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The Gas Price Adjustment
Published on Saturday, April 29, 2006 by the Boston Globe
The Gas Price Adjustment
by Robert Kuttner

Politicians of both parties, particularly Republicans, are scrambling to deal with the voter pain of $3-a-gallon gasoline. President Bush wants a $100 tax rebate to help consumers pay for more costly fuel and more tax credits for people who buy (mostly Japanese-made) hybrid cars. He has revived the recurring Republican idea of drilling in Alaska's wilderness. He proposes to suspend federal purchases for the national petroleum reserve. ''Every little bit helps," Bush said, rather pitifully. Next, he'll be wearing Jimmy Carter's sweaters.

Democrats' ideas include the proposal by Senator Robert Menendez of New Jersey to suspend temporarily the (industrial world's lowest) federal gas tax of 18.4 cents a gallon to be offset by an excess-profits tax on oil companies, a federal investigation of price gouging, and demands that Bush ''jawbone" his chums at the oil companies and in Saudi Arabia and Kuwait. Senator Ron Wyden of Oregon wants oil companies to start paying long-avoided royalties for petroleum drilled on federal lands.

The oil companies, meanwhile, are practicing damage control. Their full-page newspaper ads show (accurately) that oil profits as a percent of sales are modest. But wait a minute: the higher the retail price, the higher the profit -- and the percentage stays the same. They could make the same claim if gas went to $10 a gallon. Their profits relative to invested capital are off the charts. ExxonMobil just released its first-quarter profits: more than $8 billion -- its highest ever. ExxonMobil CEO Lee R. Raymond, who recently retired, was paid $400 million last year.

The oil companies argue that the main culprit is temporary bottlenecks in refining capacity (caused in part by those pesty environmental regulations) and that their astronomical profits are necessary because much of their boodle gets plowed back into oil exploration. But that's exactly the problem. The political and financial dominance of the oil industry, and the related premise that we mainly need more drilling, just reinforces the national illusion that we can keep running our economy on fossil fuels.

It's salutary that the Democrats are stoking public anger at the oil companies. But the problem goes far deeper than price-gouging that takes advantage of temporary shortages. These shortages are destined to worsen, because world oil reserves that can be recovered at reasonable cost are at or near an all-time peak. Reserves are beginning a steady decline just at a moment when 3 billion new consumers in Asia are hoping to attain something close to Western middle-class living standards. So forget cheap gas.

The only good thing about chronically scarce petroleum and the related high retail gas prices is that we may finally wake up and change course.

It's not as if serious people didn't see this coming. Europe, for example, spends about half of what the United States does on energy, relative to GDP. But Europe has entirely different policies on everything from mass transit to building codes to gas taxes. Brazil makes more than half of its motor fuels from domestic renewable ethanol. Japan is far ahead of the United States in the development of efficient hybrid cars.

Had we begun adjusting to the need for a post-petroleum economy during the first and second oil shocks, three decades ago when Jimmy Carter was ridiculed for wearing that cardigan, or even 10 years ago when ''Ozone Al" Gore was mocked for taking seriously the threat of global warming, we would not be getting robbed quite so helplessly at the pump by a collusion of Mideast sheiks, oil barons, and their Republican enablers.

It's fine that politicians of both parties want to give voters some election-year price relief at the pump. But even if a huge windfall profits tax were enacted and the proceeds used to lower retail gas prices, that would be a massive policy default and a win for business as usual.

The Republicans are far more cozy and culpable on this than the Democrats -- Republican leaders have even resisted mandating higher auto fuel-efficiency standards. But Democrats need to display more long-term leadership to move public opinion. Whichever party wins in November, the risk remains that prices will temporarily stabilize, the perceived crisis will pass, and the national denial and deferral will continue.

America needs an Apollo-scale program to shift to renewable energy and more efficient vehicles. If the United States acts soon, it needn't lower the standard of living; it just needs to stop donating so much of Americans' incomes to the oil companies and to prevent them and their allies from dictating national energy policy.

Robert Kuttner is coeditor of The American Prospect. His column appears regularly in the Globe.

© 2006 The Boston Globe


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