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Gas Prices and the Real Energy Crisis
Hurricane Katrina has left a path of human misery and devastation across the Gulf But I’ll leave to Congressional hearings and historians why the first major American catastrophe since 9/11 appears to have been so incompetently handled by the Bush Administration. What is clear is that the economic harm caused by the hurricane will not only be felt by Gulf residents – it will be felt in New York, the U.S. and across the globe. This disaster brought into stark view the inadequacy of the Bush Administration’s energy policies. Even though oil companies have enjoyed profits of $254 billion since 2001, the President pushed for additional subsidies for the industry. He did so while rejecting measures to significantly boost requirements that cars get better gas mileage, improve conservation, or create alternative energy sources. Coming on the heels of months of rising prices – US gasoline prices jumped 14 percent from July 25 to August 22 – Katrina has helped drive energy costs to record highs. The big issue has been the incredible increase in gas prices – they’re well over $3 per gallon and $4 prices are not out of the question. Not surprisingly, the political parties are advancing proposals to deal with gas prices. Republicans are urging that taxes on gasoline be capped or eliminated and Democrats are demanding investigations in price gouging. There is some evidence to defend the Democrats’ point of view. In Chicago, Marathon Petroleum had to lower its prices after it admitted that it had raised its prices too much. Every driver wants lower prices, so the Republican plan has a lot of appeal. Such a reduction would certainly help drivers save some money in the short run. It’s estimated that the federal tax adds 18¢ per gallon and state taxes add another 10¢. But with both the federal and state governments running huge deficits, any cut in revenues would have to be offset with cuts in programs – things like financial aid for college students or even money for disaster relief! Even if cutting taxes reduced gas prices from $3.50 to $3 per gallon, gas still costs a lot of money and a gallon of petrol costs a lot more than last year. And home heating costs will go through the roof as well. So what should be done? Policymakers should look broadly at energy costs and not just focus on the crisis of the day. First, the federal government has to get serious about reducing the nation’s oil addiction. Washington should divert monies to alternative fuel sources and require cars to get better gas mileage. Second, state leaders should aggressive monitor energy prices and industry practices. Allegations of price gouging by oil companies, distributors, gasoline retailers, home heating oil or natural gas companies should be investigated and punished. Third, state lawmakers should use any additional revenues generated by the sales tax on gasoline to fund programs that help reduce consumers’ energy costs. Programs such as revitalizing energy conservation programs that were slashed during deregulation; adding funding to mass transit programs; and supporting the use of alternative energy sources, like solar and wind. But until lawmakers act, the public should take steps to help reduce their personal energy costs now. Here are some ideas for drivers:
The newest energy crisis is fundamentally a problem of supply and demand in a very uncompetitive market. The expanding economies of India and China, combined with the problems in the Middle East, will be with us for years to come. The top five oil companies alone produce 14 percent of the world’s oil – more than Saudi Arabia. This extent of market control reduces competition. That’s unlikely to change soon too. What has to change is that the nation’s leaders must wake up to the crisis. It’s clear that oil is a finite resource and that clean, green alternatives – combined with conservation – should be the cornerstone of American policy, not an afterthought. Until policymakers take this newest crisis seriously, it will cause pain for years to come. That’s all for now. I’ll be keeping an eye on the Capitol and will talk to you again next week.
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