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The Effects of Rising Energy Costs on American Families and Employers

Testimony Before the House Oversight Subcommittee on Energy Policy, Health Care, and Entitlements

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Chairman Lankford, Ranking Member Speier, and members of the Subcommittee, thank you for the opportunity to testify on “The Effects of Rising Energy Costs on American Families and Employers.”

When considering energy prices, there are three primary considerations.

  1. Fossil fuel prices do not include the costs of their side effects such as air pollution and the associated health care costs for premature deaths or asthma attacks.
  2. The Obama administration has adopted important policies to reduce energy costs for middle- and lower-income families.
  3. Expanding domestic oil production in protected lands and waters will not lower gasoline prices, but high gasoline prices yield high oil company profits for companies receiving huge tax breaks.

Fossil fuel-generated energy has real external costs

  • When assessing the effects on rising energy costs, it is essential that this evaluation also include their external costs—and who pays them. This includes the following expenses:
  • Mercury and toxic pollution from power plants threaten children, senior citizens, and the infirm with brain impairment or respiratory illnesses. Reducing these pollutants will return $3 to $9 in health benefits for every $1 in cleanup costs.
  • Coal-fired power plants produce one-third of all the climate pollution in the United States.
  • Climate change has real costs to our economy. The National Journal, for instance, reported that the drought will reduce Mississippi River barge traffic, resulting in “losses of about $7 billion through the end of January, according to the barging industry.”
  • The National Oceanic and Atmospheric Administration reported that in 2011 to 2012 there were 25 floods, droughts, storms, heat waves, and wildfires that each caused at least $1 billion in damages. Together, these severe events caused 1,100 fatalities and up to $188 billion in total damages.
  • Pollution reductions internalize some of these costs of pollution so that they are paid for by the fuel users rather than by everyone.

The Obama administration has adopted important policies to reduce energy costs

  • Doubling the fuel economy of passenger vehicles will reduce gasoline purchases by $8,000 over the life of a 2025 car. It will be like getting $1 off the price of a gallon of gasoline.
  • The Department of Energy set efficiency standards for nearly 40 different appliances that together will “save consumers nearly $350 billion on their energy bills through 2030.”
  • The Weatherization Assistance Program weatherized its 1 millionth home in 2012. The Department of Energy estimates that this saves “a family up to $400 a year on heating and cooling costs.”
  • I agree with Mr. Trisko that those concerned about the impact of energy prices on lower-income households should restore the recent funding cuts in the Weatherization and Low Income Home Energy Assistance Programs. Eliminating special tax breaks for the big five oil companies would provide $2.4 billion annually to offset them.

Expanding domestic oil production into protected lands and waters will not lower gasoline prices, even though the United States is already producing the most oil in 15 years

  • Oil prices are set on a world market not really affected by domestic production. Two-thirds of the gasoline price is based on the oil price. Therefore, higher U.S. oil production has little effect on gasoline prices here.
  • The U.S. Energy Information Administration reports that federal lands and waters produced 2 billion barrels of oil from 2009 to 2011, and only 1.8 million barrels from 2006 to 2008—13 percent more.
  • The Associated Press tested whether more U.S. drilling would lower gasoline prices. After analyzing 36 years of monthly U.S. oil-production and gasoline-price data, the Associated Press found “no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.”
  • High oil and gasoline prices do benefit the big five oil companies: BP, Chevron, ConocoPhillips, ExxonMobil, and Shell. They made a combined profit of $255 billion in the last two years—an average of $1,000 in profit for each vehicle on the road.
  • Yet these big oil companies retain their special tax breaks, which annually are worth $2.4 billion, according to the Congressional Joint Committee on Taxation.

Conclusion

To protect American families and businesses from high energy prices, we must:

  • Reduce the pollution caused by fossil fuel use
  • Continue to improve efficiency of vehicles, appliances, and buildings
  • Fully fund the Weatherization and Liheap programs
  • Eliminate unnecessary tax breaks for the big five oil companies, which are already swimming in profits

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress Action Fund.

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