Can individual cutbacks help ease an energy crunch?

A fragile ceasefire in the American-Israeli war in Iran has paused most of the fighting. But uncertainty around the Strait of Hormuz — a critical artery for global oil and gas — means the energy shock isn’t over. Prices for everything from gasoline to fertilizer and plastics remain elevated, and relief could take months to come down.

Around the world, governments are trying to manage the crunch. In some cases, they’re asking people to use less energy, including doing things like taking shorter showers and working just four days a week. But how much difference do those efforts really make?

“Marketplace Morning Report” host Sabri Ben-Achour spoke with Kevin Book, managing director of ClearView Energy and nonresident senior advisor at the Center for Strategic and International Studies, about who actually consumes the most energy and what works best when supply comes up short. The following is an edited transcript of their conversation.

Sabri Ben-Achour: Are we, individuals, even the biggest consumers of energy in an economy?

Kevin Book: Well, if you think about how the end-use sectors are divided, there's some attribution of things like electric power generation to different end-use sectors like industrial and transportation, residential, and commercial. There's different answers to that question, depending on how you divide the pie. But here in the United States, the industrial and transportation sectors are far larger than the residential and commercial. Residential comes in about third.

Ben-Achour: What kinds of pressures are we seeing on industry? Whether it's, you know, pressures they're feeling, or pressures coming from governments?

Book: Well, here in the United States, industrial consumers are not necessarily facing controls or limitations on what they can use. Other governments are telling their industrial players to manage their resources carefully and in terms of the impacts. If you go back to 2022, you saw a pretty significant de-industrialization in terms of the natural gas-intensive industries in Europe that simply couldn't operate without the molecules they weren't getting from Russia.

Ben-Achour: That sounds pretty dire.

Book: A lot of what we think about in terms of the energy system overlooks the fact that it flows, and that supply is constantly producing. Transportation is constantly moving, and so we as consumers have continuous access. When that supply gets cut off, energy can only come out of commercial inventories, government strategic inventories, or it has to come out of essentially demand response, which is not using energy at all.

Ben-Achour: Let's say the war ends soon and oil flows through the Strait. How much more inflation and pressure on fuel prices is just locked in to the pipeline?

Book: At this point, the problem will be with us for a while. If you look at about where we stand right now on petroleum barrels that are missing from supply as a function of the crisis, it's about 450 million barrels or so, probably by the end of April, and that's just a tad above the strategic drawdown that the International Energy Agency is conducting with 32 governments. But if you think about what that means, it means that you took two months to dig a hole that could take six months to fill back up.

Ben-Achour: What, ultimately, is the most effective way to cut energy use in the short term?

Book: Market-rationing does a pretty good job. When prices climb, behavior changes. The problem is that he tends to be very regressive and politically unpopular.