5-9-08 by dugan
…And See If It Sticks. That appears to be where government stands on quelling oil and gasoline prices. Congress is now proposing bucketsful of legislation and other actions in a pre-election panic. Some of it is on target and some is just pander, either populist or corporate. Let’s sort it out.
Bad, or Ineffective
- The "Gas Tax Holiday"
Proposed by Sens. Clinton and McCain, among others. Suspending the federal 18.4-cent per gallon gasoline tax wouldn’t reduce gasoline prices by 18 cents, because refiners itching to raise their profits would likely use the slack to raise prices. The federal highway fund would lose $9 billion over the summer. And when Congress tried to reinstate the tax at the end of summer (just before the election) all bets will be on failure. Then we can watch roads, bridges and mass transit crumble.
- Windfall Profits Tax
Proposed in Senate, and by Sen. Clinton. Hellish to enforce, and too easily evaded by armies of skillful accountants. Hasn’t worked in the past, and Americans have become allergic to the word "tax," even on oil companies.
- Drill the Arctic
Proposed in Senate and by President Bush. Opening the Arctic National Wildlife Refuge to oil drilling has long been rejected on environmental grounds. Add to that: It would take years to get a drop of oil to market, and provide only a few months of the total U.S. supply. The Arctic permafrost is also melting, which shortens the season for the ice roads needed to haul heavy equipment, and is causing existing pipelines to sag and possibly crack. If they build it, it will sink.
Good, Or at Least Likely to Help
- Use the Strategic Petroleum Reserve. (Short Term)
An OilWatchdog favorite, now widely proposed. Instead of buying 70,000 barrels a day at record prices with taxpayer money, the White House would temporarily stop buying for the reserve. Also, with a show of determination, it would sell some of the current 700 million gallons in the reserve into the market.
Oppenheimer and Co. analyst Fadel Gheit is among those asserting that additions to the reserve push up prices rather than adding to national security.
"For the world’s biggest consumer of oil to do this is sending the wrong signal, that you expect something ominous, something catastrophic to happen like war with Iran. The message that sends to the rest of the world is music to the ears of the speculators," Gheit said.
Yet President Bush, who capped additions to the reserve in 2006 explicitly to push down prices, refuses to do so now.
(See White House fact sheet on April 25, 2006 actions here.)
- Regulate "Wild West" Energy Trading (Medium Term)
Proposed by Senate Democrats, particularly Carl Levin and Dianne Feinstein. Burgeoning electronic trades in energy futures are completely unregulated, and even expert analysts say they have no idea what is happening on such markets. Most now see oil pricing as a speculation-driven bubble. only the people doing the trading have any idea what machinations are taking place. A Senate regulatory proposal is part of the farm bill, which is currently mired in gridlock.
Senate Democrats are also proposing to raise the "margin," the percentage of cash that traders must put up on energy futures trades. Currently it’s 5% to 7%, while stock traders have to put up at least 50%. The low margin lets pure speculators gamble at too small an upfront cost. The Senate should consider raising the margin only on traders who are not actually buying or selling oil–the vast majority of the market nowadays. Let those who are actually hedging sales and purchases of real oil keep a lower margin, at least for now.
- Cut Oil Companies’ Taxpayer Subsidies (Long Term)
Passed twice in the House, stuck in the Senate. Even President Bush, in his April 2006 gas-price reducton plan, acknowledged that oil companies have no need for the all the billions in taxpayer subsidies they still get, despite record profits. Yet a bill to recoup about $18 billion of such subsidies over 10 years can’t get passed by the Senate, where Big Oil allies keep blocking a committee hearing, much less a vote. The bill , HR 5351, would rightly put the money into development of renewable energy and conservation efforts.