American anger at gas prices fueled by rising household energy costs
Americans are spending 12 percent of their disposable income on energy costs – up from 7.7 percent in 2002, a new study says. Gas prices are the biggest part of the equation.
Congress's failed bid Tuesday to rein in multibillion-dollar tax breaks for oil companies was merely a first shot across the bow, as Americans frustrated by rising energy costs press their lawmakers to target the industry, according to a new study.
The analysis by ClearView Energy Partners estimates that Americans are now spending 12 percent of their disposable income on gasoline, electricity and heating – up from 7.7 percent in 2002. With Americans' disposable income increasing since 2002, households are paying more than double what they did in 2002 – $4,410 a year in 2011, compared with $2,180 a year per in 2002.
Gasoline prices are responsible for much of the jump, with electricity and heating actually down as a share of the household energy budget since 2002. Gasoline, by contrast, now takes up about 38 percent of the average household energy budget, compared with 24 percent in 2002.
The mounting role of oil prices in rising household energy costs means that states with residents that drive more or rely on heating oil are being hit disproportionately hard by the energy crunch. Amid a weak economy with high unemployment rates, that could create new political pressures that could play out in Congress over the next year, says Kevin Book, managing partner at ClearView Energy Partners, a Washington-based energy market research firm.
"You have the same consumers, but they have less cash, less credit, and basically the same gas guzzling cars," he says. "It's a much tougher picture for them overall when you factor in the weak economy."
Differences state by state
It's also resulting in some striking disparities. In Mississippi, for instance, residents pay 17 percent of their disposable household incomes for energy, compared with 10 percent for Massachusetts residents. The reasons are several. The amount of driving per year, income levels, gas prices, and the level of unemployment all factor in.
Mississippians drive an average of 14,200 miles a year, are paying about $3.30 per gallon, and make about $29,650 per household, according to ClearView's calculations. In Massachusetts, residents drive only about 8,400 miles per year and have an average income of $46,300.
There are mitigating factors, though. At the same time, they pay more for air conditioning (for obvious reasons) and less for heating (for less obvious reasons). Some 40 percent of Massachusetts homes are heated by fuel oil, whose prices have soared.
In the end, the combination of factors means Massachusetts residents have it easier on average than Mississippians when it comes to paying their energy bills, ClearView found.
In Maine, meanwhile, households forked over 16.6 percent of their disposable income for energy – a big chunk for costly heating oil – compared with 9 percent in 2003. That could have ramifications for Maine Sens. Susan Collins and Olympia Snowe, both Republicans, says Mr. Book. Similarly, Sen. Lindsey Graham (R) of South Carolina could face similar pressures given that his state's households pay 15 percent of their disposable income for energy.
In Louisiana, an oil state where households spend about 11.6 percent of their income on energy, ClearView's analysis shows, there is a bit less pressure on Sen. Mary Landrieu (D) to chop tax breaks for oil companies. Filling up her Chevrolet Suburban makes her angry, but cutting subsidies to the five biggest US oil companies "is not going to lower gas prices by one penny," she told Platt's Energy Week.
She was joined by industry organizations making the same case.
“Making baseless allegations about America’s oil producers and refiners in an attempt to improve candidates’ political poll numbers does nothing to improve America’s energy security or make gasoline more affordable for America’s families, farmers, and truckers," Charles Drevna, president of the National Petrochemical & Refiners Association, said in a statement. "Instead of playing politics with America’s energy needs, our elected officials need to look at basic economics and acknowledge that the cost of oil and gasoline is set by the free market."
Energy issues on the boil
Congress could feel pressure to act in other ways, too. Annual household gasoline expenditures have risen from less than $2,000 in 2009 to more than $3,000 this year in some areas, according to the Consumer Federation of America. A strong majority of Americans – Republicans, Democrats, and independents – want better fuel efficiency from their cars, according to a recent CFA poll.
“Pain at the pump, along with the country’s oil import dependence, has produced a growing consensus that the federal government should substantially increase fuel economy standards," says Mark Cooper, CFA's research director.
In short, the fundamental economics of pump prices look certain to keep the issue top of mind for many Americans – and therefore in Congress's crosshairs, says ClearView's Book.
Indeed, by many typical measures, gas prices should be lower: US gasoline consumption is weak, there is an oversupply of West Texas Intermediate crude, and US refineries are operating well below capacity. Yet prices have jumped anyway on the strength of inefficiencies in the global refining system, soaring Chinese demand, supply interruptions in Libya, and US currency-exchange issues.
Tuesday's bill taking on Big Oil tax breaks was "just the start of the process," says Book. "Certainly any decline [in gas prices] has potential to lessen political pressure. But the discontent doesn't go away even if prices pull back a bit."