WASHINGTON - Congressman Dennis J. Kucinich (D-OH) gave the following statement today at a House Government Reform Subcommittee on Energy and Resources Hearing on Energy Prices:
“Will Record Profits spur investment in new domestic capacity?” That is the title of this hearing. In a competitive market, the question would not be worth asking in Congress. There would be no doubt about the answer.
But the petroleum refining industry is not a competitive market. Ten companies control 80% of the refining capacity, and just 5 companies control half of the nation’s capacity all by themselves.
Since 1981, the concentration of refining capacity supply in fewer and fewer hands has increased. Mergers and acquisitions have fueled industry concentration. The result is astonishing:
*Operable capacity stopped rising in 1981, as it had for the previous 30 years.
*Instead, it went into decline, before it plateauing. For the past 20 years, capacity has been held relatively constant.
Economics 101 teaches that rising demand meets constant supply at higher and higher prices. We can be confident that the industry is familiar with that economics lesson, and they have profited handsomely as a result.
The question we should address is why should the US government continue to permit an anti-competitive environment that enables a few companies to rein in supply and drive up record profits?
I am sure that we will hear from the industry a lot about onerous environmental regulations. They want the public to believe that they would have built more refineries if only they’d been allowed to do it.
Not only is that not true, but it is a smokescreen. The industry hasn’t tried but once in 25 years to build a new refinery. Yet, between 1994 and 2004, they closed 30 refineries. On balance, they have been closing refineries, not trying to open new ones. Closing refineries tightens supply, driving up prices when demand is rising. That is exactly what has happened, and they’ve made record profits.
If there were no environmental regulations, the industry would have to invent them or something equivalent in order to disguise a corporate strategy to hold down supply. That is the real issue and Americans are paying mightily for it. Since 2001, according to Public Citizen, the largest five oil companies operating in the United States enjoyed after-tax profits of $254 billion.
There are things Congress can do. One would be to pass HR 2070, the Gas Price Spike Act of 2005. This bill, which I introduced with 39 cosponsors, would implement a windfall profit tax on gasoline and diesel. Such a tax would be imposed on key oil industry profits above a reasonable rate of return. If oil companies are collecting excessive profits on the backs of consumers, they should be subject to a stiff tax on those excessive profits. The threat of heavy taxation will send a clear signal to oil companies that price gouging, and shorting supply, will not pay.
In addition, HR 2070 will direct the revenue from the windfall profits tax to Americans who buy ultra efficient cars made in America. These individuals would receive a $6000 tax credit. The credit would be phased in, and cars that achieved 65 miles per gallon would receive a full tax credit. Today average cars get less than 30 miles per gallon. This tax credit will stimulate the market in ultra efficient vehicles.
Lastly, the bill makes funding available to regional transit authorities to offset significantly reduced mass transit fares during times of gas price spikes. Providing low-cost mass transit will slow demand for gas and ease the price of gasoline, benefiting all Americans.