The Morality of Oil Prices

As I write this, oil prices have dropped below $50 a barrel for the first time in almost two years, down from over $140 back in the summer. Last night I filled up for $1.73 a gallon, a level GasBuddy.com says Dallas hasn’t seen since early 2005, and down from as much as $4. Cathy and I have fuel-efficient cars (I have a Prius, she has a Honda Fit), but that still saves us around $120 a month. I can only imagine the savings for people who drive bigger vehicles, whether they need them or whether they just made a mistake and are stuck with them.

This is a good thing, right? I’m not so sure.

First, oil and gas prices have dropped because the world is in the middle of a deep recession. This is kinda like losing weight because you were sick and couldn’t eat – you’ll take it, but it isn’t a bargain you’d willingly make. The $120 a month we’re saving on gas is a drop in the bucket compared to what we’ve lost in our retirement savings. And cheaper gas is cold comfort if you’ve lost your job.

Mainly, though, high prices encourage people to change their behavior. Sales of SUVs are way down, sales of small cars are up. More people are taking public transportation (which is rather limited in DFW, but every little bit helps). Burning less gas means less oil to import from countries we’d rather not support and it means less CO2 emissions contributing to global warming.

Further, high prices encourage innovation. Biofuels and electric cars aren’t economically viable if gas is $1.73 a gallon. People who truly care about the environment will pay more to pollute less (if they can), but the vast majority of people won’t.

There is one environmentally good side to lower prices – at $50 a barrel the Alberta tar sands and other high-impact sources of oil aren’t viable.

Americans have shown we have short memories and a short planning horizon – my best guess is that the only reason SUV sales haven’t picked up is that credit is still too tight. I hope the memory of $4 gas will mean the shift to more efficient vehicles is permanent, but I tend to doubt it.