When sky-high gasoline pricestalks about today’s sky-high gasoline prices, he almost always laments that there’s little anyone can do in the short term to bring them down.
“There is no silver bullet” is his common refrain, one he used again at his press conference on Tuesday.
But as gasoline prices reach historic highs — they’ve shot up more than 28 cents a gallon in just the past month — the government could make a dent.
That’s because, while the global price of oil determines most of the cost of gasoline, several federal and state government policies artificially add to the cost before it reaches the gas station.
Taxes. The most obvious government-imposed costs are state and federal taxes and fees. Combined, these average 45.7 cents a gallon (the federal portion is 18.4 cents). New Yorkers pay the highest rate, at a combined 67.4 cents a gallon. California and Connecticut tie for second at 67 cents. Alaska is lowest at 26.4 cents, according to the Tax Foundation.
The weak dollar. Several analysts note that the Fed‘s devaluation of the dollar has led to higher oil prices, which in turn is adding as much as 56 cents per gallon, according to the congressional Joint Economic Committee.
“From the first day the Fed began engaging in quantitative easing back in early 2008, the impact on gas prices has been profound,” noted Eric Parnell, an economics professor at West Chester University, in a recent blog post. “What is even more irksome is that much of this rise in gasoline prices has occurred during a time when gasoline consumption has been falling. Have the laws of supply and demand been repealed? No, they’ve just been severely distorted by policy action.”
Boutique fuels. Thanks to federal and state rules, there are about 18 separate gasoline markets in the country, each with specific requirements about what can and can’t be in their gasoline, mainly to deal with local air quality issues. But the result is higher gasoline prices.
A Government Accountability Office report found that “the proliferation of special gasoline blends has made it more complicated to supply gasoline and has raised costs.” Refiners also have to switch each season between summer and winter blends, which boosts costs.
Environmental rules. In addition to creating local blends, refiners must also meet a long list of costly environmental rules. In late 1999, for example, the EPA required refiners to drastically cut the amount of sulfur in gasoline and diesel, which cost the industry almost $5 billion upfront and $1.5 billion each year to meet, according to the agency.
Strict environmental rules also can drive smaller refiners out of business, resulting in less competition, tighter supplies and higher prices.
Four refineries recently closed on the East Coast, for example. “That’s going to make gasoline more expensive in the region,” said John Hofmeister, the former Shell Oil CEO who has since started Citizens for Affordable Energy.
And as early as next year, the EPA could add dramatically to refinery costs, requiring them to meet new standards to reduce greenhouse gas emissions. The petroleum industry figures this “regulatory tsunami” will add 25 cents to each gallon of gasoline and shutter seven more refineries.
Ethanol mandate. January marked the end of a 45-cent federal subsidy for each gallon of ethanol refiners added to gasoline. The subsidy cost taxpayers $6 billion a year, but ending it could end up adding as much as 4.5 cents a gallon, since gasoline now includes 10% ethanol.
Congress also left in place a 2007 law requiring increasing amounts of ethanol (including so-called advanced biofuels) in gasoline, rising to 36 billion gallons by 2022. The ethanol industry argues that expanded use of ethanol cuts pump prices, pointing to a study saying it’s lowered them 25 cents a gallon on average. Others argue that because ethanol provides 30% less energy than gasoline, it’s actually more expensive on a per-mile basis.
“Any time you force the industry to do something they wouldn’t do otherwise, by definition you must be increasing costs somewhere,” said Michigan State University economist Soren Anderson, who studies the fuel industry. “If ethanol really were cheaper, you wouldn’t need the mandate.”
In any case, the law has cost refiners almost $7 million in fines this year after they failed to add 6.6 million gallons of “advanced biofuels” as required. The problem is these advanced biofuels don’t exist commercially, and nobody’s sure when they will, which means even bigger industry fines going forward as the mandated use increases.
Over the long term, meanwhile, federal restrictions on access to domestic supplies of oil cut production and to some degree affect the price of oil down the road. According to the Institute for Energy Research, the U.S. has huge oil reserves, thanks to new finds and advances in drilling technology that let companies retrieve once-inaccessible deposits. The IER estimates that there are 1.4 trillion barrels of “technically recoverable” oil in the U.S., which is more than the proved reserves of all OPEC countries combined.
New pipelines — such as the Keystone XL line that President Obama recently blocked — could help get a glut of oil from the northern U.S. and Canada down to Gulf Coast refiners.
“We can’t fix the world price of oil today,” says Ken Green, an energy expert at the American Enterprise Institute, “but there are things the government does that it could stop doing to lower the cost of gasoline.”
- Closing Refineries: EPA’s Heavy Hand Seen In Gas Crisis (tarpon.wordpress.com)
- Refiners push EPA to scrap gasoline rule that automakers want (business.financialpost.com)
- Ethanol Subsidy Ends; Will it Raise or Lower Prices at the Pump? (theoildrum.com)
- Gasoline Prices Continue March to $4 Everywhere (247wallst.com)
By Ellie Velinska
Progressive talking heads are fainting with excitement on TV over the Islamic world newly found love for democracy. Meanwhile, George Soros funded experts explain to the revolutionary crowds around the world that the reason they cannot afford food is America’s policy to cover the debt with make-believe dollars. They make it sound like the food will be plenty and affordable again if only somebody can get rid of the US dollar as the world currency. Does Mr. Soros care about the mother in Africa who puts her hungry child to sleep? Or is he cheering the humanitarian disaster with hope that it will put him in charge of the new world currency printing press?
Is President Obama ‘quantitivly easing’ his way to re-election or is he ready to get out of office in two years enjoying his life as the celebrity who ‘saved the world from the US dollar’?
The President of the United States is voting present on the fiscal crisis by proposing a budget with deficit over a trillion dollars. That means that Barack Obama is fine with another dose of the borrowing and ‘digitizing’ money: policy that is now deemed to be bloody across the world.
It doesn’t have to be this way. America can save the dollar as the world currency if the politicians stop the financial orgy of the US government. Leadership will not come from the progressives (democrats or republicans), because many of them are just fine with kicking the dollar until it comes home crippling making way for the new Open Society money masters.
Leadership can come from the old-fashioned Conservatives whose radical grandmothers thought them the trick of balancing the budget: don’t spend what you don’t have.
Paul Ryan presented the Republican Path to Prosperity budget balancing proposal. Parts of it make sense; parts of it are very disappointing.
Defense Department seems to be the only part of the government that is functioning in accordance to the reality. Secretary Robert Gates was able to organize house cleaning by collecting proposals for cuts internally so the Pentagon was ready with $178 billion in cuts and savings without waiting for Nancy Pelosi with the hammer, John Boehner with the hatchet and Barack Obama with the machete to appear at the door.
It is a strategy that makes sense. The bureaucrats can have much happier transition during the downsizing of the federal government if they follow the Defense Department lead and cut their own budget before Paul Ryan or other outsiders start digging in their yard. Unfortunately the Ryan’s plan does not go deep enough into the every department or agency’s affairs (with the exception of the EPA where the cuts go deep, very deep…)
The Government Accountability Office also came up with 100 billion in cutting redundancies and gets a ‘You did it’ sticker reward.
YouCut and the earmark ban make easy talking points and identify weird programs and policies that are ready go out the door.
The rest of the federal government consists of creatures that view themselves as Untouchables and if they remain such the US dollar will be over, so the Paul Ryan’s proposal has some plans to shake them up a bit.
The Path leads to reducing the number of the federal workforce by 10% by 2014. It is done in a humane way – on every three retired the government will hire one. The rate of downsizing of the federal workforce is higher than the one proposed by the Obama Debt and Deficit commission (two hired for every three retirees).
Deeply disappointing is the way Ryan’s proposal deals with the fraud and abuse across the federal government. The plan borrows the idea from the Debt Commission about creating a new bureaucracy and hiring more federal agents to look for government waste. This makes as much sense as policing Afghanistan for drugs while letting Charley Sheen to roam around Hollywood with a suitcase full of cocaine. More policing is not going to help until the real cause is addressed. In the case of the government waste the cause for the wide spread fraud and abuse is the insane size of the federal bureaucracy and the purposefully complicated way the business is conducted. The leaner the federal government the easier the waste will be identified. Making up a new committee is adding to the problem, not solving it.
Ryan’s plan is getting rid of many federal subsides including those for energy and agriculture. Those come in the category: too good to become true. The stars in that category are Fannie Mae and Freddie Mac which will be privatized. The proposal is winding down federal insurance guarantees for the GSE monsters and FDIC. Will the banks fly on their own soon? Right there with the pigs.
These are the itsy-bitsy cuts in Ryan’s Path to Prosperity and they seem achievable if good will meets the Republicans in the Senate. The trillions in cuts however come from a tax and entitlement reform that is a bit murky in details, so I will leave them for the next post waiting for a few questions to be asked and answered.
To be continued…
The Moral Liberal Contributing Editor, Ellie Velinska, is the editor of the excellent blog: Big Bureacracy.com. A naturalized American citizen, she lives in North Carolina and is registered as a non-affiliated voter. Ellie attended and completed high school in the USSR and has Masters Degree in Psychology from Sofia University, Bulgaria. In 2000 Ellie and her husband moved to America after winning the Green Card Lottery. She says, the ‘New Media’ is a perfect challenge and quite convenient for her now that she is a mother of two boys.
( Original Article )