Gas Price Debate Misses Bigger Picture

Wednesday, March 14th, 2012

The 2012 Ford Focus electric vehicle on display at the Washington Auto Show.


By Josh Marks

The debate over higher gas prices misses the bigger picture: When President Obama saved Detroit he made sure the American auto industry retooled with vehicles that are smaller, more fuel efficient, more electric and more capable of carrying cleaner burning homegrown fuels like ethanol and biodiesel. Gas prices go up. Gas prices go down. That’s the reality no matter who is in the White House. But in a brilliant move, the Administration’s plan to increase fuel economy standards could boost domestic sales of fuel efficient vehicles as consumers consider buying cars that will take less trips to the pump.

This long overdue shift to low and zero emission vehicles is largely thanks to the fuel economy and greenhouse gas emissions rule adopted in 2010 by the U.S. Environmental Protection Agency (EPA) and U.S. Department of Transportation (DOT). The rule started in 2011 and will increase miles per gallon requirements every year until 2025, when the window sticker rating must be 54.5 MPG. That means less trips to the gas station, more money savings, more energy security with less reliance on foreign oil, cleaner air to breathe and combating climate change by reducing CO2 emissions.

The U.S. Department of Energy (DOE) and EPA’s website provides consumers with fuel saving tips, information on the new fuel economy and environment label designs that will begin model year 2013, and helps car buyers choose the most fuel efficient vehicles on the market.

The DOE’s National Clean Fleets Partnership is also making a big difference by working with large private fleets to reduce oil use by converting to electric vehicles, hybrids and more fuel efficient delivery vehicles. This partnership is ensuring that high gas prices won’t have as much of an impact on the bottom line of big American companies. Some of the companies in the partnership include Best Buy, Coca-Cola, FedEx, Staples and Verizon.

Republicans are cynically playing political games with gas prices since they can’t go after President Obama on the economy. But the facts show President Obama has done more to get the United States off its dangerous dependence on foreign oil than any president in history. Obama deserves credit for ushering in the end of gasoline so in the future Americans won’t be victimized at the pump because of events taking place thousands of miles from our borders. He is setting America on a course for long-term energy security.


Upset About Rising Gas Prices? President Obama, Not the GOP, is Offering Solutions

Friday, March 2nd, 2012

Desperate to find a way to halt their slide in the polls, Republicans have tried to blame President Obama for rising gas prices, claiming that he has somehow failed to make the US energy independent.  Entirely on cue, much of the mainstream media has echoed this attack, giving wall-to-wall coverage of high gas prices and GOP claims about it.  But the attack is entirely off-base, as rising gas prices are caused primarily by increasing demand overseas, and the long term solutions – increased fuel efficiency and development of alternative fuels – are being promoted by President Obama and fought by the very same Republicans who are trying to make a political issue out of gas prices.

There is no dispute that gas prices have been going up, though they remain below the high reached in mid-2008 and they were kept unnaturally low in late 2008 and 2009 due to the Bush Recession.  But Republican claims about energy independence, the purported need to “drill, baby, drill,” and the alleged refusal of the Obama Administration to allow energy development are simply false.  In reality, US oil production is at an eight year high, to the chagrin of many environmentalists (including Winning Progressive) the number of oil rigs in operation have skyrocketed, the U.S. was a net oil product exporter in 2011 for the first time since 1949, and as the image above shows, U.S. dependence on foreign oil has declined every year since President Obama took office.

The reality of the situation is that oil and gas prices are set by a global market that is largely beyond the reach of any U.S. President.  For example, the biggest cause of the increase in gas prices is skyrocketing demand for gas and oil in China, India, and other rapidly developing nations which is pushing up prices globally.  Second, supply disruptions in Syria, Sudan, Yemen, and the North Sea has at least temporarily reduced global supply.  Third, concerns about a possible military conflict with Iran (which many conservatives are actively cheerleading) has created an opening for financial speculators to drive oil prices up even more.

Contrary to the Republicans’ caterwauling, there is little that President Obama, or any other political leader, can do to force gas prices to decline.   Instead, there are two things that need to be done to address rising gas prices.  The first is to reduce income inequality in the US, in order to alleviate the impact that rising gas prices have on working class and poor Americans.  On that front, President Obama has been actively fighting for a fairer tax and economic system, while the GOP has focused almost entirely on trying to reduce taxes for the wealthiest 1%. In light of this record, the GOP’s claims to care about the impact of gas prices on consumers rings hollow.

Second, we have to find ways to reduce and eventually end our dependence on oil from any source over the long term so that Americans need to purchase less gas.  And on that front, President Obama, while far from perfect, has shown leadership often in the face of pathological intransigence from the GOP.

Most importantly, the Obama Administration has significantly increased vehicle efficiency in order to reduce the amount of gas Americans need to purchase.  In April 2010, the Administration finalized a regulation increasing Corporate Average Fuel Economy (“CAFE”) standards for cars to 35.5 miles per gallon (“mpg”) by 2016.  Last year, the Obama Administration reached an agreement with the auto industry to increase average fuel economy for cars and light-duty trucks to 54.5mpg by 2025.  Such standard will save $1.7 trillion in fuel costs for American consumers and reduce oil usage by 2.2 million barrels per day.

Second, as Josh Marks explained a couple of days ago, President Obama has been actively investing in developing alternative fuels, such as algae-based biofuels that could replace up to 17% of our nation’s oil imports.  Republicans are, predictably, mocking the algae research, even though they previously requested federal support for such research.

Third, President Obama has sought to end the more than $4 billion of taxpayer subsidies that the oil industry receives every year.  In a speech yesterday in New Hampshire, the President explained how those subsidies give the oil industry an unfair economic advantage over cleaner fuel sources, and could be used to, among other things, help finance the transition to cleaner fuels.  To date, Republicans have refused to heed Obama’s call on ending oil industry subsidies, so the President is turning up the pressure by urging his supporters to call their Congresspeople and Senators and demand that they vote to end the subsidies.

From a progressive perspective, President Obama has been far from perfect on the issue of gas prices and clean energy.  For example, he has yet to follow through on his call during the 2008 election campaign for a windfall profits tax on oil companies that could be used to reduce the impact of high gas prices on lower income Americans.  In addition, President Obama’s framing of his energy policy as an “all-of-the-above” strategy could improperly suggest that fossil fuels (including coal) are a key part of the long term energy solution.  In fact, while we will need natural gas and oil for the foreseeable future, we should be promoting cleaner fuels and efficiency as rapidly as possible.

But these concerns should not distract us from the fact that the Obama Administration is not to blame for rising gas prices, the Administration is making significant progress is advancing fuel efficiency, alternatives fuels, and other long term solutions to rising energy prices, and President Obama rightly rejects the GOP’s fallacious “drill, baby, drill” approach.

Unfortunately, the GOP is trying to ride the gas price issue back to political relevance.  It is up to us to make sure they do not succeed.  Two ways you can help are by writing a letter to your local newspaper editor explaining how rising gas prices will require long term solutions that President Obama is pursuing, and by calling your Congressperson and Senators to urge them to vote to end the more than $4 billion in taxpayer subsidies that the oil industry receives every year.


Gas Prices Are Too Damn High –Speculators to Blame?

Friday, April 29th, 2011

(by Mark McCutchan)

According to the AAA, the national average price of self-serve regular gasoline is now $3.86 a gallon – 30 cents more than a month ago and a dollar more than last year at this time.

President Obama gave a short weekly address addressing consumers’ gas price concerns last Saturday titled “Instead of Subsidizing Yesterday’s Energy Sources, We Need to Invest in Tomorrow’s”.

Whenever gas prices shoot up, like clockwork, you see politicians racing to the cameras, waving three-point plans for two dollar gas. You see people trying to grab headlines or score a few points. The truth is, there’s no silver bullet that can bring down gas prices right away.”

“But there are a few things we can do.  This includes safe and responsible production of oil at home, which we are pursuing.  In fact, last year, American oil production reached its highest level since 2003.

Increasing national oil production to lower prices is a Republican fallacy (hawked by 2012 contenders Pawlenty and Romney here) that has been adopted by Obama to appear to be “doing something” about high gas prices.  But oil produced on U.S. soil does not go solely to the U.S. needs.  It goes to the highest bidder on the world market, and if China outbids American customers, China gets it.  Ramping up U.S. oil production at riskier, more remote and less productive sites will do very little to change the price of oil, or our future dependence on foreign oil.

On Thursday, my Attorney General also launched a task force with just one job: rooting out cases of fraud or manipulation in the oil markets that might affect gas prices, including any illegal activity by traders and speculators.  We’re going to make sure that no one is taking advantage of the American people for their own short-term gain.

Given that the Obama administration responded not very aggressively to real Wall Street malpractice (discussed by WP here), why did the president so quickly jump to the conclusion that Wall Street lawbreakers caused gas prices to hit $4 a gallon?

President Obama reads the polls, and many politicos see $4 gas as a bad sign for President Obama’s reelection chances in 2012.  “My poll numbers go up and down depending on the latest crisis, and right now gas prices are weighing heavily on people,” President Obama said at a fund-raiser in Los Angeles on April 21st.

The latest NYT/CBS News poll say 57 percent don’t like the way he’s handling the economy.  American consumers don’t directly feel the budget deficit, but they do feel the hit to the pocketbook when a tank of gas costs $80 or more, and it colors their view of the economy and the country – 70 percent believing the country is headed in the wrong direction.

Who do Americans blame for high gas prices? Here are the results of the latest Marist poll:

36 % – volatility in the Middle East

34% – US oil companies

11 % – Obama and Democrats

10%  – Unsure

7%  – Congressional Republicans

3%  – State and local taxes (?!)

Back to the President’s speech:

And another step we need to take is to finally end the $4 billion in taxpayer subsidies we give to the oil and gas companies each year. That’s $4 billion of your money going to these companies when they’re making record profits and you’re paying near record prices at the pump. It has to stop.

The President is right – it is pointless to give taxpayer money to Big Oil when they are making record profits.  He’s wrong, though, about its effect– eliminating subsidies may only pressure the oil companies to hike prices in order to keep post-tax profits stable.

Instead of subsidizing yesterday’s energy sources, we need to invest in tomorrow’s. We need to invest in clean, renewable energy. In the long term, that’s the answer.

Again, Obama’s right and wrong – right that we need to switch subsidies to renewable energy, and wrong that it will affect pump prices in the next few years; it’s a long term investment that will be effective in lowering energy prices.

The Real Reasons

Here are the real reasons for higher gas prices – increasing demand, a relatively steady supply, and some futures trading by speculators worried over supply disruptions.

Demand continues to increase as the world’s economies continue to recover from our long recession caused by the 2008 financial meltdown.  While U.S. oil consumption is recovering to 2008 levels, Chinese oil consumption continues to advance at a blistering pace (graph 1) because of high economic growth, population growth, and an even higher growth in the popularity of automobiles (graph 2)

Graph 1 – Oil Consumption – US (Red), China (Blue)

Graph 2 – Car Production – US (Red), China (Blue)

The supply of oil world-wide has been steady, but the oil production equipment in rebel-controlled portions of Libya, Sarir and Messina, has been knocked out by government attacks, and will be down for at least 4 more weeks.  These two fields have a production capacity of about 400,000 barrels per day.

Last week’s gas price hike last week was aided by concern that violence during Nigerian elections would disrupt the production of crude oil used by some East Coast refineries, as well as continued anxiety over the turmoil in other oil-producing countries.  And the Russian government announced Thursday it will ban exports of gasoline in May, to ease local shortages and price hikes.  Since Russia exported about 4 million barrels/mo in January (latest numbers), this could further tighten the world gasoline market.

Futures trading may be a contributor to the price hikes, but it has a legitimate market function.

From the U.S. Commodity Futures Trading Commission:

Many people think that futures markets are just about speculating or “gambling.” Futures markets can be used for speculating, but they are designed as vehicles for hedging and risk management so that people can avoid “gambling” if that is not their choice.

So if an airline wants to hedge against rising jet fuel prices, it may want to buy a jet fuel futures contract that will make a profit if prices go up, balancing out the their increased cost of their jet fuel.   If the administration is concerned about market volatility due to futures trading, a Tobin tax would dampen speculator action.

What To Do About the High Price of Gas

The high price of gasoline is just one symptom of our dysfunctional energy policy.  Not only do we need to reduce our dependence on foreign oil, we need to reduce our dependence on all fossil fuel to keep our economy powered more sustainably and cleanly.

In the short term, we can do very little about the price of gas.  President Obama knows it, and he’s trying to jawbone the markets down – not very effective for long – and move us to a less oil-addicted society to address the problem over the long run.  We can all help out and save money by driving less, planning our errands better, and reducing recreational trips to ease the pain at the gas pumps.

In the intermediate term we can encourage our government to do much more, even before the 2012 elections:

* Promote public transport like high-speed rail systems to reduce gas consumption (most are electric), boost construction jobs, and strengthen our cities.

* Promote renewable American energy sources like solar, wind, and hydroelectric through effective tax policies and renewable energy standards. Clean energy development can also create over a million new jobs.

* Promote electric car technology through collaborations of the Department of Energy and private companies like this story: Google and 80 other companies are collaborating with the DOE to make it simple for drivers of electric vehicles to find parts and charging sites.

* Continue to promote efficiency through increased fuel efficiency standards for cars.

* Eliminate tax subsidies to the oil, coal, nuclear and ethanol industries to reduce the market distortions.

* Institute a carbon tax on fossil fuel. By itself it would not lower prices (it would probably raise them slightly), but it would be a powerful signal to the market that the era of cheap fossil fuel is over, and it finally makes financial sense to switch to renewable sources.  A carbon tax may not have the touted “market efficiency” of cap-and-trade policy, but it is simple and adjustable. A carbon tax would have the added benefit of reducing climate change, and the tax revenue could be used to provide an offsetting tax refund, invest in renewable energy development, transition fossil fuel industry workers, and reduce the deficit.

Please write to your legislators, the President, and a letter to the editor of your local newspapers to support any of these ideas.