JEC: Continued reliance on oil for transportation threatens economy

Rising oil prices could threaten a US economic recovery and limit progress on energy efficiency policies, a new report by the congressional Joint Economic Committee (JEC) warned.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Apr. 29 -- Rising oil prices could threaten a US economic recovery and limit progress on energy efficiency policies, a new report by the congressional Joint Economic Committee (JEC) warned. While headway has been made in other sectors, progress to reduce reliance on oil for transportation has been slow, JEC said.

“Put simply, rising prices could simultaneously threaten our economic recovery and make it more difficult to pursue clean energy policies that move the country away from our dependence on oil,” said JEC Chairwoman Carolyn B. Maloney (D-NY). “The oil price spikes in 2007 and 2008 helped to fuel the recession. When consumers are paying more at the tank, they have less to spend on fueling our economy.”

The report by the JEC’s majority staff said higher transportation costs compelled consumers to spend less on other goods and services when crude oil prices peaked at an inflation-adjusted $134/bbl in the summer of 2008. Businesses also were hit by increased product transportation costs, it added.

Crude and product demand fell and prices declined as economies worldwide moved into recession. “Now, with the global economy emerging from recession, demand for oil is picking up, and prices have risen,” the report said. “If prices rise too much, they could threaten the nascent recovery. Absent major efficiency breakthroughs in the use of oil, as prices rise, a larger share of [US gross domestic product] would go to oil expenditures.”

“How hypocritical of the Democrats,” responded Rep. Kevin Brady (R-Tex.), the committee’s senior Republican from the House. “While they are determined to drive up US energy prices through an extreme cap and trade scheme and promoting tax policies that outsource American energy jobs, they are suddenly concerned about energy prices and the economy?

‘Greatest obstacle’
“The truth is that the greatest obstacle to America’s economic recovery is this Congress and the White House, whose agenda of expensive health care mandates, higher energy prices, and more taxes has discouraged business investment and is causing companies to postpone rehiring and expansion decisions,” Brady said in an e-mail to OGJ.

The report said oil price increases hurt the US economy by reducing consumer confidence as well as spending on other goods and services, lowering suburban and rural home prices, shrinking demand for automobiles (“especially the less fuel-efficient vehicles made by US manufacturers”), and raising the cost of producing goods. The US trade deficit also grows as crude prices climb because the US imports more than 50% of the oil it consumes, it continued.

Oil is the largest contributor to US greenhouse gas emissions, according to the report. “The reliance on petroleum-based products for transportation in the US has meant that carbon dioxide emissions from petroleum use in the US equals 2.4 billion tonnes/year,” it said. While carbon emissions from petroleum declined slightly during the latest recession, the US transportation sector was the country’s largest CO2 producer in 2008 with 32% of total emissions, having passed the industrial sector in 1999, the report said.

It noted Congress and the administration of President Barack Obama have taken steps to create jobs and stimulate investments in clean energy technologies. But it also urged policymakers to find ways to help consumers more easily reduce their reliance for oil on transportation.

“To lower the costs of switching to an alternative fuel or alternative form of transportation, policymakers can promote travel demand management, support development of low greenhouse gas-emitting fuels, and encourage innovation in advanced vehicle technologies,” it said. “Travel demand management techniques include better mass transit, making cities more accessible to pedestrians and cyclists, and pay-as-you-go auto insurance…priced and billed depending on the number of miles driven.”

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