Advertisement
Share

Gas fuming

MEMORIAL DAY weekend is nearly here, marking the official opening of the summer driving season. In Congress, that means it’s silly season for oil-company bashers, as lawmakers pandering to motorists scramble to look like they’re doing something about high gas prices. Yet despite the overheated political rhetoric and the frustration of consumers, the real culprit for skyrocketing prices at the pump isn’t the oil giants. It’s us.

Gasoline prices have risen to record levels recently and are climbing more sharply than oil prices, raising the usual suspicions that refiners are gouging consumers. The ritual response in Congress to such spikes is to call for investigations (despite the fact that dozens of probes over the last 20 years have turned up no clear evidence of market manipulation by oil companies) and to propose laws imposing price caps or other ways to discourage profiteering. A case in point is a vague bill passed by the House on Wednesday giving federal regulators the power to prosecute, during presidential declarations of an energy emergency, anyone selling gas at a price that is “unconscionably excessive” and “taking unfair advantage” of consumers -- whatever that means.

American consumers are plenty mad about high gas prices, but apparently not mad enough to change their behavior. Gasoline consumption so far this year is up 1.7% nationwide over the same period in 2006, according to the U.S. Energy Information Administration. One explanation may be that Americans’ incomes are rising too. A recent report in the Washington Post revealed that the share of the U.S. household budget devoted to oil and gas spending was 5% in 1981 but only 3.8% last year.

One way to assure lower gas prices is for Americans to drive less or to buy more fuel-efficient cars, thus reducing demand. Some households are indeed cutting back, but clearly not enough. Car-buying statistics show that the hottest segments are small SUVs and “crossover” vehicles, suggesting that although Americans no longer embrace giant gas-guzzlers, they’re not yet ready for subcompacts.

Advertisement

Moreover, government efforts to reduce our reliance on foreign oil and cut greenhouse-gas emissions, both highly desirable goals, are probably contributing to the problem. Gas supplies are tight because the U.S. lacks refining capacity, and every time a refinery shuts down for maintenance or because of an accident, prices rise. Consumer advocates claim refiners are artificially restricting supply by refusing to expand. Actually, they’re just making logical business decisions. President Bush has called for the production of 35 billion gallons a year of alternative fuels, mostly ethanol, by 2017, and Congress is considering even more ambitious bills. With alternatives replacing gasoline, it would be crazy to spend hundreds of millions building a new gasoline refinery that might not be needed by the time it’s finished.

High gas prices are a signal that the U.S. needs to change its energy mix, and they provide a market incentive to do so. That’s not necessarily a bad thing, even if they do cause some short-term pain.


Advertisement