Concerns about energy’s impact on the environment continue to edge out concerns about affordability

With three years and counting of data, a clear trend has emerged: consumers are more concerned about how energy impacts the environment than they about whether it is sufficiently affordable and reliable. The extent to which consumers worry about reliability — that is, whether their lights stay on and the fuels they need are readily available — has consistently lagged their concerns about energy costs and environmental impacts.

Over the first four quarterly samples starting with the launch of the U-M Energy Survey in October 2013, the difference between the levels of concern about the environment and about affordability was not statistically significant, even though the average for the environment was nominally higher than that for affordability. However, the significance of the gap grew as additional data came in. By the second year, we were able to report that the environment had pulled ahead of affordability as Americans’ top energy-related concern. As seen in the chart below, based on data over the first three years of the survey, concern about affordability has lessened a bit in 2016 while concern about the environment has remained strong in spite of some transient ups and downs.   

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On the seasonal trend of gasoline affordability

Over the course of each year we’ve conducted the Energy Survey to date, consumers find gasoline to be most affordable in the winter, when our January sample is taken. These responses — plotted in the chart below — show how consumers feel that gasoline is less affordable at other times of the year, as reflected in notably lower affordability index values derived from the spring (April), summer (July) and fall (October) quarterly samples. For reference, an affordability index of 100 means that the fuel price would have to double (i.e., rise by 100 percent) before consumers would consider it unaffordable. (See this overview of how the affordability index is calculated.) 

As of the most recent survey data we analyzed in July 2016, the gasoline affordability index was 104. That’s down nearly fifty points from what it had been in January when it reached a value of 152, which was the highest level of perceived motor fuel affordability since the U-M Energy Survey began in October 2013. Over the first five quarters of the survey, the gasoline affordability index was well below 100, reflecting the fact that gasoline prices had been much higher than they have been more recently.

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Energy affordability trended down in first half of year

The beginning of 2016 found American consumers feeling that energy was more affordable that it had ever been since we began our systematic quarterly surveys on the topic three years ago.

As seen in the chart below, the perceived affordability of gasoline reached an all time high of 152 in January. That means that pump prices would have to rise by a factor of 2.5 before they really began to pinch the pocketbooks of the average American consumer. That month, the national average retail gasoline price was $2.06 per gallon, the lowest it had been since prices briefly plummeted in late 2008 into early 2009 during the economic meltdown.

Since then, gasoline prices have risen a bit, reaching an average of $2.41 per gallon in June and July, by when the gasoline affordability index had dropped to 104. Nevertheless, that’s still more affordable than it had been through fall 2014. Over the first year of the Energy Survey, which was launched in October 2013, U.S. pump prices averaged $3.54 per gallon, and during that period, consumers felt that gasoline was only about half as affordable as home energy.

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Consumers’ perceived affordability of gasoline rises with income, but not by as much as one might think

Results from the U-M Energy Survey give us unique insights into how consumers feel about the affordability of motor fuel, which is a major concern for many Americans. The overall gasoline affordability index — which we update quarterly in Energy Survey Indices sidebar on our home page — reflects the average view of all consumers nationwide. It blends together the responses of our diverse, nationally representative sample, averaging over their socioeconomic backgrounds as well as gender, race, age and geographic location. 

Naturally, we expect consumers’ incomes to affect how affordable they perceive energy to be. This is true in general, with higher income consumers reporting higher levels of affordability. However, we also find that the perceived affordability of gasoline does not rise as much as one might think given the large spread in household income across the population. 

The chart below shows how the affordability of gasoline varies according to the five income quintiles, where each quintile represents 20% of the population. It plots the gasoline affordability index by quintile of self-reported household income over the 11 quarters of Energy Survey data gathered to date. The patterns through time are similar to the overall trends in the affordability index as previously reported. All consumers felt that motor fuel became much more affordable after gasoline prices fell in late 2014. Perceived affordability peaked this past January, when pump prices had fallen to a national average of $2.09 per gallon. Continue Reading

Consumers feel that gasoline is a bit less affordable than they said it was last winter

The affordability index for gasoline fell by 23 points from its mid-winter value of 152, which was based on the University of Michigan Energy Survey taken in January 2016. Although by April pump prices only went up 13 cents, to $2.19 per gallon, that was enough to push the gasoline affordability index down to 129. Back in January, when the U.S. average retail price of gasoline dipped to $2.09 per gallon, American consumers  felt that gasoline was more affordable than any time since our quarterly surveys started in October 2013.
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Our affordability index is based on comparing the energy costs that consumers say they would find to be unaffordable to the actual costs — in this case, the average gasoline price — they experience when each quarterly survey is taken. As explained in our Overview of how the indices are calculated, an affordability index of 100 means that consumers believe energy prices would have to double (i.e., see a 100% increase) before they were considered unaffordable. In this context, “unaffordable” means that the energy cost has become so high that consumers feel they would need to change their day-to-day activities in some way. When consumers report that the price they find unaffordable is the same as what they currently pay, then the affordability index is zero.

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How affordable is our energy? Here’s what consumers say as of January 2016

The January 2016 University of Michigan Energy Survey finds a record high in how consumers perceive the affordability of gasoline. 

Over the past six months, consumers’ beliefs about the maximum price of gasoline that they feel they can afford has been on the rise.  The latest quarter of energy survey data — gathered from polling conducted in January 2016 — reveals a 40 point jump in the gasoline affordability index, from 112 in October to 152 in January.  On average across the United States, consumers paid $2.41 per gasoline for gallon.  Averaged across all demographic groups, Americans believe that gasoline would become unaffordable if it reached $5.48 per gallon.

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A year ago, the January 2015 energy survey pegged the gasoline affordability index at 138, which was a new high at the time and reflected a large gain in consumer comfort about pump prices compared to the previous two years.  After dipping again over the remainder of 2015, the January 2016 data sets the new high at 152. Now, consumers believe that gasoline would still be affordable if its price increased by a factor of 2.5, corresponding to the 152% increase represented by the affordability index. (Background on how the the index is calculated from the survey data is given in our Affordability Indices Overview report.)

For home energy,  the affordability index of 137 in January 2016 remained similar to that of the previous quarters.  On average, survey respondents said that they paid $159 per month for their home energy. They told us that a monthly energy bill of $356 would be unaffordable. In other words, even if its cost were to slightly more than double, most Americans would still find home energy to be affordable in terms of their current lifestyle.

See our latest energy affordability report for more details.

Americans feeling much better about the price at the pump

The latest University of Michigan Energy Survey finds a 27 point increase in the gasoline affordability index; home energy affordability remains similar to what it was in the previous quarter. 

Last quarter, in July 2015, consumers believed that a doubling in the per-gallon price of gasoline would not quite be affordable. However, based on polling conducted during October 2015, the energy survey’s latest data reveal that consumers now feel that motor fuel is much more affordable. The gasoline affordability index jumped by 27 points, from a value of 85 in July 2015 to 112 as of October. Federal data show that nationwide, consumers paid an average of $2.41 per gallon in October. When we asked consumers how high the price would have to get before they thought it was unaffordable, the average response was $5.44 per gallon. The resulting affordability index of 112 indicates that, as of October, consumers believe that the price of gasoline would still be affordable even if it were to double.

Aff-indices-thru-Oct2015

Although the gasoline affordability index increased from the last quarter to the present, 112 was still significantly below its high of 138 in January 2015.

Consumers’ views of home energy affordability in October are similar to what they were over the previous eight quarters. In October, the home energy affordability index was 122, indicating survey participants believe more than a doubling in monthly costs would still be considered affordable.  In other words, consumers paid an average of $170 per month for their home energy needs and believed $342 per month would be their max affordability.

According to the latest energy survey data, Americans find gasoline and home energy to be similarly affordable, as seen in how the two trend lines nearly touch as of this past October.

See the Affordability Indices Overview for background on how each index is calculated.

Are women the fairer and more pro-environmental sex?

At the Energy Survey, we’ve examined the responses of American consumers as influenced by a number of different factors including income, geographic region and age. All of these have given us wonderful insights. However, we haven’t discussed one of the most compelling variables until now, which is gender. Based on our survey, women and men exhibit significantly different opinions, especially regarding environmental issues. This has been true throughout the ten quarters of data analyzed thus far. 

To analyze the responses to the questions that probe consumer concerns, we utilize a 4-point Likert Scale. A value of 1.0 indicates the lowest level of concern (e.g., “not at all” concerned) and 4.0 the highest (concerned “a lot” or “a great deal”). An average of 2.5 reflects a neutral group response. 

In our survey, men profess to know more about energy than women, which might suggest that men would be more concerned about the environmental effects of energy. However, the opposite is true. Although women express less confidence about their knowledge of energy, their responses exhibit a significantly greater sensitivity to its impact on the environment. 

Firstly, women are more worried about the environmental impacts of energy. While it is true that women seem to worry more about other topics covered in the survey (such as the affordability and reliability of energy), the difference between the genders is greatest in regards to environmental impact. In other words, it’s not just that women might tend to be “worriers” overall. Rather, they have a particularly elevated level of concern about the environment, at least when it comes to the effect of energy.

Secondly, despite a perceived lack of knowledge, women maintain that their energy affects the environment to a greater degree than men. Both genders believe the effect is greater than neutral, however men are much more likely to say that energy does not affect the environment at all. Although our survey does not isolate environmental professionals we suspect that — regardless of their own gender — they would side with women.

University of Michigan Energy Survey unveils two new tools to track consumer energy attitudes

Two new tools from the University of Michigan Energy Survey are tracking consumer attitudes about the cost of energy, how consumers react to changes in energy prices, and how consumer attitudes about the cost of energy changes over time.

Image source: Freestock.com

Both the Gasoline Affordability Index and the Home Energy Affordability Index grow out of  two years of quarterly surveys of a total of 3,400 Americans, who were asked how they feel about their home energy bills and what they pay to gas up their cars. The survey tracks several consumer attitudes about energy costs, including how high prices would have to climb before the household would feel the cost was unaffordable and would force a change in lifestyle to handle the increased expense.

The energy survey is a joint project of the university’s Energy Institute and U-M’s Institute for Social Research. The polls runs as part of the Surveys of Consumers, which is the source of the nationally recognized Index of Consumer Sentiment.

The gasoline index and home energy index differ from economic analysis that views energy costs as a slice of the household standard of living, and whether the percentage of income eaten up by energy costs is increasing or decreasing. Instead, the U-M Energy Survey asks a few very direct, effective and simple questions: “At what price per gallon would gasoline get so high that it becomes unaffordable to you?” and, “At what dollar amount would that home energy bill become unaffordable to you and your family?”

The definition of “unaffordable” is the point where household members would need to make significant changes to their lifestyle, such as carpooling or using mass transit or cutting back spending in other parts of the family budget to cover the cost of fueling their cars and paying their home energy bills.

Over the first two years of the Energy Survey, gas prices would have needed to increase by about 80 percent for most households before filling up the tank became unaffordable. The majority of households say that level is around $5.50 a gallon. If the gasoline index is at 0, it means consumers are on the threshold of finding prices at the pump to be unaffordable. If the index is at 100, it means prices would more or less need double before causing significant financial pain.

On home energy, the first several Energy Surveys have found that that cost would need to double before it got to the level of being unaffordable, for the majority of people surveyed. Naturally, households in the bottom third of incomes were somewhat more sensitive to price increases in both gas and home energy, and had lower limits to how high prices could climb before becoming unaffordable.

Overall, the first two years worth of survey results on gasoline and home energy – and each corresponding index – show that consumers are more sensitive to gasoline prices than to home energy costs. Partly, the Energy Survey researchers conclude, this is because consumers frequently pay home energy costs by automatic payments or through level-billing programs where costs don’t fluctuate from month to month. In comparison, gas prices are in the news every week, and consumers may be filling up their cars as often as twice a week. That makes consumers particularly sensitive to changes in the price they see at the gas station.

Americans again feeling a bit more pain at the pump

Findings based on data from 8 Quarterly Samples, Oct 2013 – July 2015

How affordable is gasoline? Consumers’ answers to that question naturally change as the price of gasoline goes up or down. And being tied to world oil prices, gasoline has the most volatile price among the forms of household energy.

To measure how consumers feel about the affordability of energy, we ask them how much higher its price would have to be before they consider it unaffordable. For gasoline, that means that the price at the pump becomes so expensive that consumers feel they would have to make changes in their household activities.

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Figure 1. Average gasoline price that U.S. consumers say they would consider unaffordable compared to the national average retail gasoline price, quarterly data Oct 2013 – July 2015

Figure 1 compares responses to that question to the average price of gasoline when each quarterly energy survey was performed. The price considered unaffordable declined over the past year, but notably much less than pump prices dropped. Averaged across all incomes, the gasoline affordability index jumps from 61 over the first five quarters of data to a mean of 138 in January 2015. It then declined as gasoline prices rose in the following months.

Consumers of different income levels have a different sense of how much they can afford to spend before a given expense seriously dents their budgets. The sensitivity of the affordability index to household income can be seen in Figure 2, which plots it according to income tercile.

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Figure 2. Gasoline affordability index by income tercile, Oct 2013 – July 2015

Consumers in the top income tercile stand out; their average gasoline affordability index of 99 indicates that the pump price would have to essentially double before they found it to be unaffordable. In contrast, the gasoline affordability index values of 75 and 67 for middle and lower income consumers, respectively, show that pump prices would not have to go up nearly as much before those households felt crimped by the cost.