Why "the market" won't solve the gas crisis

One of the many downsides to high gas prices is that it unleashes a flurry of conservative punditry claiming that "the market" will solve our energy problems, including catastrophic climate change.

See, when the price of gas goes up, they say, consumers cut back -- and voila! no more oil issues or climate crisis. Just like the 1970s, a bevy of conservatives are once again saying there's no need for tougher efficiency standards on cars or other government policy -- just let the market and high prices work their magic, and we'll be free of foreign oil and living in a clean energy world in no time.

They were wrong in the 1970s, and they're wrong again today.

A perfect example of this kind of thinking, which one can find bubbling out of the Cato Institute and other conservative think tanks, comes from Charles Territo with the Auto Alliance, a mouthpiece for the car industry blogging at The Wonk Room yesterday. Territo excitedly describes how high gas prices have led to big reductions in driving and gas use in 2008:

[T]he rise in gas prices allows automakers to swim with, rather than against the current. As a result of gas prices, fuel efficient auto sales are increasing and there have been significant reductions in carbon dioxide emissions.


* Americans Drove 1.4 Billion Fewer Highway Miles in April of 2008 than in April 2007 [...]

* Americans took 2.6 billion trips on public transportation in the first three months of 2008. This is almost 85 million more trips than last year for the same time period.

* EIA estimates U.S. petroleum consumption will shrink by 290,000 bbl/day in 2008. This will lead to a corresponding 20 million ton CO2 reduction in 2008.

All of which is likely true -- but the question is, why did it take so long for Americans to cut back on gas consumption? We've known for years that oil dependence was a losing proposition -- so why is this the first time since 1992 that U.S. gas consumption has declined?

Because since the 1980s, leaders in Washington -- Democrats and Republicans -- have chosen to sit back and let "the market," instead of thoughtful policy, set our energy priorities.

After the 70s gas shortages, consumers flocked to smaller cars (most from Japan, because Detroit didn't respond fast enough). By 1990, the average fuel efficiency of a passenger car in the U.S. had risen to 20 mpg.

But after the 1979 energy shock, oil prices plummeted; in the late 1990s, crude was going for $9 a barrel, compared to around $140/barrel today. With cheap oil, consumers turned to gas-guzzlers -- which auto makers were all to willing to deliver, in the absence of fuel efficiency standards.

You know the rest of the story: the SUV and truck craze of the 1980s and 1990s took off, beginning a 25-year march in the wrong direction for U.S. energy policy. The fuel efficiency gains of the 80s and 90s were wiped out. Consider this telling timeline of gas used by the average U.S. driver since 1960:

Average amount of fuel consumed per vehicle - U.S.

1960: 784 gallons/year
1970: 830 gallons/year
1980: 712 gallons/year (energy crisis/high prices spurs demand for efficient cars)
1990: 677 gallons/year
1995: 698 gallons/year (SUV craze kicks in, wipes out past efficiency gains)
2000: 719 gallons/year (SUV's/trucks set back efficiency to below 1980 levels)
2005: 743 gallons/year

... and so on, an out-of-control, upward spiral of gas gluttony, right up to the gas price spike of 2007/2008.

All the while, Democrats and Republicans did almost nothing: CAFE fuel-efficiency standards for light trucks increased a miniscule 2.2 mpg from 1985 to 2007. Passenger car standards didn't budge at all, stuck at the same levels for 22 years.

In other words, "the market" was allowed to operate without constraint, just as the conservatives like it. And left to its own devices, the "the market" led us to the worst possible outcome. CO2 pollution in the U.S. skyrocketed 18% from 1990 to 2004 (especially in the Southeast and Gulf South), pumping millions more tons of pollutants into the air. Our country's quest for oil independence and a sane energy policy was set back a generation.

Let history be a warning. If -- thanks to offshore drilling, exploration in Alaska, political detente in the Middle East, or other events -- the price of gas should drop, "the market" will do the exact same thing again.

We can't afford to make the same mistake twice.