The Effects of Rising Energy Costs on American Families and Employers
Daniel J. Weiss testimony before the House Oversight Subcommittee on Energy Policy, Health Care, and Entitlements (full PDF here)
Chairman Lankford, Ranking Member Speier, and members of the Subcommittee, thank you for the opportunity to testify on “The Effects of Rising Energy Costs on American Families and Employers.”
When considering energy prices, there are three primary considerations.
- Fossil fuel prices do not include the costs of their side effects such as air pollution and the associated health care costs for premature deaths or asthma attacks.
- The Obama administration has adopted important policies to reduce energy costs for middle- and lower-income families.
- Expanding domestic oil production in protected lands and waters will not lower gasoline prices, but high gasoline prices yield high oil company profits for companies receiving huge tax breaks.
Fossil fuel-generated energy has real external costs
- When assessing the effects on rising energy costs, it is essential that this evaluation also include their external costs—and who pays them. This includes the following expenses:
- Mercury and toxic pollution from power plants threaten children, senior citizens, and the infirm with brain impairment or respiratory illnesses. Reducing these pollutants will return $3 to $9 in health benefits for every $1 in cleanup costs.
- Coal-fired power plants produce one-third of all the climate pollution in the United States.
- Climate change has real costs to our economy. The National Journal, for instance, reported that the drought will reduce Mississippi River barge traffic, resulting in “losses of about $7 billion through the end of January, according to the barging industry.”
- The National Oceanic and Atmospheric Administration reported that in 2011 to 2012 there were 25 floods, droughts, storms, heat waves, and wildfires that each caused at least $1 billion in damages. Together, these severe events caused 1,100 fatalities and up to $188 billion in total damages.
- Pollution reductions internalize some of these costs of pollution so that they are paid for by the fuel users rather than by everyone.
The Obama administration has adopted important policies to reduce energy costs
- Doubling the fuel economy of passenger vehicles will reduce gasoline purchases by $8,000 over the life of a 2025 car. It will be like getting $1 off the price of a gallon of gasoline.
- The Department of Energy set efficiency standards for nearly 40 different appliances that together will “save consumers nearly $350 billion on their energy bills through 2030.”
- The Weatherization Assistance Program weatherized its 1 millionth home in 2012. The Department of Energy estimates that this saves “a family up to $400 a year on heating and cooling costs.”
- I agree with Mr. Trisko that those concerned about the impact of energy prices on lower-income households should restore the recent funding cuts in the Weatherization and Low Income Home Energy Assistance Programs. Eliminating special tax breaks for the big five oil companies would provide $2.4 billion annually to offset them.
Expanding domestic oil production into protected lands and waters will not lower gasoline prices, even though the United States is already producing the most oil in 15 years
- Oil prices are set on a world market not really affected by domestic production. Two-thirds of the gasoline price is based on the oil price. Therefore, higher U.S. oil production has little effect on gasoline prices here.
- The U.S. Energy Information Administration reports that federal lands and waters produced 2 billion barrels of oil from 2009 to 2011, and only 1.8 million barrels from 2006 to 2008—13 percent more.
- The Associated Press tested whether more U.S. drilling would lower gasoline prices. After analyzing 36 years of monthly U.S. oil-production and gasoline-price data, the Associated Press found “no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.”
- High oil and gasoline prices do benefit the big five oil companies: BP, Chevron, ConocoPhillips, ExxonMobil, and Shell. They made a combined profit of $255 billion in the last two years—an average of $1,000 in profit for each vehicle on the road.
- Yet these big oil companies retain their special tax breaks, which annually are worth $2.4 billion, according to the Congressional Joint Committee on Taxation.
Conclusion
To protect American families and businesses from high energy prices, we must:
- Reduce the pollution caused by fossil fuel use
- Continue to improve efficiency of vehicles, appliances, and buildings
- Fully fund the Weatherization and Liheap programs
- Eliminate unnecessary tax breaks for the big five oil companies, which are already swimming in profits
Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress Action Fund.
Related Post:
- Economics Stunner: “Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added; Natural Gas Damage Larger Than Its Value Added For Even Low CO2 Prices
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Language Intelligence: Lessons on persuasion from Jesus, Shakespeare, Lincoln, and Lady Gaga
We know, and Congress knows, the real costs are high; so what? I have yet to see a proposal that addresses the severity of the real problem, and offers a detailed plan to address the severity; I suspect there is none.
Not for the USA, no. But with their usual blind-bat foresight the UK does have such a plan, quite detailed. See The Carbon Plan Delivering Low-Carbon Future (220 pg pdf) with follow-on commentary at Report calls for huge expansion of experimental nuclear plants.
Yeah, I know. That last is a real deal-killer. Guess we’ll just have to take the heat :)
Looking at the whole-system affects the fossil fuel industry causes permeating the current civilization — and that it is a multi-trillion-dollar-industry — the costs likely aggregate in the tens of trillions of dollars.
Nobel Economist Joe Stiglitz has estimated Iraq War costs in excess of 4 trillion dollars considering all externalities; and, many socio-economic and environmental costs are way undervalued or not considered at all.
You bet they do! But, there are enough people profiting from the sales and employment related to fossil fuels, and enough people demanding these fuels irrespective of climate costs that nothing will be done to change the status quo.
4 trillion is within spitting distance of enough to do a complete national conversion to wind and solar and a smart grid to manage it. If you add in the costs of our other wars for oil there would be plenty of cash to handle the storage problem. This of course says nothing of the cost in lives.
Any extended cost analysis would’ve shown the merit of wind and solar any time in the past two or maybe three decades. The owners of the fossil fuels will fight a rearguard action to our last breath. Since they still own/control all the media the fight will continue past all reason.
Interesting and informative. However, it leaves out the biggest part – one which the environmental community seems incapable of embracing: large scale deployment of wind and solar PV. If we decarbonize electricity production and electrify transportation to the maximum extent possible, we will gain many benefits, not the least of which is possibly avoiding the worst global warming catastrophe imaginable.
Yet, we see no mention of that approach. Why?
Weatherizing is interesting, but it is not rapidly transformative in the same way as decarbonizing energy resource extraction and utilization.
People are asked to think big and then given the smallest, most incremental approaches possible: conservation, a little solar-on-rooftop, and a tad of this or that. Instead, we should be acting on a scale that is appropriate to the task at hand: massively and rapidly.
We absolutely will not get a second chance to respond to global warming in an appropriate fashion.
it is a pure assumption that the required drastic reduction in CO2 emissions that offers any glimmer of hope will accompany massive solar and wind installation. The fossil boys are selling all they can now, and making as much as they can. If solar and wind ever became price competitive, the fossil states, such as Iran, etc, would lower prices drastically; they have much leeway in wages, profits, prices. They will still sell as much as they can, but make less than as much as they can. Why would someone invest massively in solar under these conditions?
Because they care more about having a living planet than money? ME
You have almost defined a null set, especially among the people in that economic strata.
Perhaps you could get out more, broaden your contacts a little? ME
Merrelyn, unfortunately Superman is correct in his observation concerning the economic elite under end-stage capitalism.
I would prescribe the same medecine for you Mulga but I know that more data contrary to your prejudcies would cause you even greater internal conflict – not good for the health mate, ME
Cause they aren’t suicidal?
Look, if we collectively were not (unintentionally) suicidal, we would have converted to fossil, wind, etc, starting in the 70s. We had the technology, albeit it was more expensive; solar concentrators and wind turbines were available at that time. We would have paid the extra money for survival; we do it every day in the form of insurance. But, we collectively didn’t then, and we collectively aren’t now, for essentially the same reasons.
Superman1: fossil fuels are only cheap because they don’t include the cost of the externalities. If they are priced in then FF are no longer cheap. So something like Hansen’s “Tax and dividend” is required. BTW: the sensible thing to do with FF is not to burn them but to use them to make e.g. plastics, paints, pharmacuticals, fertilisers etc
Agree, Turbo. That’s the entire point of including the external costs–so the better alts are price-competitive. Fossil fuels get a hug e subsidy–the right to dump waste into the commons without charge.
The biggest unpriced externality is, of course, climate change. Even if viewed as insurance, the premium against this risk would make fossil uneconomic.
But that assumes liability would be appropriately ascribed. As Mulga would point out, the system is not set up for that. But that is the vision and goal: alignment of cost and risk causation.
Prices are not the same as costs, and your argument makes the case for why we need to add taxes to the price of fuels, especially if the price falls a lot after we reduce our use of those commodities. The external costs are big, and the goal is to eliminate fossil fuel use. Taxing those fuels to prevent the scenario you outline is a logical choice that would have many benefits.
So don’t get hung up too much on prices. Wind generation is already less costly TO SOCIETY than fossil fuels of any type, and solar is getting close.
You also seem to be arguing that any action we take is futile, but that is a downright silly position to take, given all the options we have. Any action we take will make things better than they otherwise would be, and that’s the standard that we need to use in deciding what to do every single day.
“You also seem to be arguing that any action we take is futile”. That’s not the argument I make, but that’s how it is being interpreted. My argument is equivalent to one’s being diagnosed with Stage 4 cancer, and the Doctor saying they have six months left. He’s not saying don’t fight; he’s saying based on the data we have, the charts estimate your remaining life at six months. I encourage fighting, but fighting the right enemy in the right way. That’s what I’m not seeing.
Who is the right enemy and what is the right way?
Super ” I encourage fighting, but fighting the right enemy in the right way.”
You tell who and how. That would be a constructive comment for you to make.
If your community’s energy comes from the elbow grease (or sometimes from the software coding) of your community’s members, then you have a sustainable energy economy. The money that half of your community pays for energy goes straight to the other half of the community. Then the other half buys haircuts, cupcakes and chairs from the first half.
There’s a cost to not having a sustainable energy economy. After the money drains away, there aren’t enough jobs.
We need to make what we use. We need to grow wood, grow algae, capture sunlight and catch wind. We need to conserve energy. We need more energy efficiency in our (not their) products.
Ultimately, we might end up with a market-based accounting system that keeps track of local human jobs, local energy and pollutants the same way that we keep track of dollars and pennies. No local jobs, fossil energy, big tariff. If your product is a penny cheaper but it doesn’t provide local jobs and use local energy, your bottom line should be priced far higher than the competition. Few people will buy your product, few retailers will carry it and your banker can help you decide when you’d like to go out of business.
The future is probably much more exciting than this: poverty eradication, universal healthcare, universal advanced education, science and technology advancing faster than ever . . . highly informed by natural systems, the arts, theology . . .
Back to Eden characterized by a high quality of life with a low cost of living . . .
Work is fun, highly productive, interesting and intimately advancing humanity to prepare for the stars.
Your fine Utopian future, which I find highly alluring, will only come about if those forces among humanity who have always opposed such egalitarianism and solidarity since the dawn of recorded time, are once and for all defeated. We haven’t managed in ten thousand years, and we have a few decades, at most, to achieve it now. I’d call that ‘Drongo odds’.
Cognitive scientist Steven Pinker addresses this directly in Better Angels of Our Nature.
We already live in relatively utopian times and things are getting better . . .
Climate may be viewed as the next major test or catalyst for terrific advancement . . .
This type of headline first appeared about four decades ago. This testimony therefore gets a C from this Sustainable Energy Policy Planning advocate. Of course, if things go badly because humans think carbonic acid gas is harmless, then the cost of igniting fossil substances will be a rapid reversal of photosynthesis with attendant acidification, heating and destruction of our oxygen suppliers.
Those fossil fuel dudes are never going to go for having their property “confiscated”. It’ll stay in the ground over their dead bodies.
Years ago Ralph Nader said solar energy would be feasible when Standard Oil got a meter on the Sun. May be it would be easier to make a deal and trade a lease on the Sun for all their mineral rights?