Why Americans Became More Vulnerable to Oil Price Spikes
More than a decade ago, when Americans faced surging prices at the pump, policymakers developed a vision to wean people off gas and oil: more efficient cars, more compact and walkable communities, more renewable energy.
“We have a serious problem,” George W. Bush had warned in his 2006 State of the Union address. “America is addicted to oil, which is often imported from unstable parts of the world.” It was a powerful statement for a Republican president with deep ties to the oil business.
His remarks — made as oil prices rose and eventually hit $100 a barrel for the first time in the country’s history — marked the start of several years of a remarkable bipartisan push to wean the nation off oil and gas and better insulate Americans from price shocks in the global oil market.
Officials drew up the first increase in fuel economy standards for cars and trucks in decades. National oil savings plans won broad support in Congress, to address energy dependency as well as the grave threat of climate change. Public transportation advocates launched “Dump the pump” days to urge commuters to take trains and buses.
Then the country lost momentum. A surge in oil and gas production at home, as well as a flood of cheap crude overseas, ushered in an era of lower energy prices. Ramping up supply, rather than reining in demand, came to define America’s push for energy independence.
Awash in fuel, Americans bought larger cars and homes that required more oil and gas to power them. Cities built more highways, public transportation use declined, and suburbs sprawled.
Yet the nation’s expansion of drilling over the past decade — which made the United States the world’s largest oil and gas producer — has ultimately made households vulnerable to volatile price swings. American oil and gas companies say that they have no control over high prices at the pump, citing a confluence of global factors: the Covid pandemic, supply chain disruptions and Russia’s invasion of Ukraine.
“No matter how often ‘drill, baby, drill’ is held up as a solution,” said Michael Greenstone, a professor of economics and director of the Energy Policy Institute at the University of Chicago, “the basic economics of it are the U.S. is still a small share of global capacity and global production, and therefore can’t affect the global price very much.”
During periods of lower prices, Americans modify their behavior, buying bigger cars that use more gasoline, for example. “And then, when these unexpected shocks happen, we’re much more exposed,” he said.
Conservation has now become a toxic concept in American politics. Oil industry groups frame conserving energy as deprivation. With midterm elections looming, and Republicans using high gas prices to attack President Biden’s policies, few Democrats have mentioned the idea of cutting back on use. Mr. Biden himself, who came to office promising bold action on climate change, has urged oil companies to step up production, though administration officials maintain the United States must make a transition away from fossil fuels in the long run.
“If you could convince Americans to conserve, that would probably have a much more dramatic, immediate impact on reducing price,” said Patrick De Haan, an oil analyst at GasBuddy, a Boston-based company that operates apps and websites that help people see real-time fuel prices at gas stations across the United States.
“But asking Americans to consume less seems like a threat — many perceive that as a threat to their freedom in some way,” he said.
President Biden’s climate agenda has tried to address some demand-side issues. The infrastructure bill he signed last year includes the largest investment in public transportation ever, with more than $100 billion for trains and buses over five years.
Still, the mind-set was evident in the response to a 10-point plan to cut oil use released by the International Energy Agency last month, which recommended measures like implementing car-free Sundays in cities. The I.E.A. contends that if advanced economies put its 10 recommendations into action, they could cut oil demand by 2.7 million barrels a day, on par with an expected global shortfall in Russian oil as buyers increasingly shun it.
“Energy watchdog issues draconian recommendations,” a Fortune article said. “Don’t plan on leaving the house on weekends.”
Some economists say that, on a macroeconomic scale, increased domestic energy production has insulated aspects of the United States’ economy from the worst effects of the crisis, for instance by creating more jobs and profit in the oil and gas sector. Compared to Western Europe, where there is little upside to an oil price shock because it produces far less oil, the effect on the United States, in “the aggregate, is more modest,” said Gian Maria Milesi-Ferretti, senior fellow at the Hutchins Center on Fiscal and Monetary Policy of the Brookings Institution.
Still, that is little comfort to individual households, which are more reliant than ever on fuels whose prices rise and fall on global trends.
The United States has instead leaned on technology and efficiency improvements to keep energy use in check.
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Between 1970 and 2018, the fuel economy of passenger vehicles on the road in the United States roughly doubled for both cars and light trucks, for example. And that trend is expected to accelerate as the Biden administration moves to reinstate stricter fuel economy standards, after an attempt by the Trump administration to roll them back. Transportation is by far the biggest user of petroleum, and the biggest contributor to climate change.
Several factors have blunted the effect of those improvements, however, said Eric Masanet, who researches emerging environmental technologies at the University of California, Santa Barbara. Americans are buying a lot more cars: From 1970 to 2018, the U.S. population rose by 54 percent, but combined car and truck registrations rose by 141 percent. And vehicle travel, in miles, has continued to rise, which is a major reason the United States uses more energy per passenger and distance traveled than other major countries, he said. Public transportation ridership, which had already been on a slow and steady decline since the middle of the 2010s, cratered during the pandemic.
And while all classes of vehicles have become more fuel efficient, the U.S. fleet has steadily shifted toward a mix dominated by larger and heavier vehicles such as pickups, vans and S.U.V.s, further slowing overall efficiency gains. The I.E.A. recently estimated that the shift toward bigger vehicles had negated 40 percent of the fuel savings that would have occurred under the more stringent fuel economy rules.
“It’s been one step forward, one step back,” Dr. Masanet said.
It is a similar picture for American homes. Americans now power and heat their homes far more efficiently than a few decades ago, because of improvements in space heating, which explains why direct energy use, and carbon dioxide emissions, haven’t risen as fast as the population.
But those gains have been offset by an increase in home sizes.
Average single-family homes built today are around 50 percent larger than comparable homes built in the early 1970s, with house sizes growing rapidly for much of the 2010s before slowing somewhat over the past few years, according to census data. American homes are among the biggest in the world.
And while it can be difficult to measure sprawl, there are indications it’s growing. Though some cities are becoming more dense, “it’s also clear, if you look at new home starts, there are more new home starts in the edge of cities contributing to low-density urban development, to low-density single-family homes,” said Karen Seto, professor of geography and urbanization science at Yale School of the Environment. “We’re moving in the wrong direction,” she said.
Undoubtedly, some of these gains have raised standards of living for millions of Americans. Still, a recent United Nations report notes that rich individuals have a high potential to use less energy — and to reduce their emissions of planet-warming gases — while maintaining living standards. The world’s richest 10 percent are responsible for an estimated 50 percent of greenhouse gas emissions, the report says, with much of that amount concentrated in the richest 1 percent.
“Conspicuous consumption by the wealthy is the cause of a large proportion of emissions in all countries, related to expenditures on such things as air travel, tourism, large private vehicles and large homes,” the report notes.
It concludes that overall, steps taken by nations to reduce their total energy demand, like investment in public transportation, could help cut emissions in key sectors by as much as 40 to 70 percent by 2050, compared to baseline scenarios.
“That’s a lot of potential,” said Felix Creutzig, a lead author of the U.N. report and chair of sustainability economics at the Technische Universität Berlin. “It makes it easier for every sector to reduce its emissions.”