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Increasing energy efficiency the hard way
Front page of the Wall Street Journal today is a story on impact of the historic breach of $4 per gallon average national gasoline price. Are the UK and Europe laughing?
U.S. Gas prices climb to record $4; could go higher: survey
June 9, 2008 (Reuters)
A gallon of gasoline is costing U.S. drivers a record $4 on average at the gas pump, and prices are likely to keep rising if soaring crude oil prices do not retreat from record highs, according to an industry analyst on Sunday.
"If crude oil prices stay at nearly $139 a barrel, a 30-cent rise (for a gallon of gas) over the next few weeks is possible," said Trilby Lundberg, editor of the nationwide Lundberg survey of about 7,000 gas stations.
Higher gas prices are crippling consumers and businesses, and squelching the U.S. economy, which is already under pressure from higher food prices, job losses and sinking home values.
The average retail price for a gallon of gasoline in the United States hit $3.9985 on June 6, up 20.5 cents from the last tally on May 16, according to the Lundberg survey. Drivers are paying 89 cents more per gallon than they were at this time last year, she said.
AntiSpin: According to Energy Information Administration of the US Dept. of Energy, here are the prices of a gallon of petrol in five European countries and the UK:June 9, 2008 (Reuters)
A gallon of gasoline is costing U.S. drivers a record $4 on average at the gas pump, and prices are likely to keep rising if soaring crude oil prices do not retreat from record highs, according to an industry analyst on Sunday.
"If crude oil prices stay at nearly $139 a barrel, a 30-cent rise (for a gallon of gas) over the next few weeks is possible," said Trilby Lundberg, editor of the nationwide Lundberg survey of about 7,000 gas stations.
Higher gas prices are crippling consumers and businesses, and squelching the U.S. economy, which is already under pressure from higher food prices, job losses and sinking home values.
The average retail price for a gallon of gasoline in the United States hit $3.9985 on June 6, up 20.5 cents from the last tally on May 16, according to the Lundberg survey. Drivers are paying 89 cents more per gallon than they were at this time last year, she said.
- Belgium: $9.20
- France: $8.80
- Germany: $8.93
- Italy: $8.93
- Netherlands: $9.89
- United Kingdom: $8.74
How do they do it?
- They own one not two cars per household
- Their cars are smaller
- They don't drive as far or as often
- They use public transportation
- They walk and ride bikes
It's not rocket science.
Unfortunately for most US citizens, there are hardly any alternatives to frequent long distance driving. Worst hit is the rural US where rising fuel costs are adding to housing bubble collapse woes.
Wealth Evaporates as Gas Prices Clobber McMansions
June 9, 2008 (Bloomberg)
Sky-high gasoline prices aren't just raising the cost of Eugene Marino's 120-mile (193-kilometer) round-trip to his job in the Washington area. They're reducing his wealth, too.
House prices in his rural subdivision beyond the Blue Ridge Mountains in Charles Town, West Virginia, have plunged as commuting expenses have soared. A four-bedroom home down the street from his is listed for $239,000, after selling new for $360,000 five years ago.
Who could have known?June 9, 2008 (Bloomberg)
Sky-high gasoline prices aren't just raising the cost of Eugene Marino's 120-mile (193-kilometer) round-trip to his job in the Washington area. They're reducing his wealth, too.
House prices in his rural subdivision beyond the Blue Ridge Mountains in Charles Town, West Virginia, have plunged as commuting expenses have soared. A four-bedroom home down the street from his is listed for $239,000, after selling new for $360,000 five years ago.
During the early growth stage of various regional housing bubbles, housing prices increased first in metropolitan areas, then in the suburbs and finally in rural areas. (These are admittedly crude geographic designations designed to simplify the explanation of the theory without invalidating it.) Prices cascaded geographically outwards from areas of high employment (income) and population density (housing demand) in metro areas to areas of lower employment and population density in the suburbs surrounding metro areas and finally, once demand pushed housing affordability to extremes there, to areas of low employment and low population density beyond the suburbs. This process of geographic price cascading took approximately ten years, from around 1995 to 2005.
The dynamic that drove prices outward was the need for workers in the cities and later the suburbs to escape high real estate prices, to move to where real estate was relatively cheaper and the cost of living lower, but still within an “affordable” commute. ...as more and more home buyers searched farther away from metropolitan areas, prices increased in outlying areas as well until property values in rural areas reached historical peaks and experienced bubbles of their own.
Living in rural areas and working either in the suburbs or metropolitan areas increased commute time and expense, but this was affordable with gasoline under $1.50 per gallon as it was before hurricane Katrina. But combined increases in gasoline, heating oil, natural gas and propane prices plus higher interest payment on ARMs combined in mid 2005 to pushed many household budgets past the tipping point for those living in homes purchased in rural areas at or near the top of rural market housing bubbles.
This change in psychology will start to cause housing bubbles around suburban then metro areas to decline in a reversal of the process that drove prices from metropolitan markets outward to suburban and rural markets. The trigger, it should be remembered, was rising gasoline and energy prices and their impact on rural homeowners who purchased at the top of the market.
- Housing Bubble Correction Update: Geographic Regions Cascade,Weekly Commentary (iTulip March 29, 2006)
Since we ran the housing forecast in 2006 and also iTulip's March 25, 2006 - High Commuting Costs Push Rural Property Owners Past the Tipping Point by Down but not Out in Rural U.S.A., several iTulipers decided to put their rural homes on the market and have written in recently to tell us they're glad they did.The dynamic that drove prices outward was the need for workers in the cities and later the suburbs to escape high real estate prices, to move to where real estate was relatively cheaper and the cost of living lower, but still within an “affordable” commute. ...as more and more home buyers searched farther away from metropolitan areas, prices increased in outlying areas as well until property values in rural areas reached historical peaks and experienced bubbles of their own.
Living in rural areas and working either in the suburbs or metropolitan areas increased commute time and expense, but this was affordable with gasoline under $1.50 per gallon as it was before hurricane Katrina. But combined increases in gasoline, heating oil, natural gas and propane prices plus higher interest payment on ARMs combined in mid 2005 to pushed many household budgets past the tipping point for those living in homes purchased in rural areas at or near the top of rural market housing bubbles.
This change in psychology will start to cause housing bubbles around suburban then metro areas to decline in a reversal of the process that drove prices from metropolitan markets outward to suburban and rural markets. The trigger, it should be remembered, was rising gasoline and energy prices and their impact on rural homeowners who purchased at the top of the market.
- Housing Bubble Correction Update: Geographic Regions Cascade,Weekly Commentary (iTulip March 29, 2006)
Going forward
More of the same. You see, US demand is not driving energy prices, new demand outside the US is. Energy consumption per capita in the US hasn't fallen at all for decades even with more efficient appliances because prices have remained relatively low so there has been no incentive to conserve. Now prices are rising quickly and there's no painless way to adjust quickly as occurred in other countries over decades where energy was heavily taxed. The US has to make the adjustment quickly and painfully.
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As energy costs have risen, so have fears that these higher costs will derail economic activity. Professor James Hamilton of the University of California at San Diego has noted that sharp increases in the price of oil have preceded each post-World War II recession in the United States. Yet, some analysts suggest that energy prices today put less pressure on the economy than they did in the past because less energy is used to produce each unit of GDP; said another way, the economy’s “energy efficiency” has increased. But such a conclusion must be drawn with care.
The chart displays annual U.S. energy use relative to use in 1970. The top line shows aggregate energy use, which in 2007 was 50 percent more than in 1970. The bottom line shows energy use per unit of real GDP, which in 2007 was 50 percent less than in 1970. Correctly assessing these trends requires adding one more variable: labor productivity (that is, increases in GDP per hour of work). The chart’s center line adjusts roughly for productivity gains by displaying the quantity of energy consumed per capita. Since 1970 energy use per capita has risen and fallen with energy prices and the business cycle, with notable decreases during 1975, 1979-82, 1990-91, and 2001. Yet, the quantity of energy consumed per capita in 2007 was approximately unchanged from that in 1970.
Energy use per capita is only a rough measure of the economy’s energy dependence because it does not separate the economy’s varied uses of energy. It does, however, emphasize an important underlying theme of America’s energy use: While energy efficiency has improved in almost every aspect of business and life at home, higher living standards have fully consumed that gain—overall energy use per person has changed little during the past four decades. Examples abound. In 1970, the average passenger automobile was driven 10,000 miles annually and consumed 737 gallons of fuel; in 2005, annual mileage was 12,400 using 554 gallons. In 1970, light trucks (then used almost exclusively by business) averaged 8,700 miles annually, consuming 866 gallons of fuel; in 2005, near-ubiquitous trucks and SUVs averaged 11,000 miles annually, consuming 612 gallons of fuel. For the typical household, heating and cooling comprises half of its housing-related energy usage. In 1970, the average new American single-family house was approximately 1,500 square feet; by 2005, the average home was 2,350 square feet. Appliances are more energy efficient, but there are more of them. Survey data for 1980 and 2001 show increases in the share of households with microwave ovens from 14 percent to 86 percent, dishwashers from 37 percent to 53 percent, personal computers from zero to 56 percent, and central air conditioning from 27 percent to 55 percent (the share of households with no air conditioning dropped from 42 percent in 1980 to 23 percent in 2001).
The constancy of the level of U.S. energy use per capita suggests caution when analyzing the impact of higher energy costs: Per-person energy intensity has changed little during the past four decades.
Our position is that this needs to change, and one way or another will change, drastically in the US and soon. When US gasoline prices rise to the levels that already exist in the UK and Europe, we'll see per capita energy consumption fall in the US as well – the hard way. The chart displays annual U.S. energy use relative to use in 1970. The top line shows aggregate energy use, which in 2007 was 50 percent more than in 1970. The bottom line shows energy use per unit of real GDP, which in 2007 was 50 percent less than in 1970. Correctly assessing these trends requires adding one more variable: labor productivity (that is, increases in GDP per hour of work). The chart’s center line adjusts roughly for productivity gains by displaying the quantity of energy consumed per capita. Since 1970 energy use per capita has risen and fallen with energy prices and the business cycle, with notable decreases during 1975, 1979-82, 1990-91, and 2001. Yet, the quantity of energy consumed per capita in 2007 was approximately unchanged from that in 1970.
Energy use per capita is only a rough measure of the economy’s energy dependence because it does not separate the economy’s varied uses of energy. It does, however, emphasize an important underlying theme of America’s energy use: While energy efficiency has improved in almost every aspect of business and life at home, higher living standards have fully consumed that gain—overall energy use per person has changed little during the past four decades. Examples abound. In 1970, the average passenger automobile was driven 10,000 miles annually and consumed 737 gallons of fuel; in 2005, annual mileage was 12,400 using 554 gallons. In 1970, light trucks (then used almost exclusively by business) averaged 8,700 miles annually, consuming 866 gallons of fuel; in 2005, near-ubiquitous trucks and SUVs averaged 11,000 miles annually, consuming 612 gallons of fuel. For the typical household, heating and cooling comprises half of its housing-related energy usage. In 1970, the average new American single-family house was approximately 1,500 square feet; by 2005, the average home was 2,350 square feet. Appliances are more energy efficient, but there are more of them. Survey data for 1980 and 2001 show increases in the share of households with microwave ovens from 14 percent to 86 percent, dishwashers from 37 percent to 53 percent, personal computers from zero to 56 percent, and central air conditioning from 27 percent to 55 percent (the share of households with no air conditioning dropped from 42 percent in 1980 to 23 percent in 2001).
The constancy of the level of U.S. energy use per capita suggests caution when analyzing the impact of higher energy costs: Per-person energy intensity has changed little during the past four decades.
Is it any wonder that With U.S. in slump, dual citizenship in EU countries attracts Americans? Wars and famine drove Europeans to the USA in the last century. Perhaps an energy crisis will sent them back in this one.
(Hat tip to eagle eyed iTuliper cmraynew for spotting the story and noting the connection to High Commuting Costs Push Rural Property Owners Past the Tipping Point)
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