Why Congress Cannot Fix Your Gas Prices Pain
Jessica Rettig

May 23, 2011

Less than two weeks ago, members of Congress were back at home getting more than an earful from constituents about high gas prices across the country. Last week, they came back to Washington ready to tackle the problem, unleashing legislation and talking points aimed at a fix. Still, gas prices keep rising, and both lawmakers and regular citizens are coming around to the reality that there's really not too much that Congress can do about it.

"It is dishonest for any of us to say that there's some magic wand that can be waved to bring down gas prices," Missouri Democratic Sen. Claire McCaskill said at a press conference on Tuesday.

Economists and energy policy experts point to any number of reasons why gas prices are soaring these days. Many say that it's a simple matter of supply and demand. While the world begins to rebound from the global recession, the demand for crude oil has increased, mostly in emerging markets like China, Brazil, and the Middle East. According to the Energy Information Administration's latest short-term outlook, that worldwide demand should keep rising at least through 2012. Mix that increase in demand with a disrupted supply from Libya and other oil producers engaged in conflicts related to the so-called "Arab Spring." And earlier this year, in March, the Organization of Petroleum Exporting Countries, a cartel of state-run oil producers better known as OPEC, slashed their output by 800,000 barrels per day, which also decreased supply globally.

For Americans, the nation's weakened dollar has put additional strain on gas consumers, as commodity prices have increased across the board. Fingers of blame are also pointing at oil futures speculators, though it's debatable whether speculators have anything to do with current prices.

With uncertainty on Capitol Hill about why prices have gone up, there's a parallel debate about how to bring them back down. In the meantime, Congress is floating a number of pieces of legislation to help solve Americans' gas price dilemma. But, given the partisan environment, none of the bills seem to be going anywhere, and even if they did, there's little chance that any would deliver a real solution in the short term.

The bulk of House floor time this week has been spent debating bills on offshore drilling. Republicans want to speed up the leasing and permitting process to increase access to the country's own energy sources. They argue that by increasing domestic supply, and thus decreasing dependence on foreign sources, prices will go down for the American public. This may be a step in the right direction. "Increasing supply to the market, as we know from Econ 101, has the effect of decreasing price," says Brian Johnson, senior tax adviser at the American Petroleum Institute.

Even so, in addition to environmental concerns, the problem with these bills is that most of the potential drilling discussed is still years away from actual production. And that is if the Republicans' pro drilling bills even had a chance to pass outside the House. As long as Democrats in the Senate push back to encourage oil spill safety and prevention measures, the Republicans' attempt this week in the House is likely to be in vain.

Another way to increase supply in the short-term is to release oil from the country's Strategic Petroleum Reserve, a tactic used by both Presidents Bush to address high gas prices. But this idea too comes with complications. The reserve now holds more than 700 million barrels of oil, which is enough to sustain the country for little over a month at current rates of consumption. However the reserve, created after the Arab oil embargo in the 1970s, is intended for emergencies rather than as a response to higher prices. Since the line between high prices and emergency could be unclear, those opposed to releasing oil from the reserves worry that the amount of oil released could get out of hand and could create a shortage in case of a more serious scenario. However, several lawmakers support the idea, especially if the oil is released in set amounts. Massachusetts Rep. Ed Markey , the top Democrat on the House Natural Resources Committee , has proposed a bill that would have the president release 30 million barrels of oil to the markets. But as 30 million barrels is just a small percentage of global consumption, many experts doubt that any significant pricing effect would last. "The strategic petroleum reserve would be a short-term message to Saudis and to speculators that would drive down prices in the short term. It is not a long-term solution. There is no way that the United States at 2 percent of the world's oil reserves and 25 percent of the world's consumption of oil can make up for our oil deficit," says Eben Burnham-Snyder, a Markey spokesman. "That's why a long term solution must include things like all-electric vehicles, wind and solar, other clean energy alternatives that move us away from oil entirely as a commodity."

Just yesterday, a handful of Senate Democrats unveiled legislation that would end tax breaks for the top five domestic oil producers, Exxon Mobil, Shell, BP, Chevron and Conoco. Though they admit that this is a deficit cutting measure and not a solution to the oil issue, such a bill could in fact lead to higher gas prices. Democrats say that as some of the top earners in the world, these companies can afford to pay more taxes to help with the deficit. It's just a couple billion more per year they say, compared with the companies' annual profits that average about $25 billion each. "It's time for the big five to do the right thing for a change, and pay their fair share," said New Jersey Democratic Sen. Robert Menendez on Tuesday.

But the industry, backed by the nonpartisan Congressional Research Service, says that increasing taxes on oil companies could end up limiting supply, as the current tax breaks offer the companies incentives for risk-taking and production. According to the American Petroleum Institute, reducing tax breaks would also lower profits for shareholders, which include common investors in mutual funds and pension funds. "[The oil industry] currently give[s] $87 million to the Treasury every single day in rents, royalties and income tax payments. That's $37 billion a year," says the Petroleum Institute's Johnson. "We're willing to do our part and help address the deficit, but increased access is really the way to do that, not raising taxes."

While the partisan bills don't seem to offer much hope, there is one bipartisan idea on the table, introduced repeatedly over the years by Wisconsin Sen. Herb Kohl , that would address what the majority of experts say is the real source of price fluctuations in the oil market: OPEC. The antitrust legislation, if passed, would increase the Department of Justice's power to prosecute OPEC and its member countries for price fixing. There's no guarantee that the U.S. would or could enforce this law, since it applies not to companies but to nation-states, like Saudi Arabia. Although the administration has yet to take a stance on such legislation, U.S. Attorney General Eric Holder has appeared receptive, saying at a recent congressional hearing that he could use an extra tool to deal with price manipulation.

For now, it seems, the gas-guzzling public will just have to wait it out. There's a chance that gas prices could go down on their own without any legislative action. And in the past, Americans have simply gotten used to higher prices, adopting more efficient technology and practices. So, as the summer heat is likely to drive prices up even more, don't look to Congress to help alleviate pain at the pump.

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