Gasoline prices and climate policy
Gasoline prices are closely tied to broader climate policy discussions as nations seek to balance energy needs with environmental concerns. Rising gasoline prices can be a consequence of geopolitical events, such as conflicts in oil-producing regions, which can disrupt supply and create volatility in fuel costs. Historically, gasoline prices have fluctuated significantly, with notable spikes during events like the 1973 OPEC oil embargo and the recent increase following the Russia-Ukraine conflict.
As governments aim to reduce CO2 emissions to mitigate climate change, policies may involve raising gasoline prices through methods such as carbon taxes or emissions trading systems. While these measures could result in higher fuel costs, they are intended to discourage fossil fuel consumption and encourage the shift to alternative energy sources, including electric vehicles. The interplay between gasoline prices and climate policy creates a complex landscape where rising fuel costs can sometimes spur investment in renewable energy, yet also lead to public concern over economic impacts, especially in times of crisis. As the urgency of addressing climate change intensifies, the effects of gasoline pricing on consumer behavior and energy policy continue to evolve.
Gasoline prices and climate policy
It is unclear what effect climate policy will have on gasoline prices. In order to limit the atmospheric CO2 concentration, gasoline would most likely have to be made more expensive in order to reduce consumption.
Background
In the early 1900s, when gasoline was first finding use as an automotive fuel, the inflation-adjusted cost of a gallon of gasoline was approximately $3.00. Save for a temporary rise in fuel prices during World War II, the price of gasoline generally declined from 1919 to 1973, when the price per gallon of regular gasoline stood at $1.20 per gallon.
The post-1973 history of gasoline prices has been considerably more volatile. Prices began trending upward in 1973 in response to an by the Organization of Petroleum Exporting Countries (OPEC), with prices peaking at approximately $2.00 in 1982. After that nearly ten-year increase, there was an additional price spike corresponding to unrest in Iran, during the Iranian Revolution, when prices soared above their previous historical high of $3.00 per gallon. Subsequently, prices declined throughout the 1990s, bottoming out at $1.10 per gallon in 1998.
Prices rose sharply after 1998, nearly quadrupling to approximately $4.00 per gallon by June 2008, then fell once again. Despite the rise in the real cost of gasoline, gasoline expenditure as a share of household income actually declined between 1950, when it was approximately 5 percent, to 4 percent in 2007.
The price of gas initially declined in 2020 at the start of the coronavirus disease 2019 (COVID-19) pandemic due to drastically lower demand. However, by 2022, gas prices had reached record highs. The significant increase was caused in part by a rise in the price of crude oil, which occurred after Russia—one of the largest oil exporters—invaded Ukraine in early 2022, and the resulting sanctions placed on Russia reduced the global oil supply. Though the US is the largest producer of oil globally, to meet the needs of American oil consumption, it must also import oil; therefore, American gas prices were impacted by the Russia–Ukraine conflict. However, the spike in the price of gas was short-lived. By 2023, gas prices had dropped from $5.02 a gallon to $3.39 a gallon.
Effects of the 1973 OPEC Embargo
In 1973, the Arab members of OPEC, as well as Egypt and Syria, stopped shipping oil to Israel and countries that were supporting Israel in the Yom Kippur War (October 6–26, 1973), including the United States, some countries in Western Europe, and Japan. In addition, OPEC reduced the production of crude oil sharply, driving up world oil prices. The world price for a barrel of oil nearly doubled in real terms from 1972 to 1974, with gasoline prices following suit.
Contrary to popular belief, long lines and gasoline shortages in the years of the OPEC embargo were not caused by a shortage of crude oil, which is a fungible commodity traded on a world market. Rather, gas lines and shortages were the result of price controls on gasoline emplaced by President Richard Nixon earlier in 1973, which prevented the rising price signal from reducing demand for refined gasoline.
With the nominal price of oil quadrupling from 1973 to 1974, oil-producing countries significantly increased their revenue, while oil-importing countries, particularly the United States, saw their economies decline. The US economy shrank in 1974 and 1975, and growth in gross domestic product (GDP) also decreased significantly in Western Europe during that time, hitting negative growth rates in France, Germany, Italy, and other nations.
Causes and Effects of Price Changes
Major shifts in the price of gasoline have generally corresponded to the level of unrest in the oil-producing countries of the Middle East. Prior to OPEC’s emergence in 1960 as an oil cartel, prices were generally kept low by Western-owned oil companies, particularly in Texas.
Changes in the price of gasoline lead to changes in consumer behavior, especially as it relates to automobile selection. After the 1973 oil crisis, American consumers began buying smaller cars, and Congress mandated fleet efficiency standards for American car companies in 1974 that further expanded small car offerings in the US market. By contrast, the period of low gasoline prices in the late 1980s and 1990s allowed consumers to purchase larger vehicles, including pickup trucks and sport utility vehicles.
High gasoline prices have also spurred governmental and market investment in non-gasoline alternatives, such as electric vehicles and vehicles powered with natural gas, propane, and biofuels. That trend was especially prevalent during the 2010s and 2020s, when demand for electric and hybrid vehicles grew significantly. As a result, many US oil companies were hesitant to build new oil wells because company executives speculated that oil demand would decrease as ownership of electric vehicles continued to grow. Fewer new wells helped contribute to the record high gas prices experienced in 2022. Furthermore, some oil companies began planning for a transition to renewable energy during this period, which resulted in the closure of more refineries in the US.
Peak Oil
The peak oil hypothesis is the idea that because oil is a nonrenewable resource, global oil resources will ultimately be depleted, and oil production will pass its peak and enter a permanent decline. The concept that conventional oil resources are finite is not controversial; the arguments surrounding relate not to whether, but to when, oil will peak and what the effects will be. Some believe that oil production has peaked or soon will, and that technology will not progress fast enough to allow people to maintain their standard of living. Others point to significant oil reserves and technological advances that allow development of unconventional petroleum-based fuels, such as those from tar sands, which may make declining conventional resources potentially less economically damaging.
Several oil companies have commented on when they think oil resources will peak and what the implications will be. Exxon executives have argued that the oil resource base is constantly changing as resources become exploitable via new technology, and the company ran a public relations campaign in 2006 declaring that “[w]ith abundant oil resources still available peak production is nowhere in sight.” Other executives and campaigns have been less optimistic. Chevron executives have said that peak oil will happen (that is, oil production will, eventually, be forced to decline permanently), but that event does not need to be a disaster. Still other executives have voiced opinions ranging from the alarmist to the sanguine.
The debate over peak oil became more urgent following the COVID-19 pandemic when, amidst global lockdowns, oil consumption dropped to lows never seen before. At one point in late 2020, global demand had dropped to just 29 million barrels per day. As such, more industry experts began claiming that the effects of COVID-19 on oil consumption were likely to be permanent and that peak oil was very near.
Climate Change and Global Warming
The burning of is a major producer of carbon dioxide (CO2), which most scientists believe is a contributor to global climate change . There are two major sets of proposals to mitigate CO2 emissions. One involves limiting the amount of CO2 emissions permissible and selling emissions rights; the other involves taxing CO2 emissions. Both of these strategies, in order to be effective, would have to raise the price of emitting CO2 emissions significantly, which would also raise the price of gasoline.
As the twenty-first century progressed and the planet experienced increasingly severe effects of climate change, leaders struggled to balance policies that would lower gas prices with those that would reduce the impacts of climate change. Some experts purported during the record highs seen at the gas pump in 2022 that the high prices would be a positive for climate change policy by reducing the consumption of fossil fuels and leading to much-needed new climate-change policy. In June 2022, for example, President Joe Biden invoked the Defense Production Act in an effort to increase domestic production of the minerals needed to produce batteries used in electric vehicles. At the same time, many critics worried the increase in gas prices would result in an economic recession and implored leadership to increase oil production in order to bring prices down.
Key Concepts
- gasoline: a fuel, refined from oil, that is used to power automobile and other engines
- oil embargo: a refusal on the part of oil-producing nations to sell oil to other nations
- Organization of Petroleum Exporting Countries: group of major oil-producing nations that acts in concert to set oil prices and trade policy
- peak oil: the point at which oil availability and production reach its zenith before the Earth’s oil resources begin either to dwindle or to become prohibitively expensive to exploit
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