Rising Gas Prices
Recent uprisings in the Middle East have been good for democracy, but they’ve had economic reverberations around the world as well. In just the past 13 days, the average price for a gallon in the U.S. of gasoline has increased 34 cents. This morning, the price for a barrel of oil nearly hit $107 in electronic trading, the highest since Sept. 26, 2008. As American families already financially stressed by the Great Recession grapple with this steep increase in a necessary product, political opportunists on the right have been quick to blame President Obama for what is a near-uncontrollable situation. Oil prices are inherently unstable, which is why the United States should increase efforts to wean itself from oil through a variety of actions — improving fuel standards, increasing investment in natural gas use, and removing oil and gas subsidies to invest in clean energy initiatives. The conservative “solution” of increased domestic drilling will do nothing to reduce consumer prices but will increase the risk of new BP-style disasters. We should ignore calls for expanded domestic offshore drilling that takes too long to provide relief at the pump, until oil companies can prevent and clean up deep water blowouts.
PAIN AT THE PUMP: There are a whole universe of factors influencing the price of gas, making it an inherently unstable commodity. Presently, political upheaval in the Middle East over the past month has driven parallel unrest in world oil prices. On January 28, in the midst of unrest in Egypt, oil prices closed $4 to $5 higher than normal at $89 a barrel. This leap reflected concerns that the Egyptian revolution would interfere with Persian Gulf oil transportation and deliveries. Prices stabilized when Egyptian President Hosni Mubarak resigned in February, but of course, popular uprisings in the Middle East did not relent. The current turmoil in Libya — which is far more violent than what took place in Egypt, with a dictator more willing to use force against his people and apparently less willing to step aside — has created even more chaos in the oil markets. Libya supplies 1.8 million barrels of oil a day, or 2.1 percent of worldwide oil production. The United States does not import Libyan oil, but the oil market is so unstable that Libya’s market share is substantial enough to push oil prices to $107 a barrel, harming American consumers anyway. As foreign oil workers flee and clashes continue to occur near key energy infrastructure, more spikes are possible. Unrest in Bahrain, which produces 48,000 barrels per day, could further increase prices. Potential uncertainty in Saudi Arabia is an even more pressing concern, as the Center for American Progress’ Kate Gordon and Brian Katulis note, since that country produces one-fifth of the world’s oil. Such spikes in oil prices present a clear threat to economic recovery in the United States and around the world. Already in the past year, families have experienced a 13 to 17 percent increase in gasoline and fuel heating oil prices, while family incomes have stagnated. According to the New York Times, “[a] sustained $10 increase in oil prices would shave about two-tenths of a percentage point off economic growth” and “[the] increase would offset nearly a quarter of the $120 billion payroll tax cut that Congress had intended to stimulate the economy this year.” This substantial economic threat is caused by sudden, unexpected political volatility that the United States has a limited ability to control, but it could have — and has been — caused by any number of other factors. Excessive speculation in the commodities market can create price spikes, as can climate disasters — prices jumped to record highs following Hurricane Katrina.
THE BLAME GAME: Political opportunists in the Republican Party have already sought to blame this inherently unstable situation on President Obama. Mississippi Gov. Haley Barbour (R) — a possible 2012 presidential candidate and former oil industry lobbyist — has suggested that not only are increased prices Obama’s fault, but that he desired and created them. “His administration’s policies have been designed to drive up the cost of energy in the name of reducing pollution, in the name of making very expensive alternative fuels more economically competitive,” Barbour told the U.S Chamber of Commerce last week. “Their policy is to drive up energy prices.” Rep. Michele Bachmann (R-MN), chair of the House Tea Party Caucus and also a potential 2012 presidential candidate, said of high gas prices, “This is exactly what the ambition of the Obama administration is, because they want to move people toward green energy.” In a post on Redstate.com titled “Blame the Democrats for High Gas Prices,” CNN political commentator Erick Erickson argued that “Democrats have been politicizing and blocking expanded oil drilling for quite some time.” Similarly, Rep. Bill Johnson (R-OH) blamed Democrats’ unwillingness to open up more domestic drilling sites for the spike. “We seem to have our hands behind our back,” Johnson said. “And this lack of permitting — this lack of going after resources that we have right here in America — is indicative of a failed energy policy.” There is a notable theme here — aside from crass political point scoring, these attacks are calibrated to protect oil as a primary energy source at the expense of cheaper green alternatives, while pushing for even more oil drilling here in the United States. These opportunistic attacks come as the oil industry prepares to pump unprecedented sums of money into the political process. Since the midterm elections, the oil industry has “been very aggressive right out of the gate because of the huge opportunity with the election of their allies,” as Daniel J. Weiss, the director of climate strategy at the Center for American Progress Action Fund, told the Houston Chronicle yesterday. Oil and gas companies spent $146.3 million on lobbying last year, and that number is poised to rise as the presidential election approaches. For example, the American Petroleum Institute will start donating money to political campaigns this year.
REAL SOLUTIONS: Since the United States ultimately has very little control over global oil prices, the best policy to address the problem is one that gets the United States off its dangerous dependence on oil. There are any number of ways to go about this — but risky domestic drilling is not the answer. We cannot wean ourselves from the Saudi tap by embracing a “drill, baby, drill” agenda. Oil is priced and sold in a world market, even more so today than in the early 1970s. Since we have only 2 percent of the world’s oil reserves, but use one-quarter of world oil production, it’s not possible for increased domestic drilling to meaningfully impact oil prices. Alternately, as CAP President and CEO John Podesta and Weiss suggest, there are many serious ways the United States can decrease its dependence on an unstable energy source like oil. The United States should establish an oil use reduction target of 7 million barrels per day by 2030. This is one-third less than current oil consumption. Congress should also make interim targets of reducing consumption by 1 million barrels per day by 2015 and 3 million per day by 2022. It should also provide the president with the authority to require such reductions. President Obama has already required tougher more efficient fuel standards for cars and light duty trucks, and ordered the Department of Transportation and Environmental Protection Agency to develop the first-ever fuel economy and greenhouse gas standards for medium- and heavy trucks. This is particularly critical because they use 20 percent of all oil used for transportation. Increased investment in electric vehicles and the corresponding infrastructure would be helpful. Furthermore, the big five oil companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — made $893 billion in profits from 2001 to 2010. Yet they continue to receive tax breaks and other federal benefits worth billions of dollars annually. These highly profitable companies can do without this taxpayer largess. The federal government should eliminate these subsidies, and could invest a portion of this revenue in programs for cleaner fuels or public transportation.