MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

YOU DECIDE:Do we need help to conserve energy?

By Dr. Mike Walden
North Carolina Cooperative Extension Service

The new federal energy bill contains many provisions to encourage Americans to conserve energy, encouragement some say can't come too soon.

Critics say the fact that the U.S. consumes far more energy per person than any other country proves we waste energy. Additionally, improvements in gas efficiency have ground to a halt as vehicle buyers have shifted to trucks and SUVs.

So supporters of the new conservation enticements say both American businesses and consumers need a nudge - indeed, maybe a strong shove - to get back to using energy rationally.

Another view, however, says we have used energy rationally, that businesses and consumers clearly respond to incentives when it comes to energy use and the best way to encourage conservation is to let the price of energy reflect its total costs.

Who's correct?

Let's start with some facts: the U.S. does consume the largest amount of energy per person in the world, primarily because it's by far the world's largest economy. The U.S. economy, in terms of its production of goods and services, is 70 percent larger than the number two economy, China.

And when energy use is expressed per dollar of output in the country, the U.S. is actually a more frugal energy user than many other countries. For example, it takes one-fourth the amount of energy to produce a dollar of output in the U.S. as it does in China and one-third the amount as in India.

We could argue that American consumers have behaved rationally with energy use when energy prices are considered. Take the example of vehicle size. Through the 20th century's first 70 years, vehicles became larger and more powerful as the real (inflation-adjusted) price of gasoline fell by almost half. Then, after the gas price spike in the late '70s and early '80s, fuel-efficient compact cars became the rage.

However, the downward trend in gasoline prices resumed after 1985, and real gas prices hit a century low in the late 1990s. Since it was now cheaper to run big, powerful vehicles, it shouldn't be surprising that SUV and truck popularity increased and fuel efficiency fell. Now, with real gas prices up more than 80 percent in eight years, there are waiting lists for the modern version of the compact car: hybrids.

Since most energy prices are now higher, economists believe that even without the energy bill, energy conservation will naturally come back in vogue in many forms. It will come from buying more fuel-efficient cars and appliances, but will also come from driving less fuel-efficient cars fewer miles. And it will come from people moving closer to their work and shopping sites.

Indeed, this illustrates one issue with the new energy bill: It promotes only a limited number of ways to save energy. Yet there are numerous ways to conserve fuel, and consumers will respond differently to the main motivation for doing so: higher prices.

Ultimately, what we each decide determines our collective energy policy.

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Dr. Mike Walden is a William Neal Reynolds Professor and extension
economist in the Department of Agricultural and Resource Economics of North
Carolina State University's College of Agriculture and Life Sciences. He
teaches and writes on personal finance, economic outlook and public policy.
His You Decide column is provided every two weeks by the Department of
Communication Services. Earlier You Decide columns are available on the Web
at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm
Related audio files are at
http://www.ces.ncsu.edu/depts/agcomm/writing/walden/index.htm