Oil Markets Muted in Wake of Soleimani Assassination

In an earlier era, the risk of war between the U.S. and Iran would likely have sent oil prices skyrocketing, resulting in significant financial pain for consumers and a serious hit to the U.S. economy. But when news broke late last week that the U.S. had assassinated a top Iranian general in Iraq by drone strike, oil prices rose a fairly modest 3%. Today, they’re largely flat.

Why? In a word: Fracking, or hydraulic fracturing, the drilling technique that, combined with horizontal drilling and other tech advances, has unlocked more oil in more places across America. The Middle East is still a crucial source of supply for global markets, but thanks to the resurgence in domestic production, the U.S. is now largely self-sufficient in petroleum. In fact, we now export more crude oil and refined fuels than we import, according to the Department of Energy. (It also helps that our biggest source of imported crude oil by far is Canada. Saudi Arabia ranks a distant third.)

There’s no telling what comes next in the slowly intensifying confrontation between Washington and Tehran. But I think we can identify a couple of outcomes that won’t happen: Violence in the Persian Gulf region won’t result in physical shortages that require American drivers to queue up at gas stations the way they did during oil crises in the 1970s. And oil prices won’t climb high enough to do the U.S. economy any real damage, again unlike in the 70s, when oil price shocks helped stoke double-digit inflation and two recessions.

Since 2005, when U.S. crude production fell to a multidecade low of 5 million barrels per day, output has steadily climbed to today’s nearly 13 million barrels. Energy companies are also producing a bounty of other liquid hydrocarbons, such as ethane and propane, plus about 1 million barrels per day of ethanol. Add it up, and U.S. output roughly equals consumption. Less than a decade ago, the country depended on 10 million barrels per day of imported crude and refined fuels.

Of course, even with all that production, America isn’t independent of global energy markets. Supply disruptions on the other side of the world still affect prices here. And the Persian Gulf is a key chokepoint for the oil market. The tankers transiting its waters carry roughly a fifth of the world’s petroleum supplies, according to the DOE. A full-blown shooting war there would seriously crimp those volumes and likely lead to a significant price increase.

Yet so far, the Soleimani killing and resulting rhetoric from Iran has only caused benchmark West Texas Intermediate crude to rise by about $2, to $63 per barrel in recent trading. Retail gas prices have not yet registered any of that increase, though they probably will rise by several cents a gallon later this week.

For now, it appears that oil traders are betting that something less than World War III is imminent in the Gulf, and that global oil supplies aren’t in serious danger. Given the added production that fracking has brought to market in recent years, that seems like a good bet.

It also helps that the U.S. economy is less exposed to oil price spikes than it used to be. During the 1970s crises, say economists at Wells Fargo, “gasoline and other energy goods” made up 4% of American consumers’ spending. Today that figure is now 2%, thanks in part to significant increases in the gas mileage of modern vehicles. So oil prices would have to really soar to have the same macroeconomic effect that they did four decades ago.

Ringing in 2020 With Mixed News on Energy Prices

When it comes to your energy bills, 2020 is arriving with good news and bad news. Drivers are in for higher prices at the pump, but it should cost most folks less to heat their homes this winter.

Per travel website AAA, the national average price of regular unleaded gas now stands at $2.59 per gallon. That’s not too painful when you think back to the days of $3 gas that prevailed up until 2014 (unless you live in a state like California, where prices average about a buck higher than the nation as a whole). Still, today’s average is about 25 cents higher than it was at the beginning of 2019. Given that crude oil prices are higher than they were a year ago, that’s not surprising. And unfortunately, odds are good that the price at the pump is only going to trend up as winter turns to spring.

In each of the past several years, retail gas prices have tended to bottom out around Christmas or early in the new year and then drift higher, often peaking in the late spring or early summer. That makes sense, given that Americans tend to drive less during the depths of winter and then hit the road for spring and summer vacations. Plus, refiners start to switch over to summer-blend gasoline formulations in advance of warm weather, which adds a bit to the final cost.

A big drop in oil prices could buck that pattern this year. But with energy firms paring back their oil drilling in the U.S. to improve financial results, and OPEC committed to keeping a lid on its exports, a big drop in crude doesn’t look likely at the moment. If the U.S. and China can make more progress on patching up their trade fight, oil could even creep a bit higher as traders bet on a stronger global economy.

In the near term, the bump in oil prices resulting from the U.S. strikes that killed a prominent Iranian general in Iraq will push gas prices a bit higher. Unless the Iranians retaliate in such a way that makes full-blown war a realistic threat, I expect oil prices to ease after a few days or a week. Still, it’s one more reason to expect fuel prices to trend up.

In fact, 2020 may be the year the national average price returns to the psychologically important $3 mark for the first time since October of 2014. (It came close in May of 2018, but topped out around $2.96.)

So budget more for road trips. But most consumers should see lower heating bills.

Per the Department of Energy, retail propane prices are running more than 40 cents per gallon less now than a year ago. Heating oil: Down 7 cents. Price data for residential natural gas deliveries aren’t available yet, but gas futures contracts are down substantially from their level of one year ago, so at least some gas customers ought to catch a break on rates.

Long-range weather forecasts are notoriously difficult, but for what it’s worth, the National Weather Service’s Climate Prediction Center sees most of the country experiencing normal to above-average temperatures this winter, versus a relatively small swath of the upper Midwest that is more likely to be below average. If that forecast pans out, and heating fuel prices don’t spike, most households should see some savings on their utility bills to balance out the higher cost of filling up their gas tanks.

Another Leg Down for the Coal Industry in 2020

2020 will mark another milestone in the steep decline of the U.S. coal industry. Many plants have already shut down because of environmental or economic pressures, and U.S. coal consumption has been mostly shrinking for over a decade now. So the industry’s woes are old news. But consider: In 2020, the U.S. will likely see coal use fall to a 45-year low.

2019 is not yet over, and government statistics on coal consumption get reported with a lag of several months. But the Energy Department has reported on the first eight months of the year, which gives us a reasonably good estimate of how the year as a whole will end up. During that period, coal consumption fell by about 12% from the same period in 2018. Assuming that pattern holds – and given the low price of natural gas, coal’s chief competitor in the power sector, the pattern probably will hold – total coal consumption in 2019 will come in near 600 million tons. For reference, the U.S. burned a billion tons per year as recently as 2011.

What happened? A combination of factors. Under President Obama, the Environmental Protection Agency tightened air quality regulations that made many older coal plants uneconomical to keep in operation. At the same time, the fracking revolution unleashed huge reserves of cleaner-burning natural gas, driving down its price to the point where gas became competitive with coal. What’s more, a host of federal and state policies incentivized utilities to ramp up wind and solar power, even as the cost of solar panels and wind turbines was falling. For coal, it was a triple whammy. The fuel that once supplied half of the nation’s power has since seen its share of the generation mix drop to a quarter.

The declines will continue. With more plants slated to shut down in 2020, I expect U.S. coal consumption to drop to between 550 million and 570 million tons. According to government records, the last time the nation burned so little coal was 1975. That’s roughly half of the peak hit in 2007, when demand came in at more than 1.1 billion tons.

For coal miners and regions tied to mining, this collapse has been devastating. Back in 2011, when the nation burned a billion tons of coal, employment in the industry stood at more than 90,000. By last year, that figure had shrunk to a bit over 53,000. According to the Department of Energy, just 16 mines in the Powder River Basin of Wyoming and Montana now account for 43% of total U.S. production, whereas the traditional mining regions of southern Appalachia have fallen to about 15%. And even in the prolific Powder River Basin, some of the major producers have filed for bankruptcy.

What about the export market? Can overseas demand make up for falling consumption at home? Probably not. Exports jumped in 2017 but peaked in 2018 and have since started to pull back. And the long-term outlook for U.S. coal exports isn’t bright. The International Energy Agency expects global coal demand to either stagnate or drop sharply, depending on what actions countries take to reduce carbon emissions in their power sectors. Either way, the rest of the world does not look like a growth market that can easily take up the slack left by shuttered American coal plants.

Electric Vehicles Start to Catch On, But Can They Go Mainstream?

Last night’s reveal of Tesla’s forthcoming electric pickup truck, the so-called Cybertruck, definitely made waves in the automotive world. Tesla CEO Elon Musk introduced a prototype and claimed some eye-popping figures relating to the future truck’s acceleration and towing capabilities. And its styling proved to be, umm, polarizing.

If this were simply a one-off for the auto industry, from a manufacturer that has yet to turn a consistent profit and has a history of overpromising on new models, it wouldn’t be much of a story. But the Tesla truck is not a one-off. As I wrote earlier this week, a bevy of electric trucks are in the works, from both established automakers and scrappy startups looking to shake up the industry. And the fact that so many companies are working on the once-unthinkable concept of an electric pickup underscores a broader truth: Electric vehicles in general are slowly gaining traction in the market.

A recent report from the Edison Electric Institute, which represents investor-owned electric utilities, notes that in September, plug-in vehicles made up 2.6% of U.S. auto sales. That’s not much, but it’s up from the roughly 1% that EV sales accounted for not long ago. Also, at a time when car sales around the world are slowing, EV sales are accelerating.

New EV models seem to make headlines every day now. This week alone, Ford unveiled a sleek electric SUV that it is calling the Mustang Mach-E. (What do the brand’s long-time fans of the venerable – and gas-powered – Mustang sports car think of that, I wonder?) A few days later, Toyota announced a plug-in version of its RAV-4 hybrid, which still has a gas engine but also can drive almost 40 miles in EV mode. Earlier this year, Porsche showed off a new high-performance EV sport sedan, which should rival the speed and handling prowess of its famous gas-powered models. The list goes on and on.

The downsides that EVs come with – expensive batteries, limited driving range, slow recharging times, not enough public charging stations – haven’t gone away. But those drawbacks are getting less onerous. Battery costs keep falling. The amount of energy they hold keeps growing, which means greater driving range than earlier models offered. High-voltage charging means less waiting to get back on the road. And the network of public charging stations keeps expanding.

All of those improvements mean that EVs are becoming a more realistic option for more consumers, says Bill Visnic, editorial director of mobility media at the Society of Automotive Engineers. Visnic recently wrote about his road trip in an electric Jaguar SUV. He found that a journey that once would have been unthinkable in an EV had become surprisingly doable, though not without hiccups.

Further improvements in battery tech and charging facilities will pave the way for greater EV adoption. But don’t expect electrification to displace internal combustion engines tomorrow. When I asked him for his thoughts about when EVs could become mainstream, Visnic said that the automotive suppliers he talks to tend to regard 2030 as the date by which EVs will be cheap enough and capable enough to truly compete with gas-powered cars.

Between now and then, look for more EVs on the road, but not in huge numbers. Odds are they’ll take hold in suburban neighborhoods before making big inroads in the cities or the rural countryside. Unlike in the cities, suburban homes are more likely to have garages where an owner can install a home charger. And unlike in rural areas, commutes in the suburbs tend to be short enough that a typical EV’s driving range won’t be a limiting factor (assuming the owner remembers to plug in the car to charge overnight).

You may also be seeing more EVs among commercial fleets before 2030. Given their relatively short, repeated routes with lots of stop and go driving, delivery trucks are good candidates for going electric. (Amazon recently announced a big investment in electric delivery trucks from startup Rivian, for example.) Ditto for garbage trucks. These types of vehicles tend to return to a garage or depot every night, allowing the fleet operator to recharge them on a nightly basis. Doing that could save a bundle in energy costs, given the difference between typical electric rates for commercial customers and the cost of diesel fuel.

Here Come the Electric Trucks

Once again, electric car maker Tesla is creating a buzz in the automotive world. Its newest sensation: An about-to-be-revealed electric pickup truck.

You read that right: An electric truck. So far, Tesla has stuck to sporty roadsters, sedans and SUVs, but now CEO Elon Musk is promising a battery-powered truck that can go toe to toe with some of the most popular – and profitable – vehicles on the market, such as the perennially best-selling Ford F-class pickups. In a tweet more than a year ago, Musk said the future truck would have all-wheel drive, “crazy torque,” and high-voltage power outlets capable of running heavy duty power tools at a job site. When a follower requested that the truck offer 30,000 pounds of towing capacity, Musk tweeted back: “300,000 pound towing capacity.”

Don’t plan on towing your house with your Tesla just yet. But the Tesla “cybertruck” and other forthcoming electric pickups probably will sport some eye-popping capabilities and features.

A surprising number of automakers are hoping to dive into this highly lucrative segment of the vehicle market. In addition to Tesla, there are also startups Rivian and Workhorse, along with industry stalwart Ford Motor Company. (Ford recently showed off its electric F-150 pickup towing a literal trainload of gas-powered F-150s. It has also invested in Rivian.)

So far, electric vehicles have generally been marketed as eco-friendly, whereas pickup trucks are generally known for hauling heavy loads while guzzling a lot of gasoline or diesel fuel. So why are manufacturers pouring money into the seeming contradiction of an EV truck? For one thing, “the luxury pickup truck market is booming,” says Aaron Bragman, Detroit bureau chief of Cars.com. Whereas trucks were long viewed as the utilitarian, uncomfortable workhorses of the auto world, today they come festooned with all the creature comforts of a luxury car, and the lofty price tags to match. With the Detroit Big Three selling plenty of trucks for upwards of $50,000, it’s not surprising that a company like Tesla would want a piece of the action. And in turn, if Tesla is getting into the truck market, the established manufacturers feel that they can’t afford to stay on the sidelines.

But will buyers actually go for an EV truck? Bragman thinks some will, but probably not the customers who are used to regularly towing or hauling heavy loads long distance for work or play. Rather, he expects the early EV truck adopters to be affluent “lifestyle” buyers who want a do-it-all vehicle, something with the versatility of a family transporter that is rugged enough to go off-road, haul some mountain bikes or camping equipment in the bed and occasionally tow the boat to the lake. Importantly, these buyers tend to be keen on new technology in general, and are likely to prize the “wow” factor of an electric pickup.

In terms of capabilities, what should you expect from the coming crop of electric trucks? A lot. Rivian, the Michigan-based startup, is promising maximum towing capacity of up to 11,000 pounds; the ability to ford water up to three feet deep; a 0 to 60 mph acceleration time of 3 seconds (besting most sports cars on the market); and, perhaps most crucially, 400 or more miles of driving range between charges. Of course, getting all of that depends on opting for the most expensive version of its R1T truck, which will feature the biggest battery pack.

Only time will tell if there’s room in the truck market for these electric players. But with sales of EVs slowly rising and the availability of charging stations growing, it looks like EV trucks will make some inroads.

Coming up next, I’ll delve into the future of electric vehicles more generally and look at when, or if, they’ll break out of their current niche to become practical, mainstream options for car shoppers.

Attacks on Saudi Oil Industry Rock Crude Prices

It’s too early to say anything for sure about this weekend’s attacks on key oil infrastructure in Saudi Arabia. But here are a few preliminary notes to help you make sense of the headlines and what they mean for energy prices. Continue reading “Attacks on Saudi Oil Industry Rock Crude Prices”

What’s the Next Stop on Oil’s Wild Ride?

If you follow the oil markets closely, you might be feeling a bit motion sick these days. To call the path of crude oil prices over the last nine months “volatile” would be putting it mildly. Benchmark West Texas Intermediate crude rallied at the beginning of last autumn, hitting a peak of $76.41 per barrel on Oct. 3. From there, WTI plunged, reaching a low of $42.53 the day before Christmas: A decline of 45%. Then, crude started a new rally as 2019 began, eventually zooming back up to $66.30 on April 23, for a gain of 56%. Since then, it has fallen back to about $53, for a loss of roughly 20%. Nauseous yet?

What’s been driving all these ups and downs? Two competing narratives of under- and oversupply. The first, which prompted last fall’s big rally, held that the world would soon find itself short of oil because of the strong global economy and looming U.S. sanctions on Iran’s oil industry, which would take key barrels off the market. But when Washington waived some of those sanctions, the market suddenly looked oversupplied, and oil prices tanked. Not for long, though: Anticipation of strong oil demand and concerns that oil exports from Venezuela and Libya would shrink sparked a new rally that lasted through the winter. Then, this spring, investors grew nervous that various trade disputes would weaken the global economy enough to sap oil demand, and prices once again dropped.

Even if you don’t follow the oil markets or invest in oil companies, you probably felt the effects of all these market gyrations. Retail gasoline prices soared this winter and early spring, reaching almost $3 per gallon in the weeks leading up to Memorial Day. Since then, the national average price of regular unleaded has pulled back by about 20 cents per gallon. (Though drivers in many parts of the country have been paying gas prices that start with a 3 lately, the national average price of regular unleaded hasn’t exceeded the psychologically painful $3 mark since 2014.)

So, what comes next for oil prices? As is usually the case with questions of economics, the answer is: It depends.

Specifically, the outlook for oil prices depends on the overall health of the economy and whether the longest expansion in modern U.S. history can keep going. Overseas, growth is weakening significantly in China and sputtering in Europe. Parts of Latin America look even worse. The U.S. remains in good health, but can that continue when most of the rest of the world is slowing down? A resolution to the trade war between Beijing and Washington would go a long way toward reviving overseas growth, but that is far from a given at this point.

If the economy can keep chugging along, and if the trade picture improves, I think the next move in oil prices will be modestly higher, perhaps after a further dip in the near term. Why? Several reasons.

OPEC and its partner, Russia, have been holding back their oil exports in order to boost prices. It’s not certain the cartel and Moscow will maintain that policy for the rest of this year, but there’s a lot of pressure on them to do so. Current oil prices are not high enough to fund the budgets of OPEC’s petro-state members.

Production losses remain a real concern in two troubled countries, Venezuela and Libya. Venezuela has already seen its output drop significantly in recent months as its economic crisis deepens. Libya is holding up for now, though it remains plagued by internal violence. The U.S. has imposed the previously delayed sanctions on Iran’s oil industry, which have also caused Iranian production to slip.

The latest attack on oil tankers in the Persian Gulf further complicates the picture. Two tankers transiting the narrow Strait of Hormuz with petroleum products were reportedly hit by torpedoes and damaged earlier today. It’s not yet clear what happened or who is responsible, but suspicions that Tehran was involved raise fears of a shooting war between the U.S. and Iran in the oil market’s most vital shipping route.

Here in the U.S., production is booming, but it’s probably ready to take a breather. The latest data from the Department of Energy peg domestic crude output at 12.3 million barrels per day, the highest in the world and up 1.4 million barrels per day from a year ago. That’s helped keep a lid on prices recently. But drilling activity has been slowing, which points to less production growth in coming weeks and months. According to oil-field services firm Baker Hughes, there are about 100 fewer rigs drilling new oil wells now than there were last autumn, when prices were higher.

In other words, there are reasons to believe that global oil supply is going to tighten up a bit.

Stephen Schork, editor of energy investing newsletter The Schork Report, thinks the recent sell-off will come to an end fairly soon. “I think we are at the bottom” for crude prices, he says, especially since, at current prices, many operators in U.S. shale fields will struggle to turn a profit. He’s concerned about the health of the economy right now, but believes much of oil’s recent price slide was sparked by strength in the value of the dollar this spring. (When the dollar rises, commodities priced in dollars become relatively more expensive for overseas buyers, which hurts demand.)

Whatever happens, prepare for more volatility ahead. Oil prices jumped on the news of the damaged tankers in the Gulf, but that price spike could reverse quickly if the situation calms down. Likewise, if global oil production slips a bit and stockpiles of crude in storage start to fall, prices will probably jump. So, keep your motion sickness pills handy, but watch for prices to eventually stabilize and trend higher if the economy can maintain its momentum.

Shopping for a New Car? Here’s What to Know Now

If you’re going to be in the market for a new car this year, it pays to know what sort of shape the auto industry is in and what sort of deals you can expect to find. If you haven’t shopped for new wheels in a while, you might be surprised at just how much the market has changed.

U.S. auto sales are still going strong, but they’re showing signs of weakening, according to industry analysts. Every expert I spoke with recently expects total sales to come in a bit below 17 million this year, which would be good, but behind the recent pace. Combined sales of cars and light trucks hit a record 17.5 million in 2016 and stayed above the 17-million market in 2017 and 2018; 16.8 million or a bit lower seems like a reasonable bet for this year.

What’s selling these days? Pick-up trucks and SUVs. Traditional truck stalwarts such as the Ford F-150 and RAM 1500 still roll off dealer lots in large numbers. Big SUVs are popular, too, but automakers are also scrambling to make more small and midsize SUVs. “It’s across the board,” says Kelly Blue Book Senior Managing Editor Matt DeLorenzo of the popularity of trucks and SUVs. Midsize pick-ups such as the Chevy Colorado are selling well, as are small, crossover SUVs. A couple of automakers are planning new, compact pick-ups, too. To paraphrase Alfred Sloan, General Motors’ longtime president during the first half of the 20th Century, the U.S. auto industry is now bent on offering a truck or SUV “for every purse and purpose.”

Traditional sedans, meanwhile, have fallen out of favor. Many once-popular nameplates have been retired or will be soon, and some automakers are abandoning sedans entirely. Large sedans are a dying breed, notes KBB’s DeLorenzo.

The shift to trucks and SUVs has driven the prices of new vehicles into nosebleed territory. Car shopping website Edmunds.com notes that a new auto costs, on average, more than $36,000, largely because of all the pricey trucks and SUVs buyers are snapping up. At the same time, interest rates on auto loans are at their highest level in years after the Federal Reserve hiked interest rates a couple of times.

Given the lofty prices and financing costs, shoppers not bent on a truck or an SUV should check out a sedan. They’ll find some compelling values. Many sedans have had design overhauls and been upgraded with premium features such as advanced safety systems and lavish interiors. Yet, their price tags are much less eye-popping than similarly equipped SUVs.

In terms of price discounts or other incentives, you might be surprised to find better deals on trucks and SUVs than on sedans, even though the latter aren’t selling as well. The prices of the former are so high that dealers have room to make concessions while still netting a solid profit. Also, dealers generally have larger truck and SUV inventories. To keep the bigger vehicles moving, dealers and automakers need to be willing to offer some discounts.

Whatever sort of new vehicle you’re looking for, it’ll pay to shop strategically. Jessica Caldwell, executive director of industry analysis at Edmunds, says that August and September should be good times to score deals because dealerships will be more eager to sell off 2019 models to make room for the 2020s. Year-end sales, when manufacturers get their last shot to pump up their annual numbers, figure to feature plenty of bargains, too.

She also urges consumers to not overlook the used market. A record number of vehicles were leased in 2016, which means a ton of late-models will need to be sold. That spells lots of opportunities among carmakers’ certified preowned programs. (CPO cars must pass manufacturer inspections and come with extended warranties.) Caldwell also notes that the technology you’ll find in a three-year-old car isn’t far behind what’s in new cars. Automakers have struggled to come up with new “wow” features lately.

Industry Outlook

A decade after it emerged from the Great Recession, when sales collapsed and two of Detroit’s Big Three filed for bankruptcy, just how healthy is the U.S. auto industry?

All the truck and SUV sales are a major boon for automakers. Their profit margins are hefty, especially when it comes to full-sized pick-up trucks. The Big Three, which dominate truck sales, are raking in particularly fat profits these days.

Moving more-profitable vehicles will cushion the blow of declining sales, says Bill Visnic, editorial director at the Society of Automotive Engineers. Plus, automakers’ operations are leaner a decade after the recession, which means they are less dependent on keeping sales volumes sky-high, he notes. Automakers would gladly opt to sell a smaller number of lucrative trucks and SUVs than a larger number of small sedans, which usually have razor-thin margins.

But that reliance on trucks and SUVs is also a liability. Haig Stoddard, industry analyst at WardsAuto, thinks total sales will come in at 16.9 million this year, but warns there is a fair amount of downside risk in that forecast, especially if the economy softens later in 2019. In that scenario, he expects that truck and SUV sales would take the biggest hit, given their high prices. After years of robust sales, the industry can’t count on as much demand from customers who really need to replace their old vehicle, Stoddard notes. Most of the folks who had put off buying a new vehicle in the wake of the recession have done so by now.

SAE’s Visnic echoes those concerns. Prices are “really getting a little bit scary,” he warns. Consumers can handle them, but only because they feel good right now about the economy and their own finances. If that positive mood sours, watch out. “A car purchase is a fairly discretionary thing” for most consumers, he points out. If they start worrying about the economy, they’ll easily punt on buying a truck or SUV that costs $40,000.

Investing in Energy Efficiency

I recently gave some basic energy saving tips that may help consumers lower their utility bills. One of those tips was considering replacing conventional lightbulbs with light emitting diodes, or LEDs.

I figured advice isn’t very good if I wouldn’t take it myself, so I bought two LEDs to replace two old-fashioned incandescent bulbs in the light fixture above my dining room table. It may sound like a boring chore, but it promises to deliver a far better return on my investment than any stock or bond I’m likely to buy.

I won’t go into the physics of how LEDs work, because as a journalist who hasn’t seen the inside of a science classroom in a long time, I’m not qualified. Suffice it to say that LEDs generate light much more efficiently than Thomas Edison’s venerable incandescent bulbs do. And though LEDs were very expensive when they first hit the market, their prices have come down sharply. Plus, they have several advantages over spiral-shaped compact fluorescent bulbs, which are also quite efficient: Unlike CFLs, LEDs don’t contain toxic mercury. They can be dimmed, which CFLs generally can’t, and they can produce many different colors and hues of light, whereas CFLs tend to cast a harsh, white glow.

More importantly for the cost-conscious, LEDs can save you a bundle.

Here’s the math in my case. I bought a two-pack of dimmable LED bulbs rated to produce the same amount of light as a conventional, 60-watt incandescent. They are the same familiar A19 bulb shape as the incandescents traditionally used in many residential fixtures. (Picture the “Eureka!” lightbulb that appears over cartoon characters’ heads when they think of a bright idea.)

The LEDs I bought consume 10 watts of electricity. So, two operating together at full brightness consume 20 watts, whereas the two old bulbs used 120 watts. Thus, every hour I use them, it saves me 100 watt-hours, or one-tenth of a kilowatt-hour (the unit of power the electric company uses on your bill). I estimate I use the light an average of two hours a day, so that’s two-tenths of a kWh per day, or 73 kWh per year.

In Virginia, where I live, residential electricity rates average 11.55 cents per kWh, so my savings of 73 kWh per year works out to $8.43 per year. That is almost exactly what I paid for the two bulbs.

In other words, I’ll earn back my initial investment in a year, and then save another $8 or so every year thereafter. Granted, that’s relatively small potatoes (though I’ll take a free $8 anytime you offer it to me). But in percentage terms, it’s hard to beat an investment that repays your upfront cost in a year and then pays you that amount again each year afterward. (The maker of the bulbs I bought estimate they’ll last more than 22 years at three hours per day, though cheaply made LEDs have been known to fail much sooner.)

The savings really add up if you replace more bulbs with LEDs, and/or use a given light for more hours per day. Multiply my $8 per year by a few high-use fixtures and you’re talking about some meaningful savings. That’s especially true if you live in a region with high electricity rates. The national average residential cost was recently about 12.9 cents per kWh, according to the Department of Energy. But consumers in New England pay more than 19 cents on average. In California: 18.3 cents. In Hawaii: An eye-watering 29.5 cents. The higher the rate you pay, the more potential savings you can realize.

One downside of switching to LEDs is the additional choices you’ll have to make. LEDs can be dimmable or not, and the dimmable kind often work best on a dimmer switch designed for LEDs. Their light output is measured in lumens, which is not a unit of measurement most consumers are familiar with (though LEDs are also generally marketed as having the light equivalent of conventional bulbs: 40 watts, 60 watts, 75 watts, 100 watts, etc.). You must decide what sort of light you want, such as soft white or daylight (the soft white bulbs I chose look like regular incandescent bulbs to me; they cast a pleasant, yellow glow). And if you’re installing the bulbs in an enclosed light fixture, you’ll want LEDs that are rated for that.

Luckily, all the specs are spelled out pretty clearly on the bulbs’ packaging. And many home improvement stores show different bulbs in display cases that let you see the difference between, say, soft white and daylight.

To me, those extra considerations seem like a small price to pay for a lower electric bill. Saving money doesn’t get much easier than screwing in a new light bulb.

You Don’t Need the Green New Deal to Save on Energy Costs

A few weeks ago, I wrote about the implications of the Green New Deal, a proposal backed by several congressional Democrats that would essentially ban all fossil fuel use by the year 2030. Since then, a resolution outlining the GND’s principles has been introduced, and has generated plenty of debate, even though it’s a non-binding resolution—meaning it’s just a commitment to ideas, not actual legislation.

One of the idea’s more overlooked provisions is a commitment to “upgrading all existing buildings in the United States and building new buildings to achieve maximum energy efficiency.” Like most of the rest of the plan, this idea would be extraordinarily expensive. The resolution has no chance of passing the GOP-controlled Senate, and House Speaker Nancy Pelosi (D-Calif.) has no plans to bring it for a floor vote.

But if you’re interested in the idea of saving some money on your utility bills, you don’t need to wait for a sweeping law overhauling the country’s energy sector. There are practical steps you can take now.

For ideas on how to do that, I spoke with Hannah Bastian, a research analyst with the American Council for an Energy Efficient Economy (ACEEE). I asked her to give me some tips that 1) are broadly applicable for many homeowners and 2) are easy to do and 3) cost little or nothing.

Granted, every home has different heating and cooling systems, different appliances, etc. So not every one of these might apply. But hopefully this list will spark at least one or two ideas that can trim your monthly energy bills.

Don’t overheat your hot water. If you’re like me and never even checked the temperature setting on your water heater, you might be using more natural gas (or propane, or electricity) than you need. If yours is set on “high,” try dialing it back a bit. Odds are your showers will still feel hot. Note also that most water heaters have a “vacation” setting that lowers the temperature while you’re away from home. That’s a no-brainer way to avoid wasting money.

Get more savings out of your thermostat. Everyone knows that turning the heat down a bit in the winter (or cutting back the air conditioner in the summer) cuts utility bills. But knowing doesn’t necessarily mean doing. A recent survey by the Department of Energy found that 40% of households set their thermostat to one temperature and mostly leave it there. That can be costly, because according to ACEEE, turning down your thermostat by one degree in the winter saves about 2% on your heating bill. Now, I’m not advising anyone to freeze for the sake of saving money. But whether you have a manual thermostat, a programmable one or a smart, web-connected one, you can shave your gas, propane or power bill by lowering the temperature a bit when you’re away or asleep at night.

Consider LED light bulbs. Light emitting diodes are far more energy-efficient than conventional incandescent bulbs, and their prices have dropped substantially. (Also, unlike compact fluorescent bulbs, they don’t contain toxic mercury.) So, if you haven’t shopped for them lately, take another look. My quick search online at Home Depot, Lowes and Amazon found plenty of LED bulbs that equal the light output of a 60-watt incandescent, use less than 10 watts of power and cost less than $3 a bulb if you buy packs of four or more. That’s more than an incandescent, but LEDs last for many years, and their energy savings will pay for their upfront cost quickly in light fixtures that you use frequently. ACEEE’s Bastian recommends buying LEDs that have the government’s EnergyStar certification to make sure you’re getting a bulb that performs as advertised. (In a future Energy Alert, I’ll take a closer look at LEDs and what buyers should know about them.)

Plug electronics into a smart power strip, which will ensure they’re completely shut down when not on, rather than in power-wasting standby mode, while still powering always-on gear such as Wi-Fi routers. New power strips even come with remote controls for easy activation. For example, you could kill power to your HDTV, Blu-ray player, stereo and other entertainment systems when they’re not in use, while still running your internet modem. Some smart power strips cost less than $30.

Change your furnace filter. If, like many Americans, you heat your home with a furnace that circulates warm air through ducts, you can kill two birds with one stone. Regularly changing the furnace’s air filter will reduce the electricity the fan uses to blow the warm air (since a clean filter creates less resistance than a dirty one), and you’ll reduce the risk of mechanical problems with the system down the road. If you have an older HVAC system, it can pay to have a technician perform a system checkup and maintenance every year or two, both to ensure it’s running efficiently and to help it last longer.

Check for drafts during the winter. Drafts waste money during summer and winter, but they’re easier to feel when it’s cold out. Some cheap weather stripping can conserve some of the valuable heat a leaky window may be costing you. And identifying drafty spots now can come in handy if you’re planning a home renovation project later: You’ll be able to point out trouble spots to your contractor.

That’s just the tip of the proverbial iceberg for energy-saving ideas. If you have suggestions that you use yourself, feel free to share them in the comments section online, or drop me an e-mail. In future issues, I’ll be looking at other strategies and technologies for cutting energy usage that consumers may want to know about.