issue guide: Gas Prices

The Skinny

see also background & facts, pro & con, links

What's Up

Gas prices have been on a roller coaster - with peaks of $4 a gallon - over the past few years. Inflation-adjusted prices have only just nicked the highs of the 70's (and still don't come close to European “petrol”), but that’s cold comfort to US families and industries that can be highly sensitive to the price of gas. The energy bill Congress passed into law in 2005 by most accounts did little to bring down gas prices (although it did give ethanol a boost), while efforts in 2006 made even less headway. With the dems taking over in '07, Congress did manage to push up gas-mileage standards, but that didn't make the gas debate go away; in '08 Congress is flush again with mini-measures on how to check prices at the pump.

What the Debate's About

There are really two debates about gas prices – one on short term solutions and the other the long term. In the immediate future, the question is how to prevent crude oil and gas prices from rising and causing damage and uncertainty on important sectors of the US economy. The long term debate is on how to deal with the possibility that demand for oil is growing faster than supply; as the world keeps using more oil, and the oil industry has a hard time keeping up, the pinch for oil may keep squeezing harder.

A theme in both the short-term and long-term debates is America’s “dependency” problem; all sides generally agree that much of our oil headache comes from the fact that over half of our oil is not home grown, leaving our economy at the mercy of foreign oil markets. Broadly speaking, there are two ways to tackle our dependency – one, to raise the supply of energy at home (Republicans lean this way) – the other, to lower our need for energy in the first place (more of a Democrat way of thinking). A different strategy is to better secure our access to foreign oil, whether through diplomacy or other means. (And there are those that say the question isn't about dependency on foreign oil, but oil in general - since, with a global market, the only way to be independent of foreign oil is it unhook from the stuff entirely.)

In the short to medium term Republicans are usually gung-ho about tapping into more oil at home, in particular the Arctic National Wildlife Refuge, a hot button issue with environmentalists who say ANWR should be strictly hands-off. But even some Democrats warm to the idea of opening up off-shore reserves or, more commonly, using the Strategic Petroleum Reserve. Another policy, popular among everyone except economists, is anti-price gouging legislation which would fine gas companies for taking advantage of energy crises by hiking prices.

Long term solutions are more complicated; most agree – although they will not happily admit this – that while energy independence is a goal worth working toward, it won’t come easy because we simply use a ginormous amount of oil.

To increase the supply of oil, the Republican Party advocates lowering environmental restrictions on home oil production and refining (the process of making crude oil usable), providing tax incentives for energy development, as well as opening Alaska’s Arctic National Wildlife Refuge (ANWR) to drill for oil. To decrease demand, the Democratic Party prefers stricter fuel efficiency standards and more investment in technologies that will reduce America’s dependence on oil.

There are two points both parties agree on. First, they both see the need to convince foreign nations (particularly in the Middle East) to pump more oil and better meet demand, although neither present a clear picture on how they would do so. There is also agreement that the US should promote the development and use of alternative energy sources, from corn ethanol to hydrogen fuel cells to renewables like solar and air power. But, again, there's not total consensus on how much to spend to promote alternative energy.

A third point of agreement sprung up in '08 - that at least part of the spike in gas prices are due to oil speculation. With all types of investors jumping into the oil futures market - and betting on prices going up - lo and behold, the prices keep going up. Not everyone agrees on how big a bubble speculators are puffing up, but Congress may try to give them a few deflators (as in regulations) just in case.

Where Things Stand Now

In 2007, democrats promised wide ranging reforms; a final bill including higher fuel efficiency standards, but missing other mandates for alternative energy, was passed in December. In 2008, lawmakers have a line-up of mini-measures they are having a hard time passing, but few - if any - would have an impact on near term prices even if they did. 

Updated May 2008

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