April 8, 2005

WASHINGTON, D.C. -- Painfully high gasoline prices have failed thus far to spur federal legislative action to address what looks increasingly like a long-term problem. Though futures prices for both gasoline and crude oil fell on the N.Y. Mercantile Exchange yesterday, they remain at historically high levels (in nominal terms). Crude futures prices topping $50 through 2009 suggest gasoline prices twice those of the past decade and call for steps now to protect our economy by reducing demand.

Unfortunately, the U.S. House of Representatives is on track to add to the nation's oil woes. The energy bill now before the Energy and Commerce Committee contains two blunders that will likely drive up U.S. gasoline consumption further for years to come: one provision makes the process of raising fuel economy standards more burdensome to regulators, and the other extends the counterproductive "dual-fuel" vehicle credit. "Continuing to grant fuel economy credits for vehicles that use ethanol only on paper could cost 250,000 barrels of oil daily by 2012 while doing nothing to promote ethanol," said Therese Langer, Transportation Director for the American Council for an Energy-Efficient Economy (ACEEE).

Meanwhile a bill introduced in the Senate by Lamar Alexander supplements measures to save natural gas with an oil savings target of 1.75 million barrels per day by 2015. "That's a laudable and ambitious oil savings goal, but unfortunately the proposed language contains neither a roadmap for getting there nor any enforcement mechanism," said Ms. Langer. "It will take a carefully crafted and energetically implemented package to get savings on that order, and all sectors of the economy will need to contribute."

Yesterday the Energy Information Administration forecast peak retail gasoline prices of $2.35 a gallon this summer, and analysts are concerned that these prices will dampen consumer spending and affect the economy as a whole. ACEEE estimates that these increases in gasoline alone will reduce average national household disposable income by over $1,000 compared with 2002. When combined with natural gas and electricity price increases, the reduction in household disposable income could exceed $1,600 this year. Fed Chairman Greenspan earlier this week compared energy prices to a tax on the economy. But unlike a tax, higher energy prices are also a primary contributor to inflation.

ACEEE's comments to the House Energy and Commerce Committee on the "Critical Role that Energy Efficiency Should Play in National Energy Policy" can be viewed at http://aceee.org/tstimony/index.htm.