's environment editor, he writes about energy and the environment for a variety of publications.

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