We’re All to Blame for Pump Prices
Like millions of my fellow Americans, I was subjected to an unprecedented experience in the last week: I paid more than $3 for a gallon of gas.
This latest price spike is the product of Hurricane Katrina, high crude oil prices, holiday demand, refinery outages and (no doubt) rank opportunism. It is accompanied, as night follows day, by calls in Congress and state capitols for price controls, windfall profit taxes on oil companies and more refinery construction.
All these ideas are good in some ways and bad in others. It’s a mistake, however, to view them as expressions of political strength and determination, as we’re led to believe by images of senators and attorneys general striding to the microphones to shake their fingers at the oil industry. Rather, they’re expressions of impotence.
The United States is dependent on oil, 60% of it from overseas, because of decisions we’ve made and policies our leaders have implemented with our approval. Gasoline demand is washing up against production capacity -- in this state and across the country -- also because of decisions we’ve made as a nation and as individuals. As a result, every production constraint, whether it’s a fire at a single refinery or the storm-brewed destruction of miles of Gulf Coast infrastructure, sends wholesale and retail prices screaming into the troposphere and elicits calls to execute the profiteers.
As Severin Borenstein, director of the UC Energy Institute at Berkeley, and several colleagues observed in a 2004 paper, it’s extremely difficult to distinguish between price spikes caused by actual gasoline scarcity and those caused by the manipulation of market power, at least not without access to “smoking gun” documents. This doesn’t mean that gouging doesn’t exist; it just means it’s hard to identify the looters. Some portion of the price increase is surely due to refiners and distributors squeezing a few undeserved pennies or dimes out of the pumps, confident that no one will ever pinpoint where in the huge, complex supply chain the vigorish was extracted.
The only real way to restore sanity to America’s oil economy is to rebalance supply and demand. Unfortunately, we’re powerless to increase supply significantly. Forget drilling in Alaska’s Arctic National Wildlife Refuge; even once that oil starts to flow years from now, it will account for about 1% of the world’s reserves, not enough to affect domestic gasoline prices to the extent anyone would notice.
How, then, to reduce demand? One option is to force Detroit to make more fuel-efficient vehicles by strengthening the so-called CAFE, or corporate average fuel economy standards, which require manufacturers to hit a certain fuel-efficiency level encompassing all the vehicles they sell. CAFE was introduced in 1975, two years after the first Arab oil shock, when cars averaged a paltry 13.5 miles per gallon and trucks, 11.6.
The rules required cars to be raised to 27.5 mpg over several years, but light trucks were given a pass, on the reasoning that they were only 20% of the market anyway. Refashioned as SUVs, they’ve become 50% of the market. You want to know why our oil consumption is out of control? Take a look at the 3 1/2-ton vehicular pachyderm blasting down the freeway next to you with two passengers inside, getting seven miles to the gallon.
CAFE has had a sad history. In 1990, the Senate considered raising the standards to a level that today would be saving us 3 million additional barrels of oil a day, or about one-fourth of current imports. The idea flopped. According to the Union of Concerned Scientists, the average fuel economy of new vehicles today is the lowest it has been since 1986.
Here, as in most areas requiring responsible and mature policymaking, the Bush administration is a failure. A new CAFE system the White House proposed just before the arrival of Hurricane Katrina would slice it into narrow categories, so an automaker could actually evade some restrictions by selling more SUVs, not fewer, or by slightly increasing the dimensions of some vehicles to move them into a more forgiving category. The greediest behemoths, such as Hummers, would be exempted entirely. The administration boasted that the new rules would save 10 billion gallons of gas over 20 years. At current rates, that amounts to 25 days’ consumption.
CAFE rules are perverse instruments even under the best circumstances. By making big vehicles more economical, they have encouraged our wholesale shift into SUVs, a change in driving habits that has increased our oil consumption overall while making the roads more hazardous for any driver not inside an SUV.
To state an uncomfortable truth, the only long-term solution to $3 gasoline is $4 gasoline. A $1 federal surtax would place the incentive for automotive fuel-efficiency where it belongs -- with the car buyer, instead of the manufacturer. Hummer salesmen in California, after all, reported sales drops of 40% to 60% when gas prices shot up earlier this year to just over $2. Imagine the behavioral change at double the price. America’s reliance on foreign oil would plummet.
Borenstein favors such a policy but sounds wistful about its prospects for enactment. He suggests that the gas tax revenues be partially used to give poorer people an income tax break to cover their higher costs, but that they be used mostly to fund a vast expansion of public transportation -- especially bus networks, which could be vastly expanded at a reasonable cost.
Certainly this is preferable to current policy, which amounts to pretending there’s no long-term problem and dreaming of technological magic bullets like hydrogen fuel. Meanwhile we continue to curse the oilmen and the Arabs, contemplate wars over their oilfields, and despoil our environment to wring the Earth dry. We’re going to end up in the same fix one way or another, so isn’t now the time to bite the bullet?
Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com.
