Curing the Gas Shortage
Fears of gas shortages leading to high prices are running rampant. Prices are spiking and it is shaping up to be a very expensive winter for those in the north.As expected, there are those that are calling for price controls (Senator Nelson — D, FL, Assemblyman Drew — D, Cape May and govenor candidate Kaine — D, VA) like those set by Carter in the 70s and recently instituted by Hawaii. Those of us who understand basic macroeconomics know that price caps are never the answer; they will merely return us to the days of reduced production and long gas lines.
After Senator and presidental-hopefull Bill Frist oversees the passage of a massive $10.5 billion disaster bill to address the rescue operations in hurricane-ravaged areas, he needs to turn his eyes to a longer-term solution to a clear and present danger to all Americans: high energy costs that will kill our economic growth.
Consumers (most of whom are voters) are accutely conscious of the problem at this point in time as gas prices soar past the historic $3/gallon mark. If I were he, I would take advantage of the crises situation for political gain and ram through some much-needed and highly-visible legislation:
- Establish a moratorium on federal taxes for everything petroleum until next spring.
The first federal moter fuels tax was initially set at 1.5 cents per gallon in 1950 and has risen steadily to the current rate of 18.4 cents per gallon (24.4 cents for diesel). While the elimination of this won't do much for a gallon of gas costing four dollars or more, the federal government imposes 43 different direct and indirect taxes on the production and distribution of gasoline.
The American economy has been growing while Europe's sputters. It has been feared that high energy costs would slow the growth and at current spiking levels it certainly will. To give the people some temporary relief the government should find tax monies elsewhere until the winter is over.
It is possible that some states would even follow suit, just as Indiana govenor O'Bannon did in 2000 when he suspended state gas taxes. State taxes add an average of 27.5 cents per gallon and many counties and cities add taxes of their own.
This, of course, is merely a temporary stopgap designed to ease the burden on consumers while more comprehensive measures take effect.
- Create incentives for companies to build refineries and for states to allow them to be built.
The last new refinery built in this country was in 1976. (We would have had another one in Virginia but after nine years of court battles brought by environmentalists and local residents and an equally wearying nine years of facing state and federal regulators, the company just gave up.)
Worse yet, over half of the existing refineries have closed down over those twenty five years (308 in 1979 to 146 today) due to the prohibitive costs of meeting ever-more-stringent government regulations. This trend is expected to continue, especially among the smaller facilities.
Our refineries are old, inefficient and possibly dangerous. They are certainly running at near-capacity (although total U.S. crude oil processing capacity peaked at 18.6 million barrels a day in 1981, it is estimated that our refineries are running at 90 to 95% capacity).
And with a mere 5% profit margin, there is little incentive for some to make the estimated two to four billion dollar investment to build a new one. That is what must change.
- Using the Interstate Commerce Clause of the federal constitution, create a national standard for gasoline formulation and require every state to honor it — even California.
State and federal regulations force manufacturers to produce over 40 different fuel blends (boutique fuels), with different blends required between summer and winter. The burdonsome need to meet custom fuel specifications has cost consumers $47 billion over the last ten years and made it impossible to meet supply demands with excesses in other parts of the country.
Some refineries overseas have stopped shipping gasoline to the United States because they don't want the headache of changing processes nor risk getting stuck with excess supplies when out of season.
Create one formulation for the entire nation and stick to it.
- Simplify clean-air regulations.
The Environmental Protection Agency has made a considerable difference in the stewardship of our natural resources but it has come at a high cost. Since its inception in 1970, the EPA has issued a steady stream of confusing regulations that represents one-third of all federal laws and regulations. In the first two decades alone, EPA regulations cost American taxpayers and businesses $1.4 trillion, with over $1.6 trillion in the 1990s. And that doesn't count the hidden costs to American consumers in the form of higher prices and fewer choices.
EPA Clean Air regulations are costly (more here and here), flawed (more here), politically motivated (more here) and arguably hurt our poor and minority population more than any other segment.
The EPA itself routinely overreaches its authority. Now that President Bush has proven that our environment can continue to improve even after business-friendly reforms have been put into place, it is time to slap the EPA down and make a stand for the American consumer.
Clean air and a healthy environment at a resonable cost. The EPA would have us pay any cost, even when it doesn't make sense.
As prices come in at over three dollars per gallon they have finally reached a historical high (when adjusted for inflation — click chart for source). Price controls will do nothing to fix the market problems, but tax breaks and incentives can.In this time of crisis it is time for Senator Frist to show some real leadership and push these reforms through Congress in emergency sessions.
Update: Georgia Governor Perdue suspends state gasoline taxes. Smart man!
Update 2: Katrina is affecting gas prices overseas, with the price of a gallon of gas hitting $5.08 in Spain, $6.70 in Germany and $7.85 in Norway, with the expectation that prices will continue to rise.
Update 3 — 6 Sept: A pair of stories, hilarious when juxtaposed:
- Florida Democrats called on Governor Bush to suspend the state's gas tax. Bush is looking into it but doesn't believe that he has the executive power to do so, saying that it is up to the Democrats in question to send him a bill. But he rather humorously notes:
"That is very good news for Floridians because rhetorically they've been opposed to tax cuts over the last seven years," Bush said of Democratic lawmakers. "For every one letter that apparently I get suggesting I should cut taxes, we'll have 200 press releases criticizing me for doing so."
- In Maine, it is Republican lawmakers that are attempting to craft some relief for consumers, asking for a special session of the legislature in which these issues can be addressed:
The Democrat response? Why, a tax cut would just be a "corporate give-away" that increases the profits of the big, bad, greedy oil companies, of course!- Suspend Maine's 25.9-cent gasoline tax for a period of at least 60 days to allow the market to stabilize.
- Repeal the tax on heating oil used by businesses.
- Repeal the automatic indexing of gasoline taxes.
- Reduce most administrative state vehicle travel by 15 percent.
- Order a temporary change to state employees' work schedules from five eight-hour days to four 10-hour days, wherever possible.
Expand state efforts to coordinate and improve car pooling on a statewide level. - Instruct the Department of Environmental Protection to investigate the use of lower-grade diesel and gasoline fuels, such as dyed diesel use for agricultural purposes.
Blog post #5356 in category Energy
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