Back Off Oil Demand to Bring Down Gasoline Prices

May 2, 2006

Media Contact(s):

Wendy Koch, 202-507-4753, Senior Director, Marketing & Communications

Washington, D.C. — Criticizing recent proposals to reduce gasoline prices as too weak and one-sided, the American Council for an Energy-Efficient Economy (ACEEE) today called on government and business leaders to launch a vigorous public awareness and policy effort aimed at cutting pump prices by easing America's gasoline consumption.

"With energy supply markets tied in a straitjacket, moderating demand is our only real choice for the near term," said Steven Nadel, ACEEE's Executive Director. He blamed today's high energy prices primarily on rising energy demand; since the U.S. continues to lead the world in oil consumption, using about 25% of total global production, we can exert stronger leverage on world markets than any other nation. "While new energy resources will be needed, these take time to develop; in the interim, reducing demand is the only viable strategy for taking pressure off of energy markets," continued Nadel. He also noted that reducing demand should be a key component of longer-term strategies to keep markets in balance and energy prices down.

Basic economics teaches that in tight markets, where demand is pushing market capacity, small changes in demand or supply can strongly affect prices. Because new energy supply options are years away, reducing demand is the only practical option for the next several years. According to ACEEE, cost-effective efficiency resources are available in all energy markets (see http://aceee.org/energy/eeassess.htm and http://www.aceee.org/press/2006/01/aceee-shows-oil-saving-potential-beyond-cars), but persistent market barriers and other factors chronically limit investment in these technologies. ACEEE recommends a concerted policy initiative to reduce energy demand to stabilize our energy markets.

For the near term:

  1. A national media campaign on energy efficiency. This would provide consumers with information on how to reduce fuel consumption through better driving habits, better maintenance, and other tips. It would also address home energy use, which is an equally important concern to most Americans. This campaign was authorized in the 2005 energy bill, but has not yet received funding. It could be added to the current supplemental appropriations bill. When California faced an electricity shortfall in 2001 that drove prices up, the state responded with a major media campaign and other energy efficiency programs. According to a comprehensive evaluation, these efforts reduced electricity use by 6%, moderating California's electricity crisis.
  2. Extending tax incentives for hybrid vehicles. The 2005 federal energy bill includes tax incentives for hybrid vehicles but caps these incentives at 60,000 vehicles per manufacturer. At least one manufacturer will reach this cap later this year. ACEEE recommends raising or changing the cap, such as applying the cap per manufacturer per vehicle class in order to make more vehicles eligible and to encourage manufacturers to produce and market hybrid vehicles in many vehicle classes.
  3. Reversing the decline in federal energy efficiency funding. The Administration's 2007 budget request would represent a 27% after-inflation drop in efficiency funding since it took office, while energy prices have skyrocketed, imposing hundreds of billions of dollars per year in a de facto "energy tax" on the economy. Funding increases should target deployment programs such as ENERGY STAR®, which can save energy in the near term, as well as longer-term research and development. The 2005 federal energy bill authorized substantial increases in efficiency research, development, and deployment; the 2007 budget should include a significant amount of this new funding.

For the longer term:

  1. Increasing vehicle fuel economy standards. Fuel economy standards for cars drove large increases in fuel economy from 1975–1987. Unfortunately the car efficiency standard has not changed since 1990. Congress should take this opportunity to call for an increase in fuel economy standards that will produce oil savings of one million barrels per day by 2015. This level of performance can be achieved through cost-effective vehicle efficiency technologies now becoming common in vehicle markets.
  2. Setting serious national targets for saving oil, electricity, and natural gas. Legislation has already been introduced in Congress by a bipartisan group of Senators and Representatives to set these kinds of targets for oil. Current and future administrations would be required to implement policies to save increasing amounts of oil. Legislation is also being developed to require electric and gas utilities to meet energy savings targets, building on state legislation now in place in Texas, Pennsylvania, Connecticut, and Hawaii. Such targets can save moderate amounts of energy within a year, with savings steadily growing over time.

"Actions such as oil company investigations or cutting taxpayers $100 checks will have little if any impact on gasoline prices. Only by significantly reducing demand can we rebalance markets and drive prices down," Nadel concluded.

Reducing Oil Use Through Energy Efficiency: Opportunities Beyond Cars and Light Trucks, by R. Neal Elliott, Therese Langer and Steven Nadel, is available for free download at http://www.aceee.org/research-report/e061 or a hard copy can be purchased for $20 plus $5 postage and handling from ACEEE Publications, 1001 Connecticut Avenue, N.W., Suite 801, Washington, D.C. 20036-5525, phone: 202-429-0063, fax: 202-429-0193, e-mail: aceee_publications@aceee.org.