Back to the Pump: an Economic and Environmental Dead End

Oil prices continue their free-fall decline, closing at the end of last week close to $40 a barrel. Less than six months ago oil prices were pushing $150 a barrel and some were forecasting $200 a barrel before this year was over. After suffering under the burden of $4 a gallon gasoline, some industry analysts are now speculating about gasoline prices as low as $1 a gallon.

While lower energy prices have to be welcomed by households whose expenditures on other necessities had been threatened, those households are now even more threatened by the economic collapse that is largely responsible for the nosedive that energy prices have taken.

The combination of these two economic changes can be expected to undermine the public commitment to a new energy policy focused on reductions in our consumption of fossil fuels and the release of greenhouse gases. After all, with dramatically lower energy prices there now is a lower payoff associated with reduced energy use. Besides, we collectively are significantly poorer now and our household and government budgets are already in terrible shape.

Such an abandonment of the commitment to energy conservation is exactly the path we followed when energy prices last peaked and then collapsed amidst a serious recession back in the 1980s. Energy conservation and renewable resource programs were abandoned for almost two decades. Compact cars were replaced with SUVs as we frolicked amidst what appeared to be abundant and cheap energy.

We could passively slide into repeatedly reliving these cycles of energy shortage, abundance and shortage again and ignore the damage being done to the planet, to our national security, and to our economy. Alternatively we could use this moment of economic crisis to solve several serious public problems simultaneously.

The federal government is poised to spend hundreds of billions of dollars in an effort to stimulate the economy and put people back to work. For this spending to be effective in slowing or reversing the downward economic spiral we are in, it has to be in programs that can be quickly implemented, that are labor intensive, and that involve real production rather than financial speculation.

Ideally, the spending would focus on important public needs that have been starved for funds despite past economic expansions: Infrastructure investments, repairing our deteriorating roads, bridges, schools, and parks are most often mentioned. But there are also dramatic opportunities to improve the energy efficiency of our homes and businesses, including the energy efficiency of our appliances, heating and air conditioning systems, industrial processes, motor vehicles, and transportation systems. Finally there are opportunities to seriously explore the expansion in our use of clean renewable energy sources.

Focusing government expenditures on these “green” sources of energy services allows us to pursue multiple high priority public policies. Because the pursuit of improved energy efficiency tends to be labor intensive and make use of workers in the building trades and manufacturing where job losses have been so high, expenditure on improving energy efficiency would make a greater contribution to putting Americans back to work.

Because this focus on energy efficiency and renewables would cut the use of fossil fuels, it would help put us on the path to reducing global warming. At the same time, it would involve investments in the research and development of green technologies that the entire world will soon be demanding. It provides an opportunity for the United States to build a leadership position in these green technologies rather than yielding this growth area to other nations. It will reduce our reliance of foreign sources of oil and improve the choices we face when we are next blackmailed by a hostile nation and are forced to contemplate again sending our young people to war.

Focusing public spending now on energy efficiency and renewable energy sources also prepares us for the time in the not too distant future when our and the world’s economies have recovered and demand for energy, metals, food, and other commodities is again growing. At that time, there will again be strong upward pressures on commodity prices, including energy prices. Such high prices drain purchasing power away from households and raise costs to businesses. They necessarily slow economic expansion while creating a crisis for the poorest parts of the world’s population as rising food and other commodity prices put necessities out of reach. That is a recurring recipe for instability, terrorism, and armed conflict.

The only way out those economic and environmental dead ends is to develop sustainable ways of meeting our population’s needs and wants that make more and more efficient and environmentally benign use of the planets scarce resources. The truth is that despite the technological marvels of our time, we in the richest countries have not even begun to explore the range of opportunities to reduce our waste and environmental damage. If we do not demonstrate that it can be done, we almost certainly are doomed when the rest of the world’s population begins to try to live the way we do.

We have to do something about the current downward economic spiral we are in. We are going to spend a lot of money trying to climb out of the economic hole we are sliding into. So why not spend that money not only solving our immediate economic problems but also laying the basis for more permanent solutions to some of the more serious energy problems that were staring us in the face just before the current economic crisis struck?

Dr. THOMAS MICHAEL POWER is the author of Lost Landscapes and Failed Economies: the Search for a Value of Place and Post-Cowboy Economics: Pay and Prosperity in the New American West. Power is a Research Professor in the Economics Department at the University of Montana.