JEC REPORT: Increasing Oil Prices Potentially Threaten Economic Recovery and Clean Energy Policies
Washington, D.C. – Increasing oil prices could threaten the country’s economic recovery and limit progress on energy-efficiency policies, according to a new report issued by the Joint Economic Committee (JEC) today on the eve of Earth Day’s 40th anniversary.
The report, titled “Rising Oil Prices: A Potential Threat to Economic Recovery and Energy-Efficiency Policies,” shows that the United States, which has made little progress towards reducing its dependence on oil for transportation, remains vulnerable to oil price spikes. The share of U.S. Gross Domestic Product (GDP) going to oil expenditures has more than doubled from 1.8 percent in 1993 to 3.8 percent today and is close to the 4 percent level – a level often associated with recessions. The reliance on oil to meet the country’s transportation needs also harms the environment: the transportation sector has been the largest producer of carbon dioxide since 1999, producing almost one-third of total CO2 emissions in the United States.
Congresswoman Carolyn Maloney, Chair of the JEC, stated, “As we celebrate Earth Day, we can be proud of all that our country has accomplished to protect our air, water, and land. Congress took bold steps last year to create policies that bolstered jobs and energy independence. But when it comes to reducing our dependence on oil, we still have work to do. As this JEC report indicates, we always have to keep a vigilant eye on oil prices. Put simply, rising prices could simultaneously threaten our economic recovery and make it more difficult to pursue clean energy policies that move the country away from our dependence on oil. The oil price spikes in 2007 and 2008 helped to fuel the recession. When consumers are paying more at the tank, they have less to spend on fueling our economy.”
The report observes that sharp increases in oil prices slow economic growth. The significant rise in oil prices in 2007-2008, with oil peaking at an inflation-adjusted price of $134 per barrel in the summer of 2008, was one of the causes of the Great Recession, as consumers faced higher transportation costs and had less money for consumption of other goods and services. As oil prices rise, the report notes, businesses face higher costs to produce and transport their products, leading to lower tax revenues and, ultimately, putting additional pressure on the deficit. The fiscal pressure limits the tools policymakers have to encourage development of alternative fuels and additional transportation choices.
Passed by Congress in February 2009, the Recovery Act accelerated the transition to a clean-energy economy, broadening the range of transportation options available through expansions of high-speed rail, providing greater access to mass transit, and supporting research and deployment of next-generation car batteries and all-electric vehicles. The Council of Economic Advisers estimates that the clean-energy investments in the Recovery Act will create 720,000 job-years by the end of 2012.
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The Joint Economic Committee,
established under the Employment Act of 1946, was created by Congress to review
economic conditions and to analyze the effectiveness of economic policy.
www.jec.senate.gov
