The summer driving season is upon us. And because of a sustained period of low oil prices, drivers will most likely enjoy substantial financial benefits of cheaper gasoline prices all summer long.
But although low oil prices are a boon for drivers, the situation is a little more complicated for policymakers.
Even though oil prices today are hovering at the same level as they were a year ago, competition among refiners and the time lag between oil prices and gasoline prices have passed. That means drivers today enjoy gasoline about 40 cents cheaper per gallon than drivers last year did.
Industries that depend on energy as an input — such as chemical manufacturers, factories or smelters — will enjoy higher profit margins or have more money available to invest in new equipment or give long-awaited pay raises. Homeowners have similar benefits. Lower energy bills are like a pay raise and a tax cut, giving us more money in our pockets that we can use to pay for elaborate summer trips.
Americans have received the message. After driving a record 3.1 trillion miles in 2015, drivers are projected to hit the roads even more this year while taking more summer trips and spending more on vacations. The Energy Information Administration recently announced that gasoline consumption in March 2016 set a record, an early sign that our path to driving more miles is already underway.
But cheap gasoline also has some real challenges, especially for the energy sector.
Hundreds of thousands of layoffs at oil, gas and coal companies mean that people in some regions will be driving not for summer vacation, but to look for jobs elsewhere. Billions of dollars of capital investments that kicked off the shale boom have slowed down, creating a drag on the stock markets. It turns out that oil price increases, which make life expensive for the typical working and commuting U.S. worker, can be just as difficult for the economy to accommodate as oil price decreases, which rattle the markets and bankrupt companies.
And, with current policy priorities such as decarbonizing the economy and reducing oil imports, low gasoline prices are confounding.
Before last year’s new record, national vehicle miles traveled peaked in 2007 at just more than 3 trillion. Between then and 2014, higher gasoline prices encouraged people to consider more fuel efficient vehicles or alternatives such as mass transit. That means we were driving less and when we drove, our cars required less fuel per mile. Both of those were contributing factors to decreasing CO2 emissions and, coupled with increases in domestic production, also caused oil imports to fall.
But with gasoline being cheaper, we’re again buying bigger cars and driving more, and our domestic production is leveling or dropping. That means increases in CO2 emissions, gasoline consumption and imports. All of which feels like a step backward compared with the steady progress we had made for years with our energy, security and carbon policies.
Looking forward, a sustained era of low gasoline prices means it will be harder to encourage conservation or to invite alternative transportation fuels such as biofuels, electricity or natural gas into the transportation sector.
Although the economic benefits of cheap gasoline is nominally a good thing, in the modern policymaking era, where economic interests need to be balanced with security and environmental priorities, it is a conundrum for policymakers.
But there are some things that can be done.
First, we should keep pushing for more research and development, particularly for more fuel-efficient cars and alternatives that make transportation more efficient.
Second, we should remain vigilant with our fuel economy standards so that on average we continue to buy fuel-efficient cars no matter the price at the pump.
Third, we can keep pushing for a culture that is mindful about conservation and efficiency.
The summer driving season is a fun time to escape with the family. It’s also an opportunity to put some of these more efficient options to work.
Michael E. Webber is the deputy director of the Energy Institute at The University of Texas at Austin and author of a new book “Thirst for Power: Energy, Water and Human Survival.”
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