Baltimore sun
06-12-07
Congress should hold itself accountable for gas prices
By James M. Taylor
The U.S. House last week approved legislation that would make it a federal
crime, complete with prison sentences of up to 10 years, for anybody to sell
gasoline at prices that are "unconscionably excessive" or that take "unfair
advantage" of consumers in an energy emergency. But if causing fuel to be sold
at unnecessarily high prices were a crime, Congress would have no alternative
but to throw itself in jail.
The legislation is remarkable in that it fails to acknowledge government
responsibility for much of the problem of spiking gasoline prices. While gasoline
consumption is growing by more than 2 percent a year, U.S. refinery production
is growing by only 0.5 percent a year. This is creating a bottleneck in U.S. supply
that is largely responsible for recent price increases. This bottleneck, ironically,
was caused by government interference in the marketplace.
Last year, U.S. oil companies announced plans to expand refineries to add
capacity of 1.6 million to 1.8 million barrels per day. Those plans were drastically
scaled back, however, after President Bush, in his January State of the Union
address, called for a major increase in biofuel production. Mr. Bush is seeking to
induce, and Congress is seeking to require, an increase in annual biofuel
production from about 6 billion gallons today to 35 billion gallons by 2017.
With Washington politicians fighting each other to see who can require the
greatest increase in biofuel production, it makes no sense for anybody to invest
in the expansion of oil refineries. After all, why invest money to produce
something the government is doing its best to replace? Investing in additional
refinery capacity has suddenly become very risky.
In the meantime, gasoline demand continues to grow, biofuels are nowhere near
being ready to meet growing demand, and government has just imposed an 800pound gorilla of a disincentive to expand refinery capacity. The predictable end
result has been sharply rising gas prices.
Still more disturbing is the spike in prices that will occur if and when government
succeeds in imposing massive increases in biofuel production on American
consumers. Even with a 51-cent-per-gallon federal subsidy (which we all pay for,
of course), a gallon of ethanol typically sells for slightly more than a gallon of
gasoline. But ethanol is a less-efficient fuel source than gasoline, providing only
70 percent of the miles per gallon that gasoline provides. This makes ethanol
substantially more expensive than gasoline.
Ethanol prices, moreover, will rise sharply under a government-induced increase
in ethanol production. Corn prices have doubled since last year, largely because
of rising ethanol demand. This is pushing up prices of ethanol and food.
According to a new study by Iowa State University, growing ethanol production
caused a $14 billion rise in food prices last year.
The fivefold rise in biofuel production envisioned by Congress and President
Bush will lead to still bigger increases in food and fuel prices. All of this is justified
as a response to gasoline prices that have yet to approach the price of ethanol.
This brings us back to the question of who is really forcing American consumers
to pay "unconscionably excessive" fuel prices. If Congress wants to threaten
prison time for those responsible, it should at least have the decency to make
itself subject to the same laws and penalties.
James M. Taylor is a senior fellow for environment policy at the Heartland
Institute, a free-market think tank that has received some funding from the oil and
gas industry. His e-mail is taylor@heartland.org.