Energy Efficiency: A Passing Fad?

After years of consuming ever more gasoline and other petroleum products, Americans are slowly starting to change their ways. Sour economic forecasts and soaring energy prices are now leading consumers to pump less gasoline, buy fewer and smaller cars, and use public transport at the highest rates in 50 years. At the same time, companies are looking to cut costs by becoming more energy-efficient, and the next President could oversee the first federal tax on carbon emissions.

“We’ve been ratcheting down every demand forecast for the year,” says Doug MacIntyre, an analyst for the Energy Information Administration of the Energy Dept., referring to figures for gasoline demand. “Consumers are showing they can’t handle these prices
The big question is whether consumers and companies will maintain efforts to cut down on oil and gasoline or if the changes are a temporary response to economic woes. The last time Americans cut consumption was during the aftermath of the 1973 oil embargo that led to oil shortages and gas-price spikes. In the years that followed, car companies developed small models like the Chevrolet Vega, the U.S. government passed fuel-efficiency standards, and conservation gained some ground. The impact has been real; the U.S. economy is now twice as energy-efficient per gross-domestic-product dollar than it was 40 years ago.

The problem is that as energy prices started to fall in the 1980s, consumption jumped up again. That creates a dilemma for policymakers. “It’s the conservation conundrum,” says John Kingston, director of oil for Platts, an energy information service that, like BusinessWeek is a unit of The McGraw-Hill Companies (MHP). “If you start a lot of conservation and drive prices down, demand heads up again.” Kingston says European countries solve the cyclical demand-price problem by maintaining a high tax on gasoline to discourage consumption. That hasn’t been a politically viable choice in the U.S. up to now, but Kingston warns that policymakers must start factoring energy prices into their conversation efforts: “Any efforts designed for conservation that ignore the price function are doomed to fail.”

BusinessWeek