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Gasoline Prices and Real Help for Consumers

Mark Green's picture
American Petroleum Institute

Mark Green joined API after 16 years as national editorial writer in the Washington bureau of The Oklahoman newspaper, capping a 30-year career in print journalism. At API he is responsible for...

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  • Jul 8, 2013 11:00 pm GMT
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API Chief Economist John Felmy’s reporter briefing Thursday focused attention on two paths: one that will increase domestic production of oil and natural gas and one that won’t. Unfortunately, the administration – via proposals to increase energy taxes and a new wave of questionable regulation – looks headed down the wrong path, a recipe for disaster for American energy:

Recipe For Disaster

Felmy:

“The White House says it’s concerned about gasoline prices. But its energy policies aren’t helping the American people much. And some of its proposals, especially those on taxes and a barrage of new regulations, are a recipe for disaster.”

Let’s take a closer look at the key ingredients:

Regulation – Existing sulfur content rules for gasoline already have eliminated about 90 percent of that content and continue to reduce it. EPA’s proposed Tier 3 rule would provide very little additional benefit while potentially adding up to 9 cents per gallon to the cost of making gasoline. When Tier 3 is combined with a possible new gasoline vapor reduction requirement, the per-gallon increase in the cost of making gasoline could reach 25 cents, according to Baker & O’Brien. Finally, Renewable Fuel Standard mandates could drive up the costs of manufacturing gasoline 30 percent by 2015, according to a NERA study. Felmy:

“The administration … needs to pull back on the onslaught of multi-billion dollar regulations it has planned for the oil and gas industry. While the benefits of these rules would be negligible, they would drive up refinery costs, potentially putting some refineries out of business, reducing U.S. fuel manufacturing capacity, and increasing reliance on imported fuels. These are costs on the economy and could impact all consumers.”

Higher Taxes – Proposals that single out oil and natural gas companies for $40 billion in higher taxes would depress investment in new production and diminish growth in supplies that could help push crude prices down, according to a Wood Mackenzie study. Wood Mackenzie also estimates that tax increases on the industry could reduce U.S. oil output 700,000 barrels per day, erasing about half of the 1.5 million/per day increase in output the U.S. has achieved over the past two years. Felmy:

“The administration needs to stop obsessing about raising taxes on a single industry. The oil and gas industry pays its fair share. It delivers substantial revenue to our government – about $85 million a day – and pays income tax at effective rates higher than most other industries.”

Restricted Access – Current policy is keeping 87 percent of our offshore acreage off-limits to oil and natural gas development. Meanwhile, leasing and permitting policies have resulted in a marked decline in new wells on federal lands (down 40 percent, 2008-2012). Felmy:

“If the administration really wants to help consumers, it needs to do an about-face on its approach to federal lands development. It advertises the fact that oil production has been increasing on its watch, but in fact its policies have discouraged development. … Total oil production is up, but only because of what is happening on state and private lands.”

Felmy outlined an alternative recipe that could increase oil output and help consumers:

  • An about-face by the administration on oil and natural gas development in federal areas. Increased access could add more than 4 million barrels’ worth of oil and natural gas per day by 2020, Wood Mackenzie says.

  • Adopt a common-sense approach to regulation that seeks input from stakeholders and considers the real-world costs of new regulatory proposals, individually and cumulatively, in the context of actual benefits provided.

  • Pursue pro-growth policies in the place of anti-growth tax increases – policies that create an environment for investment and innovation.

Felmy:

“The administration could do a lot better job on gasoline prices. Efficient use of supplies is important. An all-of-the-above approach to energy is important. But if the administration is really serious about helping consumers, it also will expand domestic oil and natural gas development in federal areas and abandon its counterproductive ideas on more taxes and overly stringent or unnecessary regulations.”

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Alistair Newbould's picture
Alistair Newbould on Jul 9, 2013

The first recipe looks good to me. Increasing the price of tobacco causes a lot of people to rethink smoking pretty much every budget. Do the same for gas prices and people will burn less – find different healthier and less carbon intensive ways to travel and ship goods. 

Gal Sitty's picture
Gal Sitty on Jul 9, 2013

Real help for consumers would come in the form of choice at the pump. Having the ability to chose what fuel you want for your car, be it ethanol, methanol or gasoline (or perhaps even something else) would create a true open-market where competition will flourish and consumers won’t be at the mercy of unchecked gasoline prices. Even Henry Ford’s Model T was capable of running on three fuels (gasoline, ethanol and kerosene), the technology is there, we just need to enable in order to reap the benefits of a properly functioning capitalist markets.

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