Why conserving our way out of this won't be so easy

This article, from the July 22, 2008 Wall St. Journal, seems more relevant than every now.

A Difficult Road Awaits For Energy Conservation

By NEIL KING JR.

Soaring gasoline prices, angst in Washington, economic malaise, fears of far worse to come -- the U.S. has been through the energy wringer before, and even managed to ease the pain through conservation.

The last time the country was clobbered, 1979-1983, Americans cut way back on driving, bought far fewer and smaller cars and dramatically reduced the use of oil. It's natural to assume that we can do it again.

But conserving our way out of this crunch won't be so easy. Here are five key reasons why.

1. The easy stuff is done.

The cuts in oil use made between 1979 and 1983 look impressive. In four years, the country weaned itself off of 3.3 million barrels a day, a drop of nearly 20%. Not until 1997 did the U.S. get back to the same level of oil consumption it had in 1979.

But half of that cut, in residual fuel oil for electricity generation, was relatively painless and can't be repeated. The U.S. by 1983 had slashed consumption by 1.4 million barrels of oil a day by switching power stations over to coal or natural gas. Today, the country consumes fewer than 700,000 barrels of residual fuel a day, almost entirely in ships. So any similar cuts this time will have to come on America's highways, not in its power plants.

2. We're bigger, busier and wealthier now.

Americans in 1979 embarked on a forced conservation kick unrivaled since World War II. By 1983, gasoline use had fallen almost 11%.

Today, the U.S. is a vastly more fuel-thirsty place. Yes, gasoline use is tapering off. But in April of this year, the U.S. consumed 9.1 million barrels of gasoline a day, two million more than in April 1979 -- partly because Americans are now driving almost twice as many miles a day as they did then.

Meanwhile, the economy is also nearly five times as large, so the impact of record-high fuel prices is still more muted.

3. And yet, globally, the U.S. matters less.

In 1979, of every 100 barrels of oil produced globally, 29 went into American cars, trucks, planes, ships, homes and power plants. Today, that figure has fallen to less than 24 of every 100 barrels. U.S. consumption has grown, but global use has grown much more -- and there's the rub.

Slashed demand in industrialized countries in the early 1980s came straight off the oil ledger, because that's where most of the demand was. Nearly half of the drop came from the U.S. alone.

This year, growth elsewhere will far outpace slumping demand in almost every Western developed country. In all, global demand is expected to rise by about one million barrels a day, despite the historic run-up in prices. It's what happens in China now that really counts.

4. This time, it's supply and demand.

The 1979 energy crisis was all about supply. Turmoil in the Middle East took millions of barrels off the market, so prices soared. But just as prices peaked, in the spring of 1981, huge new stashes of oil were coming onstream in Mexico, the North Sea and Alaska. Soon enough, the world was again awash in oil.

Today's forces are far more complex, and gloomier. Booming demand in the Middle East and Asia is colliding with rising fears of a long-term supply pinch. Unlike in 1979, there is no North Sea about to open up, while the Saudis are pumping almost full out.

5. Recessions help.

Getting whacked by gasoline prices prodded Americans to cut back in the early 1980s, but so did joblessness, stagflation and a horrible economy. Unemployment topped 7%, while mortgage rates hovered in the teens. Gasoline use and car sales plunged partly because people were working less for a dollar that also bought less. Economists note that nothing whittles down energy use quite as effectively as a recession. Today's less sluggish economy is less likely to force our hand on conservation.

On the bright side, efficiencies gained now appear much likelier to last. After the last shock, oil became abundant again, prices plummeted and Detroit found clever ways to bypass fuel-efficiency standards to give Americans the huge sport-utility vehicles they wanted. Now, car companies are scrambling to churn out a new generation of smaller, more efficient vehicles and investing in fuel-saving technology that was viewed as too expensive to bother with when oil was cheap.

All in all, a good article. Though I think he's wrong on a couple of points. One, it looks like we're heading toward a recession that will rival or even dwarf those of 30 years ago. And two, I don't think fuel efficiency will be as helpful as he assumes, for reasons I detail later.