As we navigate our way through the holiday season, those of us who have many local family members to visit have noticed that gasoline prices have climbed back up to challenge peak prices from 1918, 1981 and 2008. Although this year's average price falls just shy of last years, 2012 and 2013 show us that even slight economic recovery will lead to greater demand for gasoline and therefore, higher prices. Looking at the last five years, one lesson stands out...
If we want to keep prices low, keep demand low.
It will seem like a bit of an illogical statement to some, but prices have nothing to do with costs. In a rational market, prices have everything to do with two qualities: the availability of something, and the desire of people to purchase it. Why do gas stations hike prices around Memorial Day, Labor Day, Thanksgiving, and Christmas? Because we want more of it. When we "have to" buy it, retailers charge more. Over the course of the Great Recession, as world demand for commodities plummeted, the price at the pump dropped precipitously. Those who payed attention to last year's presidential campaign surely noted the hub-bub about the increase in gasoline prices from the start of President Obama's first term to the prices around the election. That drop came directly from a sharp change in the demand relative to the supply.
Understanding this balance holds a key to the power of energy efficiency in both affecting our pocketbook and reshaping the role of energy. Most of us think of energy efficiency as "doing without" in order to save money. The real role of energy efficiency is to deliver the same level of service to which we are used, but with a lower input of energy. As a recent post by Sarah Laskow in Grist points out, most of us drive fewer than 60 miles a day, with four passengers or fewer, without hauling, and have access to a space that can accommodate a charging outlet. For this forty percent of the US driving population, a plug-in hybrid (or even a standard electric vehicle) will supply all of the driving services they need. Since plug-in hybrids get two to three times the gas mileage of these standard vehicle, this would, in turn, drop the overall demand for gasoline by as much as twenty-five percent. All of this reduction would come without a change in the service provided to the household.
To put this in perspective, a drop of about seven-to-ten percent during the recession caused prices at the pump to drop by about forty percent. Although those nations that control the supply of oil would respond by dropping supply to keep prices higher, the cycle of continually reducing supply to meet dropping demand has long-term implications for the development and exploration of new reserves. This is where costs do have an impact. If the price to develop new sources of fossil energy cost more than a company can get paid to do the work, they will not pursue them. Most environmentalists want prices to stay high in order to drive the cost of fossil energy to a point competitive with newer, clean energy technology. Economically speaking, we want to keep prices low so that new reserves remain uneconomical to tap. Wind and even solar technologies have already shown cost-competitiveness with fossil fuel sources, and that curve will only continue to bend in their favor. For now, we should all look for changes we can make that do not affect our quality of life, but only the amount of resources needed to supply services to us. Timers on lights, CFL or LED light bulbs, plug-in hybrids when purchasing a new vehicle, Energy Star appliances...these all do everything we want them to do but with lower energy usage.
And really, is it that hard to turn out the lights when you leave a room?
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