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The Pursuit of Low Gas Prices is Bad for the U.S.

Co-authored by Randy Essex, RMI Editorial Director

It’s a fallacy that we can drill our way to low gas prices, and trying to do so not only threatens our health, but also wastes our money and misdirects innovation. If we stop focusing on the problem of high gas prices and who’s to blame and start pursuing solutions to the true problem—our oil dependence—we might find we agree more than we think.

Oil price volatility carries a huge economic cost. High oil prices have preceded every recession since 1973, and have put mobility industries especially at risk.

Savvy companies get this. FedEx (which burns 1.5 billion gallons of petroleum-based fuels) is now betting on electric or hybrid vehicles, and adding biofuels and natural gas to the mix for its delivery van, truck, and jet fleets.

The relentless pursuit of low gas prices forces us to spend trillions and risk young Americans’ lives. The Pentagon gets this, and has made “more fight, less fuel” a central part of its sweeping strategy to not only reduce through efficiency the amount of oil the military uses, but also to replace it with alternative sources.

The North American Council for Freight Efficiency’s fleet efficiency survey shows that once the leaders in trucking started adopting efficiency measures, they continued doing so even when diesel prices dropped. Now that fuel prices are rising again, that investment is rewarding them even more.

Many have pointed to the Obama Administration and its energy strategy, in spite of the fact that gas prices and volatility are tied to the world market (which pays little regard to who is president).

Energy Secretary Steven Chu is in hot water for having said in 2008—before he was energy secretary—that, “somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Politically inconvenient given Chu’s position now, but did he have a point?

Higher prices create incentives to move toward efficiency and away from oil. People respond to incentives, whether they are created by government or by the market.

If gas prices rose and stabilized, people would have greater incentive to buy fuel-efficient vehicles—a phenomenon we’re seeing today. Automakers are seeing sales of fuel-efficient vehicles rise and GM just announced that the Volt sold a record 2,289 units in March, a 50 percent increase over the previous record.

[RMI’s recent publication] Reinventing Fire shows how new business models and competitive strategies can shield our economy from the volatility of oil price shocks. Across buildings, transportation, industry, and electricity, Reinventing Fire show promising ways to win the clean energy race, not forced by public policy but led by business for durable advantage.

The political blame game is a waste of time and energy. The fact that the U.S. economy has been whipsawed by volatile oil prices for decades under administrations both Republican and Democrat makes this clear. It’s time to move on.

This post originally appeared at the RMI Outlet blog and was republished with permission.