Higher gas prices are needed
The U.S. inflation rate, which reached 8.6% in May, is at its highest point in 40 years. In 1982, it was just over 6%. Since then, the U.S. inflation rate has hovered mostly in the 2% to 4% range.
The inflation rate is determined by changes in the cost of a fixed basket of 80,000 goods and services that Americans use in their everyday lives. These include food and housing, furniture, medical costs, gasoline and other energy expenses. All are combined into a single measure, weighted on the basis of how much of each item a typical family consumes. Items are added and subtracted over time based on changes in consumption patterns. If that sounds complex, it’s because it is. For simplification, the one item most often referred to is the price of gasoline at the pump.
In 1982, the average U.S. cost per gallon of gasoline was just $1.22. For reference, the U.S. prime rate at that time was a whopping 13%.
Consumer gas prices remained relatively stable over the next 20 years, until they began a steady climb in the early 2000s, peaking at $4.14 per gallon in 2008 during the Great Recession. There was a steep drop in late 2008 to $1.75, followed by a gradual rise back to $3.96 in 2012 and then a steady decline to $1.87 in 2016. At the beginning of this year, gas prices started around $3.40. They’ve since risen sharply to a national average of $5.01, as of June 15, according to the American Automobile Association (AAA).
While it is tempting to think that gas prices have something to do with inflation, interest rates or maybe even who’s occupying the White House, it’s really none of those things. Oil is a global commodity; supply disruptions due to war and production quotas negotiated between oil-producing countries have a much greater impact than anything happening in the U.S.
Five or more dollars a gallon sounds high, but it’s a bargain compared with the rest of the world. All countries have access to the same global petroleum market, but different taxes and subsidies lead to different costs at the pump.
In general, wealthy countries pay higher prices for gas, and poorer countries, along with those who export oil, pay less. With an advanced economy but relatively low gas prices, the United States is a notable exception to this rule. Current gas prices in most of Western Europe are as much as 103% higher than in the U.S., ranging from around $7.65 (Germany) to $10.22 (Norway) per gallon.
Within the U.S., prices differ state by state. In mid-June, Georgia had the lowest price per gallon at $4.50. California’s price was highest at $6.44. Virginia’s $4.87 price was below the $5.01 national average.
While politically popular, below-average gas prices do come with unintended consequences.
The U.S. lags behind the rest of the world in the development of alternative energy. Carbon emissions have led to climate change, increased storm activity, wildfires and sea-level rise.
The consensus in the scientific community is that climate change is moving past the tipping point and causing catastrophic damage that will be difficult or impossible to reverse. Some may choose to ignore science or promulgate different viewpoints, but they do so at their own peril, as well as to the detriment of others.
Low gasoline and oil prices are a subsidy that undermines the development of alternative energy production. Let’s face it: Virginia isn’t Texas; we’ll never be an oil-producing state. (The General Assembly banned coastal oil and gas drilling in 2020.) A revival of coal mining also will not happen. Even if it could, it wouldn’t create jobs. Mining technology has totally changed. Virginia’s energy mix is dominated by natural gas and nuclear. We need more of both, but the development of new capacity is hampered by low prices for power sources that produce higher carbon emissions.
On the other hand, there is offshore wind. In the U.S., Virginia is working to be at the forefront of this developing industry. Other nations with higher gas and oil prices are already decades ahead.
For over 100 years, a federal law known as the Jones Act has specified that cargo carried between U.S. ports must be on ships that are U.S.-owned, U.S.-built and U.S.-crewed. That is why Dominion Energy Inc. is spending $500 million to build its own vessel to install the 176 turbines for its $9.8 billion wind farm off the Virginia Beach coast.
Offshore wind development will not only create jobs, but it will also drive growth for Virginia’s ports and maritime industry.
Though politically popular, low gas and oil prices are stifling the growth of noncarbon alternatives. The U.S. needs to step up. Virginia has competitive advantages in this area. That’s good for the commonwealth. Given climate change, this should be viewed as both an opportunity and an obligation