RESEARCH STARTER

Gasoline prices and climate policy

Gasoline prices are closely tied to broader climate policy discussions as nations seek to balance energy needs with environmental concerns. Rising gasoline prices can be a consequence of geopolitical events, such as conflicts in oil-producing regions, which can disrupt supply and create volatility in fuel costs. Historically, gasoline prices have fluctuated significantly, with notable spikes during events like the 1973 OPEC oil embargo and the recent increase following the Russia-Ukraine conflict.

As governments aim to reduce CO2 emissions to mitigate climate change, policies may involve raising gasoline prices through methods such as carbon taxes or emissions trading systems. While these measures could result in higher fuel costs, they are intended to discourage fossil fuel consumption and encourage the shift to alternative energy sources, including electric vehicles. The interplay between gasoline prices and climate policy creates a complex landscape where rising fuel costs can sometimes spur investment in renewable energy, yet also lead to public concern over economic impacts, especially in times of crisis. As the urgency of addressing climate change intensifies, the effects of gasoline pricing on consumer behavior and energy policy continue to evolve.

Full Article

Climate policy impacts gasoline prices in various ways. Generally, to limit atmospheric CO2 concentrations, making gasoline more expensive can reduce consumption. However, policy uncertainty can lead to price volatility.

Background

In the early 1900s, when gasoline was first finding use as an automotive fuel, the inflation-adjusted cost of a gallon of gasoline was approximately $3.00. Save for a temporary rise in fuel prices during World War II, the price of gasoline generally declined from 1919 to 1973, when the price per gallon of regular gasoline stood at $1.20 per gallon.

The post-1973 history of gasoline prices has been considerably more volatile. Prices began trending upward in 1973 in response to an oil embargo by the Organization of Petroleum Exporting Countries (OPEC), with prices peaking at approximately $2.00 in 1982. After that nearly ten-year increase, there was an additional price spike corresponding to unrest in Iran, during the Iranian Revolution, when prices soared above their previous historical high of $3.00 per gallon. Subsequently, prices declined throughout the 1990s, bottoming out at $1.10 per gallon in 1998.

Prices rose sharply after 1998, nearly quadrupling to approximately $4.00 per gallon by June 2008, then fell once again. Despite the rise in the real cost of gasoline, gasoline expenditure as a share of household income actually declined between 1950, when it was approximately 5 percent, and 4 percent in 2008. By the mid-2010s, gasoline expenditure as a share of household income fell to around 2.5 percent.

The price of gas initially declined in 2020 at the start of the coronavirus disease 2019 (COVID-19) pandemic due to drastically lower demand. However, by 2022, gas prices had reached record highs. The significant increase was caused in part by a rise in the price of crude oil, which occurred after Russia—one of the largest oil exporters—invaded Ukraine in early 2022. The resulting sanctions placed on Russia reduced the global oil supply. Though the US is the largest producer of oil globally, to meet the needs of American oil consumption, it must also import oil; therefore, American gas prices were impacted by the Russia–Ukraine conflict. However, the spike in the price of gas was short-lived. By 2024, gas prices had declined to $3.30 per gallon.

Effects of the 1973 OPEC Embargo

In 1973, the Arab members of OPEC, as well as Egypt and Syria, stopped shipping oil to Israel and countries that were supporting Israel in the Yom Kippur War (October 6–26, 1973), including the United States, some countries in Western Europe, and Japan. In addition, OPEC reduced the production of crude oil sharply, driving up global oil prices. The world price for a barrel of oil nearly doubled in real terms from 1972 to 1974, with gasoline prices following suit.

Contrary to popular belief, long lines and gasoline shortages during the OPEC embargo were not caused by a shortage of crude oil, which is a fungible commodity traded on a global market. Rather, gas lines and shortages were the result of price controls on gasoline emplaced by President Richard Nixon earlier in 1973, which prevented the rising price signal from reducing demand for refined gasoline.

With oil prices quadrupling from 1973 to 1974, oil-producing countries significantly increased their revenue, while oil-importing countries, particularly the United States, saw their economies decline. The US economy shrank in 1974 and 1975, and gross domestic product (GDP) growth also decreased significantly in Western Europe during that time, hitting negative growth rates in France, Germany, Italy, and other nations.

Causes and Effects of Price Changes

Major shifts in gasoline prices have generally corresponded to levels of unrest in oil-producing countries in the Middle East. Prior to OPEC’s emergence in 1960 as an oil cartel, prices were generally kept low by Western-owned oil companies, particularly in Texas.

Changes in gasoline prices affect consumer behavior, especially in automobile selection. After the 1973 oil crisis, American consumers began buying smaller cars, and Congress mandated fleet-efficiency standards for American car companies in 1974, further expanding small-car offerings in the US market. By contrast, the period of low gasoline prices in the late 1980s and 1990s allowed consumers to purchase larger vehicles, including pickup trucks and sport utility vehicles.

High gasoline prices have also spurred governmental and market investment in non-gasoline alternatives, such as electric vehicles and vehicles powered with natural gas, propane, and biofuels. That trend was especially prevalent during the 2010s and 2020s, when demand for electric and hybrid vehicles grew significantly. As a result, many US oil companies were hesitant to build new oil wells because company executives speculated that oil demand would decrease as ownership of electric vehicles continued to grow. Fewer new wells helped contribute to the record-high gas prices experienced in 2022. Furthermore, some oil companies began planning for a transition to renewable energy during this period, which resulted in the closure of more refineries in the US.

A study published in Resource and Energy Economics in 2023 found that, for every 10 percent increase in the price of gasoline, traffic congestion decreased by 0.87 percent (as measured during rush hour). The researchers noted that this decrease in congestion enabled higher travel speeds and fuel economy, reducing carbon emissions by 40.6 million metric tons.

Peak Oil

The peak oil hypothesis holds that, because oil is a nonrenewable resource, global oil resources will ultimately be depleted, and oil production will reach a peak and enter permanent decline. The idea that conventional oil resources are finite is not controversial; the arguments surrounding peak oil concern not whether, but when oil will peak and what effects will occur. Some believe that oil production has peaked or soon will, and that technology will not progress fast enough to allow people to maintain their standard of living. Others point to significant oil reserves and technological advances that enable the development of unconventional petroleum-based fuels, such as those from tar sands, potentially making declining conventional resources less economically damaging.

Several oil companies have commented on when they expect oil resources to peak and on the implications. Exxon executives have argued that the oil resource base is constantly changing as resources become exploitable via new technology, and the company ran a public relations campaign in 2006 declaring that “[w]ith abundant oil resources still available, peak production is nowhere in sight.” Other executives and campaigns have been less optimistic. Chevron executives have said that peak oil will happen (that is, oil production will, eventually, be forced to decline permanently), but that event does not need to be a disaster. Still other executives have voiced opinions ranging from the alarmist to the sanguine.

The debate over peak oil became more urgent following the COVID-19 pandemic, when, amid global lockdowns, oil consumption fell to levels not previously observed. At one point in late 2020, global demand had dropped to just 29 million barrels per day. As such, more industry experts began claiming that the effects of COVID-19 on oil consumption were likely to be permanent and that peak oil was very near.

In the 2025 International Energy Agency (IEA) World Energy Outlook, IEA experts predicted that coal was near its peak, oil demand could plateau by 2030, and natural gas demand could flatten by the mid-2030s. However, these trend predictions fluctuate because they are largely based on a range of global environmental policy decisions, particularly in the US, as Donald Trump began his second term as president.

Climate Change and Global Warming

The burning of fossil fuels is a major producer of carbon dioxide (CO2), which most scientists believe is a contributor to global climate change. There are two major sets of proposals to mitigate CO2 emissions. One involves limiting the amount of CO2 emissions permissible and selling emissions rights; the other involves taxing CO2 emissions. Both of these strategies, in order to be effective, would have to raise the price of emitting CO2 significantly, which would also raise the price of gasoline.

As the twenty-first century progressed and the planet experienced increasingly severe effects of climate change, leaders struggled to balance policies that would lower gas prices with those that would reduce climate change's impacts. Some experts argued during the record-high gas prices in 2022 that the high prices would be beneficial for climate policy by reducing fossil fuel consumption and spurring much-needed new climate policy. In June 2022, for example, President Joe Biden invoked the Defense Production Act to increase domestic production of the minerals needed to make batteries for electric vehicles. At the same time, many critics worried the increase in gas prices would result in an economic recession and implored leadership to increase oil production to bring prices down.

Key Concepts

  • gasoline: a fuel, refined from oil, that is used to power automobiles and other engines
  • oil embargo: a refusal on the part of oil-producing nations to sell oil to other nations
  • Organization of Petroleum Exporting Countries: a group of major oil-producing nations that acts in concert to set oil prices and trade policy
  • peak oil: the point at which oil availability and production reach their zenith before the Earth’s oil resources begin either to dwindle or to become prohibitively expensive to exploit

Bibliography

Brown, Ethan. "Climate and Gas Prices: A Surprising Connection." PBS, 24 Mar. 2022, www.pbs.org/wnet/peril-and-promise/2022/03/climate-and-gas-prices-a-surprising-connection. Accessed 4 Dec. 2025.

Bryce, Robert. Gusher of Lies: The Dangerous Delusions of Energy Independence. PublicAffairs, 2008.

Deffeyes, Kenneth S. Beyond Oil: The View from Hubbert’s Peak. Hill and Wang, 2006.

"Gasoline Costs Impact Public Backing for Some Green Policies." CMCC Foundation (Euro-Mediterranean Center on Climate Change), 8 Feb. 2024, www.cmcc.it/article/gasoline-costs-impact-public-backing-for-some-green-policies. Accessed 4 Dec. 2025.

Hernandez Carballo, Ireri, and Matthew Ryan Sisco. “Examining the Effects of Gasoline Prices on Public Support for Climate Policies.” Nature Energy, vol. 9, no. 2, 2024, pp. 219–27, doi:10.1038/s41560-024-01449-2. Accessed 4 Dec. 2025.

Huber, Peter W., and Mark P. Mills. The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run out of Energy. Basic Books, 2005.

Koeze, Ella, and Clifford Krauss. "Why Gas Prices Are So High." The New York Times, 14 June 2022, www.nytimes.com/interactive/2022/06/14/business/gas-prices.html. Accessed 4 Dec. 2025.

Pang, Jindong, et al. “Gasoline Prices, Traffic Congestion, and Carbon Emissions.” Resource and Energy Economics, vol. 75, 2023, doi:10.1016/j.reseneeco.2023.101407. Accessed 4 Dec. 2025.

Randall, Tom, and Hayley Warren. "Peak Oil Is Suddenly upon Us." Bloomberg, 1 Dec. 2020, www.bloomberg.com/graphics/2020-peak-oil-era-is-suddenly-upon-us. Accessed 4 Dec. 2025.

Smil, Vaclav. Energy at the Crossroads: Global Perspectives and Uncertainties. MIT Press, 2005.

Wolf, Zachary B. "The World Is Stuck between Gas Prices and Climate Change." CNN, 31 Mar. 2022, www.cnn.com/2022/03/31/politics/climate-change-gas-prices-oil-what-matters/index.html. Accessed 4 Dec. 2025.

Full Article

Climate policy impacts gasoline prices in various ways. Generally, to limit atmospheric CO2 concentrations, making gasoline more expensive can reduce consumption. However, policy uncertainty can lead to price volatility.

Background

In the early 1900s, when gasoline was first finding use as an automotive fuel, the inflation-adjusted cost of a gallon of gasoline was approximately $3.00. Save for a temporary rise in fuel prices during World War II, the price of gasoline generally declined from 1919 to 1973, when the price per gallon of regular gasoline stood at $1.20 per gallon.

The post-1973 history of gasoline prices has been considerably more volatile. Prices began trending upward in 1973 in response to an oil embargo by the Organization of Petroleum Exporting Countries (OPEC), with prices peaking at approximately $2.00 in 1982. After that nearly ten-year increase, there was an additional price spike corresponding to unrest in Iran, during the Iranian Revolution, when prices soared above their previous historical high of $3.00 per gallon. Subsequently, prices declined throughout the 1990s, bottoming out at $1.10 per gallon in 1998.

Prices rose sharply after 1998, nearly quadrupling to approximately $4.00 per gallon by June 2008, then fell once again. Despite the rise in the real cost of gasoline, gasoline expenditure as a share of household income actually declined between 1950, when it was approximately 5 percent, and 4 percent in 2008. By the mid-2010s, gasoline expenditure as a share of household income fell to around 2.5 percent.

The price of gas initially declined in 2020 at the start of the coronavirus disease 2019 (COVID-19) pandemic due to drastically lower demand. However, by 2022, gas prices had reached record highs. The significant increase was caused in part by a rise in the price of crude oil, which occurred after Russia—one of the largest oil exporters—invaded Ukraine in early 2022. The resulting sanctions placed on Russia reduced the global oil supply. Though the US is the largest producer of oil globally, to meet the needs of American oil consumption, it must also import oil; therefore, American gas prices were impacted by the Russia–Ukraine conflict. However, the spike in the price of gas was short-lived. By 2024, gas prices had declined to $3.30 per gallon.

Effects of the 1973 OPEC Embargo

In 1973, the Arab members of OPEC, as well as Egypt and Syria, stopped shipping oil to Israel and countries that were supporting Israel in the Yom Kippur War (October 6–26, 1973), including the United States, some countries in Western Europe, and Japan. In addition, OPEC reduced the production of crude oil sharply, driving up global oil prices. The world price for a barrel of oil nearly doubled in real terms from 1972 to 1974, with gasoline prices following suit.

Contrary to popular belief, long lines and gasoline shortages during the OPEC embargo were not caused by a shortage of crude oil, which is a fungible commodity traded on a global market. Rather, gas lines and shortages were the result of price controls on gasoline emplaced by President Richard Nixon earlier in 1973, which prevented the rising price signal from reducing demand for refined gasoline.

With oil prices quadrupling from 1973 to 1974, oil-producing countries significantly increased their revenue, while oil-importing countries, particularly the United States, saw their economies decline. The US economy shrank in 1974 and 1975, and gross domestic product (GDP) growth also decreased significantly in Western Europe during that time, hitting negative growth rates in France, Germany, Italy, and other nations.

Causes and Effects of Price Changes

Major shifts in gasoline prices have generally corresponded to levels of unrest in oil-producing countries in the Middle East. Prior to OPEC’s emergence in 1960 as an oil cartel, prices were generally kept low by Western-owned oil companies, particularly in Texas.

Changes in gasoline prices affect consumer behavior, especially in automobile selection. After the 1973 oil crisis, American consumers began buying smaller cars, and Congress mandated fleet-efficiency standards for American car companies in 1974, further expanding small-car offerings in the US market. By contrast, the period of low gasoline prices in the late 1980s and 1990s allowed consumers to purchase larger vehicles, including pickup trucks and sport utility vehicles.

High gasoline prices have also spurred governmental and market investment in non-gasoline alternatives, such as electric vehicles and vehicles powered with natural gas, propane, and biofuels. That trend was especially prevalent during the 2010s and 2020s, when demand for electric and hybrid vehicles grew significantly. As a result, many US oil companies were hesitant to build new oil wells because company executives speculated that oil demand would decrease as ownership of electric vehicles continued to grow. Fewer new wells helped contribute to the record-high gas prices experienced in 2022. Furthermore, some oil companies began planning for a transition to renewable energy during this period, which resulted in the closure of more refineries in the US.

A study published in Resource and Energy Economics in 2023 found that, for every 10 percent increase in the price of gasoline, traffic congestion decreased by 0.87 percent (as measured during rush hour). The researchers noted that this decrease in congestion enabled higher travel speeds and fuel economy, reducing carbon emissions by 40.6 million metric tons.

Peak Oil

The peak oil hypothesis holds that, because oil is a nonrenewable resource, global oil resources will ultimately be depleted, and oil production will reach a peak and enter permanent decline. The idea that conventional oil resources are finite is not controversial; the arguments surrounding peak oil concern not whether, but when oil will peak and what effects will occur. Some believe that oil production has peaked or soon will, and that technology will not progress fast enough to allow people to maintain their standard of living. Others point to significant oil reserves and technological advances that enable the development of unconventional petroleum-based fuels, such as those from tar sands, potentially making declining conventional resources less economically damaging.

Several oil companies have commented on when they expect oil resources to peak and on the implications. Exxon executives have argued that the oil resource base is constantly changing as resources become exploitable via new technology, and the company ran a public relations campaign in 2006 declaring that “[w]ith abundant oil resources still available, peak production is nowhere in sight.” Other executives and campaigns have been less optimistic. Chevron executives have said that peak oil will happen (that is, oil production will, eventually, be forced to decline permanently), but that event does not need to be a disaster. Still other executives have voiced opinions ranging from the alarmist to the sanguine.

The debate over peak oil became more urgent following the COVID-19 pandemic, when, amid global lockdowns, oil consumption fell to levels not previously observed. At one point in late 2020, global demand had dropped to just 29 million barrels per day. As such, more industry experts began claiming that the effects of COVID-19 on oil consumption were likely to be permanent and that peak oil was very near.

In the 2025 International Energy Agency (IEA) World Energy Outlook, IEA experts predicted that coal was near its peak, oil demand could plateau by 2030, and natural gas demand could flatten by the mid-2030s. However, these trend predictions fluctuate because they are largely based on a range of global environmental policy decisions, particularly in the US, as Donald Trump began his second term as president.

Climate Change and Global Warming

The burning of fossil fuels is a major producer of carbon dioxide (CO2), which most scientists believe is a contributor to global climate change. There are two major sets of proposals to mitigate CO2 emissions. One involves limiting the amount of CO2 emissions permissible and selling emissions rights; the other involves taxing CO2 emissions. Both of these strategies, in order to be effective, would have to raise the price of emitting CO2 significantly, which would also raise the price of gasoline.

As the twenty-first century progressed and the planet experienced increasingly severe effects of climate change, leaders struggled to balance policies that would lower gas prices with those that would reduce climate change's impacts. Some experts argued during the record-high gas prices in 2022 that the high prices would be beneficial for climate policy by reducing fossil fuel consumption and spurring much-needed new climate policy. In June 2022, for example, President Joe Biden invoked the Defense Production Act to increase domestic production of the minerals needed to make batteries for electric vehicles. At the same time, many critics worried the increase in gas prices would result in an economic recession and implored leadership to increase oil production to bring prices down.

Key Concepts

  • gasoline: a fuel, refined from oil, that is used to power automobiles and other engines
  • oil embargo: a refusal on the part of oil-producing nations to sell oil to other nations
  • Organization of Petroleum Exporting Countries: a group of major oil-producing nations that acts in concert to set oil prices and trade policy
  • peak oil: the point at which oil availability and production reach their zenith before the Earth’s oil resources begin either to dwindle or to become prohibitively expensive to exploit

Bibliography

Brown, Ethan. "Climate and Gas Prices: A Surprising Connection." PBS, 24 Mar. 2022, www.pbs.org/wnet/peril-and-promise/2022/03/climate-and-gas-prices-a-surprising-connection. Accessed 4 Dec. 2025.

Bryce, Robert. Gusher of Lies: The Dangerous Delusions of Energy Independence. PublicAffairs, 2008.

Deffeyes, Kenneth S. Beyond Oil: The View from Hubbert’s Peak. Hill and Wang, 2006.

"Gasoline Costs Impact Public Backing for Some Green Policies." CMCC Foundation (Euro-Mediterranean Center on Climate Change), 8 Feb. 2024, www.cmcc.it/article/gasoline-costs-impact-public-backing-for-some-green-policies. Accessed 4 Dec. 2025.

Hernandez Carballo, Ireri, and Matthew Ryan Sisco. “Examining the Effects of Gasoline Prices on Public Support for Climate Policies.” Nature Energy, vol. 9, no. 2, 2024, pp. 219–27, doi:10.1038/s41560-024-01449-2. Accessed 4 Dec. 2025.

Huber, Peter W., and Mark P. Mills. The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run out of Energy. Basic Books, 2005.

Koeze, Ella, and Clifford Krauss. "Why Gas Prices Are So High." The New York Times, 14 June 2022, www.nytimes.com/interactive/2022/06/14/business/gas-prices.html. Accessed 4 Dec. 2025.

Pang, Jindong, et al. “Gasoline Prices, Traffic Congestion, and Carbon Emissions.” Resource and Energy Economics, vol. 75, 2023, doi:10.1016/j.reseneeco.2023.101407. Accessed 4 Dec. 2025.

Randall, Tom, and Hayley Warren. "Peak Oil Is Suddenly upon Us." Bloomberg, 1 Dec. 2020, www.bloomberg.com/graphics/2020-peak-oil-era-is-suddenly-upon-us. Accessed 4 Dec. 2025.

Smil, Vaclav. Energy at the Crossroads: Global Perspectives and Uncertainties. MIT Press, 2005.

Wolf, Zachary B. "The World Is Stuck between Gas Prices and Climate Change." CNN, 31 Mar. 2022, www.cnn.com/2022/03/31/politics/climate-change-gas-prices-oil-what-matters/index.html. Accessed 4 Dec. 2025.

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