The Conversation: What should America do with its $2-per-gallon gas windfall?

Monday, December 21, 2015

American consumers have been enjoying Christmas since July – that is, July 2014, when the average price for all grades of gasoline peaked at US$3.75 per gallon, according to the Energy Information Administration. Since then, prices have declined substantially, as every motorist knows: to $2.90 by Thanksgiving 2014 and to $2.14 as we approach the end of 2015. In many parts of the country, the price of regular gasoline is well below $2 per gallon today.

Energy Information Administration.

For consumers, this is unquestionably a financial windfall. There are losers too, of course, especially across the petroleum and fuels industry.

But from a societal perspective – from consumer behavior to public policy – how should we view this change and the likelihood of low energy prices for the longer term, even if they rebound from today’s lows?

Voting with their wallets

The behavioral response of consumers to falling gas prices has been rapid, and from the perspective of greenhouse gas emissions and the climate, not good.

Gasoline retail sales in the US are up a whopping 28% for the first nine months of 2015 compared to the same period in 2014, according to the EIA. There are longer-term consequences of current consumer choices as well. According to the University of Michigan Transportation Research Institute, the average gas mileage of new vehicles sold in the US has decreased from a record high of 25.8 miles per gallon (mpg) in the summer of 2014 to 25.0 mpg in November 2015.

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