It has finally happened. At $3.18 a gallon, the average price of gas in the US has finally passed the inflation-adjusted $3.15 level it reached in March 1981 after the Iranian embargo. Now that we are in uncharted territory, how are we going to respond?
First, let us take a step back to see what these higher prices mean. We are used to the good old days in 2004 when our 20 miles per gallon (mpg) vehicles pulled into the gas station and paid $2 per gallon. This translated into 10 cents for gasoline per mile that we drove, or $1,000 spent on gas per year (since we drive ~10,000 miles annually per vehicle). But now, $3.18 a gallon means that same SUV, minivan or sportscar is taking around 16 cents per mile (an extra $600 annually) to get to work and play. But if we trade-in the 20 mpg vehicle for a 32 mpg vehicle, our travel costs will remain the same as the good old days at 10 cents per mile. And if we get a hybrid that averages 45+ mpg, then anything below $4.50 per gallon will feel like a great deal.
The fact is – current gas price hikes don’t mean the price of travel will increase unless we are too stubborn to change our vehicle purchasing decisions.
The same goes for higher electricity prices. We don’t want to consume electricity for consumption’s sake. We want good lighting for our homes, great displays in our TV and computer, and cool refrigerators to keep that leftover pizza ready for the microwave the next day. So, if the price of electricity goes up three cents per kilowatt-hour so that we can integrate solar and wind power in a major way to stop global warming; all we have to do is switch to more efficient light bulbs, Energy Star appliances, and turn them off when we aren’t using them – and the cost of energy for our daily lives doesn’t need to change or may even go down.
That’s right, you and I don’t have to worry about whether Big Oil or OPEC is trying to jack the price of gas up on us. We just have to remember what really matters to us: that we get the comforts and the mobility that we enjoy with our family and friends – in the evening watching a great movie at home or riding on the highway experiencing the beauty of this amazing country of ours.
There are many other options of steps to take that bring additional benefits as well. For instance, riding a bicycle or walking to do errands that are close to home or work not only saves money but also can help us shape up for the summer.
As long as we communicate a desire for an efficient energy future with our elected leaders, they can help in the effort to stabilize the price of driving, lighting, and watching TV. Rather than federal lip service and futile efforts to lower the price of energy commodities that are determined on a world market, they can act to help domestic industries flourish through developing efficient vehicles supported by higher fuel efficiency standards and deploying efficient appliances promoted by the Energy Star program.
If we can keep technology moving forward to 100 mpg vehicles, even $10 per gallon of gas at the pump wouldn’t change the price of what matters: the ability to enjoy a trip with those we love.
We need to take a moment to take in the important message this gas price spike shares: We can stop global warming in its tracks by increasing efficiency and the price of energy together so that our costs don’t go up and our greenhouse gas emissions go down. Let’s take this window of opportunity and act for a safer, more sustainable world that our kids can enjoy just as much as we do.
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While this particular price spike is due to refinery issues, it does highlight a challenging convergence. In the next few decades, the world will be facing global warming, high energy demand from the developing world, and a minimum (if CERA is correct) of a “plateau” of oil production. Dealing with this trio of challenges will certainly tax our imaginations and require us to rethink. Maybe we can integrate what had previously been separate discussions of fuel type vs demand vs energy technologies, etc.
Great post Dennis. You make an excellent point, and one that I have been exploring the implications of for the past several weeks. As you very astutely point out, the price of gas is not what we really care about, it’s the price of travel. As with every fuel, be it natural gas, electricity or gasoline, we’re not interested in using the fuel for the sake of using the fuel; we’re interested in the utility we gain from that fuel, and that’s what we’re paying for.
If we increase the efficiency at which we utilize the fuel, we decrease the cost of the utility we gain from that fuel – be it travel, heating or powering the laptop I’m writing this comment on. We often talk about ‘cost effective’ efficiency opportunities, usually in the context of limiting the various efficiency opportunities out there to ones that pay themselves back in a short period of time at current energy costs. However, if we were willing to artificially increase fuel costs – say through a carbon or energy tax – at the same time as we invest in harnessing efficiency in our cars, homes and businesses, we can effectively decrease fuel consumption (and therefore greenhouse gas emissions) while keeping the same cost of utility.
And the carbon/energy tax would provide a new source of revenue to fund programs that help defray the up front costs of efficiency measures. Hybrid cars, compact fluorescent lights, new efficient refrigerators, etc. all have higher up front, or capital costs than their less efficient counterparts. Most will pay this higher up front cost back over the lifetime of the vehicle, light, appliance, etc. through energy cost savings, but many people are reluctant to pay more up front for savings down the road. This is a major barrier to the adoption of efficiency measures. The compact fluorescent is the perfect example: it says right on the box that you’ll save money buying this light bulb – about ~$20 over the life of the bulb – but people are reluctant to buy a bulb for $1.50 when the can get an incandescent bulb that costs $0.25. Is it because people like wasting money? Of course not. They’re simply suffering from sticker shock.
However, with an increased carbon/energy tax, we can generate billions of dollars in new revenue. Some of this should be directed to research and development of new clean energy and energy efficiency technologies, but much of it should be directed to lowering the up front cost of efficiency measures, eliminating the sticker shock and speeding the deployment of cost and energy saving technologies. Rebates could be granted to manufacturers, resellers or purchasers of efficient products to reduce the up front costs. Energy users would repay the rebate over time with the tax on the remaining energy use.
This kind of revenue neutral carbon tax could rapidly accelerate the use of efficient technologies, decrease our energy use and greenhouse gas emissions, and do all of that without putting extra strain on consumers’ pocketbooks. We’ve got to start thinking about ways to maximize the cost effective means of reducing carbon emissions and do so as quickly as possible. This is just one idea, and I’m sure there are plenty more.
Dennis, I like how you mentioned that we can convince our elected officials to “act to help domestic industries flourish through developing efficient vehicles supported by higher fuel efficiency standards.”
Check out Freedom from Oil:
http://freedomfromoil.org/
It’s a coalition campaign that Global Exchange is a part of that’s convincing the entire US auto industry to produce more fuel-efficient vehicles. Automakers can become leaders in addressing climate change, reducing our dependence on oil and creating jobs if they do this.
I would to see how people can save on gas. Telling someone to purchase a hybrid to get more fuel mileage doesn’t always equal the price of car versus the price of gas. Telling people to live near their work so can bike or walk to work or even use public transportation is not a reality if your job is in an expensive city like D.C, San Francisco, or Dallas. People live away and commute because it is cheaper to purchase a home in the middle of no where and pay gas prices than buy a home in a big city. Walking or biking to shopping centers is not an option because, they are not close to residental neighborhoods due to zoning laws (unless you shop at 7-Eleven). I don’t even have sidewalks in my city and I live in the desire city in the county. So I would love to see how I can lower my demand in gas. The price to change to move, purchase a hybrid, or change jobs would not equally $10 a gallon gas!
If we can keep technology moving forward to 100 mpg vehicles??? Plug-in Hybrid Electric Vehicles PHEV’s get above 100 MPG for most commuters. How do I know? I own one. Leather seats, airbags, navigation system, and I get to stay out of the rain. It is the next step that can be done right now with today‚Äôs technology. I have been building mine since November, but I am done now.
http://priuschat.com/My-official-Prius-Plus-mods-thread-t26951.html
Great post. Toyota recently announced that by 2010 the cost of producing its hybrids would be the same as producing non-hybrids today. So, it will make its entire fleet hybrid by 2020, according to their recent announcement: http://www.planetark.com/dailynewsstory.cfm?newsid=41842&newsdate=11-May-2007. If gas prices continue going up, we can say goodbye to Ford and GM.
Thanks for all the great comments, y’all!
Congrats, Cheap! on putting together a plug-in hybrid that gets 100 mpg – now the challenge there is making sure that the electricity source isn’t coal. I hope plug-ins will be available on the mass market within a couple of years so that those people that don’t have time and the skills that you put to work to make yours plug-in can partake as well. Here’s to those who Do-It-Yourself and make a difference!
Also, Carlos – thanks for sharing that Toyota is bringing the costs of their hybrids down. I hope we get to see results in price reductions within a year or so to help address Chani’s good points on the challenges of making efficient choices on a tight budget.
Chani, thank you for sharing your concerns. I didn’t mean to make it seem like I thought everyone can buy a hybrid since they do carry a cost-premium. But there are also good efficient cars that aren’t hybrids that can bring the gas bill down. Based on a quick search, I found a few cars that get an average of 31-33 mpg and are some of the least expensive on the market at less than $15,000 new. They include the Ford Focus, Hyundai Elantra, Kia Spectra, Mazda3, and Saturn Ion. If you are like me and have never bought a new car, there are some good options in the used market, including those cars ancestors of the last few years. And the need to change zoning laws that encourage better integration of residential neighborhoods close to grocery stores and other shops to run errands via a walk or bike is an important point that you bring up. These shifts are occurring in some towns like my old stomping ground of Chapel Hill and Carrboro, North Carolina, but not everywhere: which brings up the point again that we need to build political power from the local level up so that we can encourage the construction of sidewalks, bike lanes, accessible public transit, and other ways to help keep our energy consumption (and thus energy bills) down.
And Jesse, keep up the thinking on these crucial issues.
Together we can revolutionize the way we travel and use electricity. Good luck in all of your initiatives for a low-carbon future,
Dennis