Unlike some other pundits, I see a number of good ideas in the President’s new proposals and actions announced on Tuesday.
Here are some of the President’s ideas that to me make a good deal of sense; for more details see the as always excellent summary from Green Car Congress.
1. Temporarily suspend additions to the SPR. President Bush stated in his speech Tuesday:
One immediate way we can signal to people we’re serious about increasing supply is to stop making purchases or deposits to the Strategic Petroleum Reserve for a short period of time. I’ve directed the Department of Energy to defer filling the reserve this summer. Our strategic reserve is sufficiently large enough to guard against any major supply disruption over the next few months.
We currently have 688 million barrels in the SPR. Loans and sales from this reserve of 21 million barrels last fall were in my opinion quite helpful in mitigating the effects of the hurricane, and, if used in an aggressive and timely manner, could be a very important tool for responding to potential future crises. On the other hand, I agree with the President that it doesn’t make sense to give up $70 a barrel to put more oil in. Temporarily suspending deposits might reduce demand by 70,000 barrels a day over the summer. Small, but I can’t quarrel with Bush’s summary: “Every little bit helps.”
2. Temporary waivers of reformulated gasoline requirements. Bush also announced Tuesday:
[S]tate and local officials in some parts of our country worry about supply disruption for the short term. They worry about the sudden change from MTBE to ethanol — the ethanol producers won’t be able to meet the demand. And that’s causing the price of gasoline to go up some amount in their jurisdictions. And some have contacted us to determine whether or not they can ask the EPA to waive local fuel requirements on a temporary basis. And I think it makes sense that they should be allowed to. So I’m directing EPA Administrator Johnson to use all his available authority to grant waivers that would relieve critical fuel supply shortages.
This proposal led Calculated Risk to worry that Bush intends to return to the air quality standards of 30 years ago,
and prompted Tim Haab to note sarcastically, “and if we put the lead back in it would be even cheaper.” But I think what Bush was responding to was requests like this one from Governor Edward Rendell (D-PA):
I am writing to respectfully request that the U.S. Environmental
Protection Agency (EPA) issue a “No Action Assurance” for the Reformulated
Gasoline (RFG) requirements in the five-county Philadelphia area [Bucks, Chester, Delaware,
Montgomery and Philadelphia counties] for two
weeks or until such time as adequate supplies of complying gasoline are
assured in the area….We have information indicating that a major gasoline supplier in the
Philadelphia area is reporting more than 160 delivery-needed alarms, and
many more fuel outlets reporting that supplies are nearly exhausted. In
light of the circumstances, the requested assurance is “clearly necessary
to serve the public interest.”
There is little doubt in my mind that temporary bottlenecks associated with the transition away from MTBE have the potential to create some significant local problems for which this is a very sensible solution.
3. Repeal energy company tax breaks. Here I quote from the related White House Fact Sheet:
Record oil prices and large cash flows also mean that energy companies do not need unnecessary tax breaks like the “geological and geophysical expenditure” depreciation acceleration provision in the Energy Policy Act of 2005. This unnecessary tax break allows energy companies to rapidly depreciate costs related to oil exploration. The President also calls on Congress to repeal the Energy Policy Act provision subsidizing energy companies’ research into deepwater drilling. The President is looking forward to Congress taking about $2 billion of these tax breaks out of the budget over a 10-year period of time.
The status quo, which the President is rightly resisting, is for Congress to muscle through a multitude of new tax incentives and subsidies to encourage certain behavior that suits its current fancy, as it did in last summer’s energy bill, and then pile on with a new series of equally poorly thought-through new taxes, such as current ideas for a windfall profits tax. The energy companies didn’t need any of these tax breaks. Eliminating the tax breaks is a far more sensible approach than adding a new tax on top of them.
How will this help lower gas prices? Only indirectly, insofar as it may help forestall a windfall profits tax or inefficient allocation of corporate energy budgets, which if unchecked ultimately would end up causing consumers to pay more. But in any case, it’s a good idea on any of a number of other grounds, such as making a small improvement in the budget deficit. For this reason, I’m all for the President including it in his list.
4. Renewed calls for other measures. The President is also calling for a number of other measures that I think could help, including directing EPA Administrator Steve Johnson “to bring together governors to form a new task force to confront the larger problem of too many localized fuel blends,” asking Congress to “simplify and speed up the permitting process for refinery construction and expansion,” and asking Congress to authorize exploration for oil in the Arctic National Wildlife Refuge.
5. Protecting consumers from unfair pricing. The White House Fact Sheet describes these measures this way:
The Federal Trade Commission (FTC) is investigating whether the price of gasoline has been unfairly manipulated since last year’s hurricanes. The President is also directing the Department of Justice to work with the FTC and the Department of Energy to conduct inquiries into cheating or illegal manipulation related to current gasoline prices. The FTC and Attorney General are contacting all 50 state attorneys general to offer technical assistance and to urge them to aggressively investigate illegal price manipulation within their jurisdictions.
Perhaps this is part of what led James Glassman to summarize the speech as “a sad example of political capitulation by a former Texas oilman who certainly knows better.” But I think there is another way to read this. There is currently an almost religious conviction by many Americans that the price of oil, rather than being determined by world markets, is controlled by a few big oil companies, as if the 2.5 million barrels of crude oil per day that ExxonMobil produced last year somehow give it the ability to control the price of the other 82 mbd that got sold. The certainty with which people hold this conviction seems directly related to the complete absence of any supportive facts. Surely the best way to confront this prejudice is to shine a clear, bright light on the hypothesis and investigate its premises in full public view. If that’s the outcome of these investigations, it could be a good thing.
Now the domestic U.S. market for refined gasoline is another matter, where it is less clear to me what detailed and multi-sourced investigations might end up concluding. My personal view is that there is less competition in many local markets than there should be, partly as a result of the “boutique fuel” issue raised above, though I doubt that this adds more than 10 cents a gallon to the average price customers pay. Nor am I persuaded that the American press, fanned on by politicians’ hyperbole, would succeed in helping Americans to understand some of the subtleties of this question or even the difference between the global market for crude and the local market for the particular gasoline they buy. But there’s nothing for it at this point– the public is clamoring for investigations, so investigations they shall have, and hopefully the truth will emerge.
There are other aspects of Bush’s proposals for which I have less enthusiasm. The reader may note that those I have described, at least the way I have described them, are fundamentally quite modest, for which a legitimate reaction might be, “yes, those may be good ideas, but they really won’t change that much.” But this in fact is exactly why I like them. I think there is an overwhelming political instinct in the current situation to do something huge, drastic, and ultimately quite harmful. Far better, in my opinion, to do a little bit of good rather than a whole lot of harm. In the rare cases that our elected officials opt for the former, they deserve our praise.