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 #283  

 March 2000




Government Energy Policy Errors Contribute to High Gasoline Prices

by Amy Ridenour

 

First, do no harm.

2,400 years ago Hippocrates applied this maxim to medicine, but it applies just as well to the nation's energy policy.

 

White House, Congress Examine Gas Price Reduction Strategy Options

President Clinton announced March 18 a modest package of proposals to reduce the impact of skyrocketing oil prices, which, last week, after nine straight weeks of increases, hit a new record of $1.57,1 fifty cents more than a year ago.2 The Energy Department predicts prices could rise to $1.74 to $1.80 per gallon by summer.3

The President primarily favors using "quiet diplomacy" to coax the nations of the Organization of Petroleum Exporting Countries (OPEC) to increase supply, but he also suggested tax incentives to spur conservation and alternative fuels while agreeing to very modest tax breaks to help increase domestic production.4

The President declined to support tapping the government's Strategic Petroleum Reserve, repealing the 1993 4.3¢ per gallon gasoline tax or opening more federal land to domestic oil production, three options under heavy debate in Washington.

Meanwhile, Congress is examining a variety of options to reduce pump prices, among them a possible temporary or permanent repeal of the 4.3¢ gas tax increase approved as part of the 1993 Clinton deficit reduction plan and ending the federal ban on oil drilling in part of Alaska's oil-rich Arctic National Wildlife Refuge.

House Majority Leader Dick Armey (R-TX), a man who never met a tax increase he didn't want to repeal, nonetheless believes repealing the 4.3¢ gas tax would provide insufficient relief to Americans hit hardest by the price increase. Armey, who in any case faces formidable opposition to the tax repeal from influential House Transportation and Ways and Means Committee Chairmen Bud Shuster (R-PA) and Bill Archer (R-TX), believes more needs to be done.

Armey's office points out that the U.S. relies on foreign imports for 56% of our crude oil needs, an increase of 21 percentage points since the 1973 Arab oil embargo, and that the Department of Energy estimates that we will depend on foreign imports for 65% of our oil by 2020.

Not surprisingly, Armey has had harsh words about the Clinton-Gore energy policy, calling it on March 15 a "total failure of leadership... a tax and regulatory policy failure... a foreign policy failure... a domestic energy policy failure."5

 

Past Government Policies Hurt the Cause of Cheap and Plentiful Energy

To be sure, the federal government often has endorsed environmentalist causes over cheap and plentiful energy. The Clinton Administration has closed huge areas to oil and gas development. Interior Secretary Bruce Babbitt supports tearing down hydropower dams for environmental reasons. In 1996, President Clinton ended mining access to 62 billion tons6 of environmentally-friendly low-sulfur coal in America - coal that helps meet the sulfur-emissions standard of the 1990 Clean Air Act7 - when he secretly established the Grand Staircase-Escalante National Monument on 1.7-million-acres in Utah.8 In 1990, in order to reduce smog and carbon monoxide levels, the Environmental Protection Agency and Congress mandated the addition of methyl tertiary butyl ether (MTBE) to gasoline. Ten years later it is clear that MTBE, which adds about ten cents to the price of every gallon of gasoline,9 poses a significant risk to the nation's water supply. The Clinton Administration signed the Kyoto Protocol, which, if ratified by the Senate, would require the U.S. to roll-back so-called "greenhouse gas" emissions to seven percent below their 1990 levels by 2012. Wesleyan University economist Gary W. Yohe has estimated that rolling them back even to 1990 levels would slow U.S. Gross Domestic Product by close to one percent annually, reduce income and wages by between five and ten percent per year and change the distribution of income against the poorest fifth of all Americans. The respected econometric firm DRI/McGraw Hill projects that this would cost 500,000 jobs per year for a decade - 5 million jobs in all.10

When it comes to cheap and plentiful energy, clearly, government policies sometimes do harm.

This is the message of the libertarian Cato Institute, whose natural resource studies director, Jerry Taylor, released a commentary March 13 stating flatly: "The best energy policy is no energy policy."

Taylor says "begging OPEC to increase production" is "at best a waste of time and at worst a sucker's game," because oil-producing nations have no economic incentive to care about oil shock-induced global recession as long as their oil profits are high.

Taylor also criticizes the existence of the government's Strategic Petroleum Reserve, saying that it deters oil companies from stockpiling oil since the companies can never know when the government will release its stockpile, preventing oil companies from profiting from their own inventories.11

 

Gasoline Taxes Have Risen Steadily

Taylor's colleague at Cato, Stephen Moore, nonetheless sees a government energy policy the Institute can endorse: cutting consumer gas taxes. Moore calls the gas tax the fastest-growing federal tax on middle-income taxpayers over the past 20 years. The federal gas tax was first imposed as a penny tax in 1932, increased by a penny each in 1951, 1956 and 1959, setting it at 4¢ per gallon in 1980. It then began to sharply increase, rising again by 5.1¢ during the Reagan Administration, 5¢ during the Bush Administration and by another 4.3¢ during the Clinton Administration.12 Moore has questioned the notion, advocated now by some in Congress, including influential Transportation Committee Chairman Bud Shuster (R-PA), that all these federal gas taxes are needed to repair the nation's highways.

"After all," Moore points out, "in the 1950s and 1960s we built the interstate highway system with a maximum federal gas tax of just four cents a gallon. Maintenance of these roads shouldn't cost 18¢ per gallon."13

The 300,000-member National Taxpayer's Union (NTU) agrees with Moore. It notes that state and federal gas taxes combined rose by more than half, from 27¢ per gallon to 43¢, from 1990-99. It concludes that, with $34.3 billion in fuel taxes allocated to the Highway Trust Fund this year, slashing the gas tax and the 24.3¢ diesel tax won't hurt current programs and won't use funds set aside for Social Security.14

The NTU, Tax Foundation and Heritage Foundation, furthermore, have all pointed out that gas taxes are regressive, hurting lower-income Americans more than the wealthy. As the Heritage Foundation pointed out when the Clinton gas tax was approved: "Three-quarters of those Americans earning less than $100,000 a year commute to work in privately-owned autos." It cites data showing that gas costs use 8.8% of the expenditures of the poorest 20% of Americans, as opposed to 3.1% for the wealthiest 20%.15

 

Unnecessary Restriction on Alaskan Oil keeps U.S. Oil Production Artificially Low

One government policy that almost certainly should be reversed is the federal government's ban on oil recovery in Alaska's Arctic National Wildlife Refuge (ANWR). Although environmentalists have successfully stopped drilling in this oil-rich area, they seem to be motivated more by a reflexive antipathy toward oil and oil drilling than by any genuine concern for the environment. The "footprint" of oil drilling equipment would cover only 2,000 of ANWR's 19 million acres,16 and caribou herds and other wildlife would be unaffected by any drilling. The ANWR area is so oil-rich it could replace 30 years worth of Saudi oil imported into the U.S.17

An additional benefit to opening ANWR is that, according to attorney Alma Upicksoun, an Inupiat Eskimo, allowing oil production in ANWR is "vital for programs to assist native residents in remote villages to improve their living conditions, educate their children and care for the elderly" as "the economy of the region is very dependent on oil."18

Wharton Econometrics has furthermore estimated that opening ANWR would create up to 735,000 new jobs in 50 states and generate $1.3 billion in federal revenue over just a few years.19 A poll by the independent Gordon S. Black Corporation showed that, given a choice between meeting the needs of Eskimos or the demands of environmentalists, the public sided with the Eskimos 64% to 24%.20

 

Conclusion

Clearly, there is more than one way for Americans to beat back high gasoline prices. Increasing domestic production and cutting gas taxes are but two options. But in developing an energy policy that works well for consumers, we must first heed the maxim so well-known in medicine: First, do no harm.




Footnotes:


1 Based on 800 gasoline stations surveyed, U.S. Energy Department, 3/13/00, as cited in "Retail Gasoline Price Hits Record High," Reuters, 3/13/00.

2 Fox Report with Shepherd Smith, Fox News Channel, March 15, 2000.

3 E-Mail from Horace Cooper, staff of House Majority Leader Dick Arney (R-TX), to author, March 16, 2000.

4 Associated Press, "Clinton Sees No Quick Fuel-Price Fix," The Washington Times, March 19, 2000 and John F. Harris, Clinton Proposes Modest Steps to Ease Fuel Crunch; President Will Not Open Petroleum Reserve," The Washington Post, March 19, 2000.

5 "Armey Statement on Gas Prices," press release, office of the House Majority Leader, March 15, 2000.

6 M. Lee Allison, State Geologist and Director of the Utah Geological Survey, testimony to theEnergy and Natural Resources Interim Study Committee of the Utah Legislature, October 16, 1996, downloaded from the Internet at http://www.ugs.state.ut.us/gsenmleg.htm (editor's note: link no longer worked as of Maty 2001) on March 19, 2000.

7 "Sulfur Content of Kaiparowits Coal," Utah Geological Survey, originally a memo to Ted Stewart, Executive Director, Department of Natural Resources, from M. Lee Allison, Director, Utah Geological Survey, sent on September 16, 1996, downloaded from the Internet at http://www.ugs.state.ut.us/gsekasul.htm (editor's note: link no longer worked as of Maty 2001) on March 19, 2000.

8 "Behind Closed Doors: The Abuse of Trust And Discretion In The Establishment Of The Grand Staircase-Escalante National Monument," Majority Staff Report, Subcommittee on National Parks & Public Lands, Committee on Resources, U.S. House of Representatives, One Hundred Fifth Congress, November 7, 1997, downloaded from the Internet at http://www.house.gov/resources/105cong/parks/staircase.htm#politics on March 19, 2000.

9 "EPA Follows CEI Advice... 7 Years Late," Press Release of the Competitive Enterprise Institute, March 20, 2000, downloaded March 21, 2000 from http://www.cei.org/PRReader.asp?ID=940.

10 "Global Warming Earth Summit Fact Sheet," published by the Global Warming Information Center, a project of The National Center for Public Policy Research, November 1997, available on the Internet at http://www.nationalcenter.org/KyotoFactSheet.html.

11 Jerry Taylor, Director of Natural Resource Studies, Cato Institute, "The Best Energy Policy is No Energy Policy," Cato Today's Commentary, March 13, 2000, downloaded from http://www.cato.org/dailys/03-13-00.html.

12 Jeff Plungis, "High-Priced Oil Heats Up Petroleum Reserve Debate," Congressional Quarterly's CQ Weekly, March 18, 2000.

13 Stephen Moore, Director of Fiscal Policy Studies, Cato Institute, Cato This Just In, December 2, 1997, downloaded from http://www.cato.org/dailys/12-02-97.html.

14 "NTU Calls on Congress, White House, to Enact Immediate 10-Cent/Gallon Cut," Press Release of the National Taxpayer's Union. February 23, 2000.

15 John Shanahan and Christine Olson, Policy Analysts, The Heritage Foundation, "What the Gas Tax Costs State Economies," Heritage Foundation FYI #100, May 7, 1996, downloaded from http://www.heritage.org/library/categories/budgettax/fyi100.html.

16 U.S. Representative Don Young (R-AK), Chairman of the House Resources Committee, "Plight of Alaska Eskimos Forgotten in ANWR Debate," Arctic National Wildlife Refuge website, downloaded from http://www.anwr.org/ on March 18, 2000.

17 U.S. Senator Frank H. Murkowski (R-AK), Chairman of the Senate Energy and Natural Resources Committee, "Let Alaskan Oil Help the State, Nation," Los Angeles Times, February 17, 2000.

18 1995 speech by Alma Upicksoun to the Environmental Policy Task Force, as quoted in Scoop #144, The National Center for Public Policy Research, December 15, 1995, available on the Internet at http://www.nationalcenter.org/ScoopIss114.html.

19 Scoop #144, The National Center for Public Policy Research, December 15, 1995, available on the Internet at http://www.nationalcenter.org/ScoopIss114.html.

20 Relief Report #33, The National Center for Public Policy Research, December 6, 1995, available on the Internet at http://www.nationalcenter.org/ReliefRpt33.html.

 

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Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected]





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