Carter was President during a time of gasoline and oil shortage known as the Energy Crisis. Before he became president, during the Nixon Administration, the Organization of Petroleum Exporting Countries (OPEC) decided in 1973 to reduce supplies of oil available to the world market. This was a measure taken in response to the deflation of the US dollars they were receiving when President Nixon took the US dollar off of the gold standard. It was also a reaction to America's support of Israel during the Yom Kippur War. This led to the 1973 Oil Crisis and it caused oil prices to rise sharply. The U.S government imposed price controls on gasoline and oil following the announcement, which led to shortages and long lines at filling stations for gasoline. Price controls on gasoline were eventually lifted, but when Carter became President he believed that the energy crisis was what he called "a clear and present danger to our nation". He described OPEC's action as "the moral equivalent of war".
Carter formulated a plan to address the oil crisis. He told the media that he believed that the world oil supply would probably only be able to keep up with Americans' demand for another six to eight more years.
In 1977, Carter convinced Congress, controlled by his party, to create the United States Department of Energy. He intended that its goal would be energy conservation. Carter brought in oil and natural gas price controls. To lead by example, he had solar hot water panels installed on the roof of the White House, and had a wood stove in his living quarters. He ordered the General Services Administration to turn off hot water in some federal facilities, and requested that all Christmas light decorations remain dark in 1979 and 1980. He directed that thermostats in government buildings would be set so as to prevent people from raising temperatures above 65 °F in the winter lowering them below 78 °F in the summer.
The energy crisis was a huge issue which was on the minds of both motorists concerned about rising fuel costs, and environmentalists who were worried about air quality resulting from pollution. In addressing these problems, Carter decided that energy conservation was the wisest course. He signed the National Energy Act and the Public Utilities Regulatory Policy Act. Each of these laws encouraged energy conservation and promoted development of renewable forms of energy such as wind and solar energy.
Despite his preference for conservation, during 1979 and 1980, Carter facilitated the deregulation of the oil industry by phasing out government control of oil allocation. He hoped to maintain some control by asking Congress to impose a "Windfall Profit Tax" on unregulated oil companies. The tax was passed in 1980 on domestic oil production, but was repealed in 1988, as prices had collapsed during the 1980s oil glut.
When the energy crisis was gripping the nation, Carter decided to give a major speech to the nation on energy. At the presidential retreat of Camp David, Carter met with prominent Democratic Party leaders, Congress members, governors, labor leaders, academics and even clergy. He was advised by pollster Pat Caddell that the American people faced a crisis of confidence because of the assassinations of John F. Kennedy, Robert F. Kennedy and Martin Luther King, Jr. the Vietnam War and Watergate. As a result of these conferences, Carter wrote the nationally televised speech that he gave on July 15, 1979, which became known as his "malaise speech." In the address, Carter described what he called a "crisis of confidence" among the American people. In the speech Carter said:
"I want to talk to you right now about a fundamental threat to American democracy. I do not refer to the outward strength of America, a nation that is at peace tonight everywhere in the world, with unmatched economic power and military might. The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation...
"In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns. But we've discovered that owning things and consuming things does not satisfy our longing for meaning...
"I'm asking you for your good and for your nation's security to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel.... I have seen the strength of America in the inexhaustible resources of our people. In the days to come, let us renew that strength in the struggle for an energy-secure nation."
Not everyone believed that the speech was a flop. The New York Times ran the headline "Speech Lifts Carter Rating to 37%; Public Agrees on Confidence Crisis; Responsive Chord Struck".
Carter sought to explain how overconsumption in the United States was creating an energy crisis. His early rise in polling numbers didn't last long. He was criticized for doing too little to fix the oil crisis himself. Many critics felt that Carter was blaming the American people for the economic problems he complained of instead of looking for a long-term solution on how to fix them.
In this speech Carter tried to warn Americans that the 1979 energy crisis, which was both a shortage of gas and an increase in gas prices, originated from the country's way of life. In the speech he said "Too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does but by what one owns."
Three days after the speech, Carter asked for the resignations of all of his Cabinet officers. He accepted those of five cabinet members including Energy Secretary James Schlesinger and Health, Education and Welfare chief Joseph Califano. Califano was a supporter of Senator Ted Kennedy, who would later challenge Carter for the party's nomination in 1980. He appointed Hamilton Jordan as his Chief of Staff. Jordan circulated a memo to White House staff that read more like a loyalty oath. Vice-President Walter Mondale later said "the message the American people got was that we were falling apart."
Debate exists about whether Carter's bluntness with the public was a principled but unpopular thing to do, or if it was simply a lack of leadership and a desperate measure by a government that lacked real ideas about how to solve a serious problem. It was different approach from the optimism and hope contained the the rhetoric and hope typical of FDR or Reagan. It also likely failed to achieve whatever strategic effect Carter had hoped for. Over the last two years of his presidency, inflation and interest rates continued to rise and gas prices were included in the latter. Carter narrowly won his party's nomination for re-election in 1980, fending off a serious challenge from Ted Kennedy before losing his bid for a second term to Ronald Reagan in the election of 1980.