The peak oil crisis: the energy trap
While waiting to see how far the Europeans can kick their can of financial Armageddon down the road, let's revisit the damage being caused by high oil prices to life here in America.
Although the price of gasoline so far this year has not reached the rarified levels that we saw three years ago, neither has it plunged as far as in did in the fall of 2008. The price of a barrel of oil on the London futures exchange, which more accurately reflects what refiners must pay for oil, rose above $100 a barrel last January, and has essentially remained there ever since -- averaging about $25 a barrel higher than last year.
The Energy Trap is a project of the New America foundation, a non-partisan think tank funded by the Rockefeller Foundation, which recently conducted a survey on just how the American public is holding up under the high cost of energy. The idea of the trap is that an increasing number of Americans are caught between the cost of gasoline and a systemic inability to stop driving their cars. In the last 60 years America has become a "motorized society" in which most of our citizens have become totally dependent on daily travel by car for their existence. Take away our cars and most of us would be hard pressed to reorganize our lives to provide for the essentials of life - earn an income, and provide food, shelter, and education for ourselves and our families.
The current recession has compounded the troubles, forcing many to travel further afield to find employment - often in more than one underpaying job.
The Energy Trap study found cases in which more than 50 percent of a family's income was going into paying for and fueling the car. What is most alarming is that 30 years ago the spike in gasoline led to a 12 percent reduction in the demand for gasoline as consumers drove less, switched to smaller cars, and sort of adhered to the 55 mph speed limit that had been put in place to save gasoline. It is now more than three years since the $4+ price spike of 2008 and demand has only fallen some 3 percent.
The problem starts with the nation's collective gasoline bill which is on track to reach a new high of nearly $500 billion this year. This, of course, is only for gasoline; if we add in the other oil products we burn here in America each year - diesel for trucks and trains, jet fuel for planes, propane for heating, and numerous other uses the total is in the vicinity of $1 trillion.
Take away our cars and most of us would be hard pressed to reorganize to provide for the essentials of life.
It is looking as if this year's fuel bill will be on the order of $100 billion higher than last for gasoline and another $100 billion for other oil consumption. If we have to spend an additional $200 billion just to keep even, it is not hard to understand that the $200 billion increase in the cost of energy is coming out of other family expenditures.
There are geographic and income level differences in the impact the energy trap is having on families with rural and lower income families bearing more of the burden.
When gasoline was over $4 a gallon three years ago the average family in NY and Connecticut was spending 8 percent of its incomes on transportation, while in Montana it was over 19 percent. Drivers in Mississippi go twice as far each year as those in NY where many have easy access to buses, commuter trains and subways. As could be expected, families earning under $25,000 a year are spending around 9 percent of their incomes on transportation vs. 3.6 percent for those earning $75-85,000 per year.
The Foundation notes that most government policies aimed at helping with energy costs - tax rebates on efficient vehicles, subsidized public transit and telecommuting, benefit mainly those with higher incomes while the lower paid jobs such as those in the retail and service industries require lengthy and costly commutes just to earn a living.
If there is a way out of the energy trap, it is going to be hard to find. For now most of us are muddling along. Long vacation trips are down a bit but commuting, shopping, visiting, moving the kids about is going along about as usual. Those who can't afford driving, shopping, recreation, and eating are cutting back as much as necessary to keep the gas tank full.
The long term solution to all this is rather straight forward -- better public transit, far more efficient cars, housing closer to work. But these are all long term solutions, expensive and years to implement. All indications are that the energy trap can only get worse, perhaps much worse, in the next few years.
Within the next 18 months we are likely to see: either a steep economic downturn or much higher oil prices; major cuts in U.S. government spending; a deepening European debt crisis; and perhaps export-threatening political troubles in the Middle East.
Anyone of these factors would be enough to tighten the screws on the price and perhaps even the availability of gasoline and other forms of oil in the U.S. Taken together the diverse nature of the threats suggests that the situation will become far more serious for many American families over the next year or two.
The Energy Trap study suggests two possible short term actions that could mitigate the problem. The number of families that are hurting badly from high gas prices says there may more willingness than is generally believed to leave the convenience of the private automobile for some form of cost-reducing shared transport be it public transit, carpools or employer van pools. A second suggestion is that some geographic areas are being affected by the energy trap worse than others.
Concentration on bringing alternative forms of transport to these areas could bring big dividends in form of a more efficient and effective workforce.
Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.