Washington on Gas Prices: All Talk, No Action

With voters upset about gas prices, lawmakers don't want to appear powerless, but in the short term, at least, they pretty much are.

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

July 2, 2008

What to do about high gasoline prices? Many are looking to Washington for some relief, and lawmakers are scrambling to appear responsive.

The list of ideas is long. Several are politically popular but economically useless -- or they are economically sound but politically suicidal. And everything in between. There are about 150 pieces of oil-, gas- and energy-related legislation and dozens more yet being drafted. It's the legislative topic du jour, although many will sit idle.

The list of what is actually doable is short. While politicians of all stripes deplore the high prices, there's an enormous gulf between the parties -- and the party nominees-in-waiting -- on how to lower them.

Here's how we rate the options...

Offshore drilling in more places. Not likely to happen anytime soon, but the odds will increase with time, especially if fuel prices stay high. Democrats say no to lifting the moratorium set in 1981 that bars outer continental shelf oil drilling in all areas except in parts of the western Gulf of Mexico and some parts of Alaska. Republicans want to drill, and polls say the public is much more open to it than just a short time ago. The problem is it would take a decade or longer to find the oil, build rigs and get production flowing. And then, the U.S. would need more refineries to turn it into gasoline. Despite this, Republicans will keep up the drive for more domestic offshore drilling through the election and into next year. A modest expansion of drilling where it's allowed is not out of the question in a few years, especially if states with tight budgets get to split licensing revenue with the federal government.

Requiring current offshore drilling leases to be used in full. It sounds like a good idea on the surface to require oil companies to drill in areas they already have rights to. But odds of passing legislation are long. Policymakers are being persuaded that not all the leases will pan out and those that do require much initial geological and other studies. Plus the Congressional Budget Office says this will actually delay payments on leases while studies are conducted to comply with a new law.

Drilling in the Arctic National Wildlife Refuge (ANWR). Not a chance, especially with Democrats who oppose upsetting the refuge poised to gain more seats in the House and Senate. Drilling would take 10 years or longer to produce oil. Republicans argue ANWR drilling should have started in the 1990s. Even if it did, though, the overall increase in supply would have been small.

A federal anti-price-gouging law. This is a good bet, but it'll be just be a feel good measure. Congress will set penalties and give the Federal Trade Commission a green light to investigate gasoline, natural gas, heating oil and propane markets for signs of excessive pricing in times of need. But price gouging is tough to prove, and each state already has its own version of anti-price-gouging legislation in place for use by state attorneys general and others.

Taking legal action against the Organization of Petroleum Exporting Countries. This is a pipe dream. The House passed a bill to authorize the Justice Department to take foreign governments to court in the U.S. if there is evidence they are acting in collusion to manipulate price hikes. But the Senate won't go along, concerned by the international fracas it would cause.

Curbing market speculation. Additional federal oversight is very likely, but probably not until next year. And if the speculative bubble has burst by then, lawmakers may even lose interest. Look for the Commodity Futures Trading Commission to gain authority to govern oil futures, requiring more transparency, reporting of trades and possibly limiting the number of contracts any entity can hold.

Banning oil market speculation outright. No way. Wall Street and hedge funds will prevail, arguing reasonable speculation is needed to ensure markets function. Economists say speculation is necessary when considering that world energy demand will expand 60% between now and 2030 with most of the rise coming from developing countries.

Suspending federal gas taxes. A no-go on this one, too. GOP nominee-designate John McCain likes the idea, saying it would provide small but important relief to temporarily suspend the 18.4 cents-per-gallon federal excise tax. But others, including Democratic nominee-in-waiting Barack Obama and many economists, say such a move would have little effect and may actually spur more gasoline use. There's also the question of how to pay for the loss of revenue it would mean for the highway trust fund.

Hiking gas taxes. No chance. Some say it sounds politically untenable, even though it would have the effect of increasing conservation. Voters would be outraged.

Reinstating a 55 mph speed limit. Same odds as hiking taxes: Congress wouldn't dream of it. Still, a 55 mph limit on interstates and elsewhere would indeed save gasoline. Some drivers are doing it voluntarily.

More nuclear power. Yes. Obama and McCain both support it, although McCain's support is considered stronger. More nuclear power will be essential for fueling the widespread growth of plug-in vehicles. Citing new plants, dealing with litigation and finally building plants can take two decades, however.

Easing refinery regulations. Even odds of this happening in next few years. It would be easier to facilitate expansions of existing Gulf Coast refineries than to build new ones. Even so, environmental groups would protest about added pollution.

Publicly owned refineries. Almost no chance. A few Democrats have suggested it as a way to have more industry accountability and ensure steady supply of gasoline to meet consumer demand. Opponents say it would be a disastrous invasion of the private sector and might even hurt the ability of refineries to produce gasoline quickly.

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