24 Mar 2000 Government Energy Policy Errors Contribute to High Gasoline Prices

President Clinton announced this week 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, fifty cents more than a year ago. Prices could rise to $1.74 to $1.80 per gallon by summer.

The President primarily favors using “quiet diplomacy” to coax OPEC to increase supply, but he also suggested tax incentives to spur conservation and alternative fuels and agreed to modest tax breaks to increase domestic production.

Meanwhile, Congress is examining several options, among them a repeal of the 4.3¢ gas tax increase approved as part of the 1993 Clinton deficit reduction plan and ending the ban on drilling in Alaska’s oil-rich Arctic National Wildlife Refuge.

House Majority Leader Dick Armey (R-TX) believes repealing the 4.3¢ gas tax would provide insufficient relief. Armey, who faces formidable opposition to the tax repeal from House Transportation and Ways and Means Committee Chairmen Bud Shuster (R-PA) and Bill Archer (R-TX), believes even more needs to be done.

Armey’s office says the U.S. relies on foreign imports for 56 percent of our crude oil, an increase of 21 percentage points since the 1973 Arab oil embargo, and predicts we will depend on imports for 65 percent of our oil by 2020.

Armey has harsh words about Clinton’s energy policy, calling it a “total failure of leadership… a tax and regulatory policy failure… a foreign policy failure… a domestic energy policy failure.”

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. In 1996 Clinton ended mining access to 62 billion tons of environmentally-friendly low-sulfur coal when he secretly established the Grand Staircase-Escalante National Monument in Utah. In 1990 the federal government mandated the addition of MTBE to gasoline. MTBE increases gas prices about ten cents and is now known to pose a risk to the water supply. The Clinton Administration signed the Kyoto Protocol, which would require the U.S. to cut energy use so dramatically it could double gas prices.

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, states: “The best energy policy is no energy policy.”

Taylor says begging OPEC to increase production is “at best a waste of time” because OPEC has no incentive to care about global recession if profits are high.

Cato’s Stephen Moore nonetheless sees a policy the Institute can endorse: cutting consumer gas taxes. Moore doubts the 18.4¢ per gallon tax is needed.

“After all,” he says, “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.”

The National Taxpayer’s Union agrees, noting that state and federal gas taxes combined rose by more than half, from 27¢ to 43¢, from 1990-99.

One government policy that almost certainly should be reversed is the federal ban on oil recovery in Alaska’s Arctic National Wildlife Refuge (ANWR). ANWR is so oil-rich it could replace 30 years of Saudi oil imports. Oil drilling equipment would cover only 2,000 of ANWR’s 19 million acres, and wildlife would be unaffected.

In developing an energy policy that works well for consumers we must first heed the maxim: First, do no harm.

by Amy Ridenour

Gasoline Tax Increases by Year

Nothing written here should be construed as an attempt to help or hinder legislation before the U.S. Congress. Reprints of material in Budget Watch is permitted provided that original source is credited.