After more than four years of debate, President Bush signed the Energy Policy Act of 2005 into law on Monday, August 8. Unfortunately, Americans will have to wait five to ten years to reap most of the benefits. The legislation focuses on conservation by way of tax credits for citizens, as well as loan guarantees for power plants that use alternative sources of energy. While laying out a path to reduce dependence of foreign oil, the bill does little, if anything, to provide Americans immediate relief at the pump.
What can Americans expect to gain from this bill in the future? And if this bill does not reduce gas prices in the short term, is there anything that Congress or the President can do that will?
As for the short term, this bill is likely to increase gas prices rather than reduce them. The bill mandates the increased use of the corn-based fuel additive ethanol, doubling its consumption by the year 2012. Ethanol is highly expensive to produce - it must be heated to extremely high temperatures, a process which requires more energy to complete than it produces. The high cost of the process drives up the cost of gas once the ethanol is added.
Moreover, ethanol is a known neurotoxin and carcinogen, and is extremely difficult to contain in the current underground storage tanks used by virtually all gas stations. In California, where ethanol has been used as a fuel additive for years, reports of contaminated ground water supply have become commonplace. Studies have shown that ethanol is less effective at fighting air pollution than other types of additives. In fact, it is for these very reasons that oil companies have long resisted the use of ethanol in their products.
So the energy bill does not lower gas prices by making fuel cleaner, nor does it provide more opportunity for the domestic production of oil. Even if America's supply of crude oil increases, we do not have the capacity to refine any more oil than what we already produce or import. Does that mean we will have to suffer at the pump as gas prices rise higher and higher? Is there any way the government can give us some relief? Why do gas prices keep climbing so high in the first place?
There is no simple answer to this question. Many factors determine the cost of gasoline, including world politics, macroeconomics, supply, demand, the petroleum industry, and investor confidence.
Frederic P. Leuffer, financial contributor to National Review Online, points out that the current instability throughout the world and the threat of terrorism has prompted the U.S. and many other nations to fill their strategic petroleum reserves to full capacity. This accounts for some of the increased demand and rising oil prices. Add to the equation China's growing demand for oil, and the fact that OPEC does not produce at full capacity, even hurricanes and tropical storms that effect drilling and transportation - the issue is certainly not cut and dry.
OPEC, however, is losing ground in the petroleum market thanks to rising oil production from non-OPEC countries as well as alternative fuel sources. Faith in OPEC has a huge affect on oil prices, and the as OPEC's market share decreases, oil prices are likely to decrease somewhat as well.
In light of all these variables, there may be only one thing that Congress and the President could do to prompt immediate reduction in gas prices, and it is not releasing oil from the reserve. America's strategic petroleum reserve has a maximum capacity of 700 million barrels - an impressive number, until compared with the 17 million barrels Americans consume daily. Additionally, reducing inventory in the SPR is likely to reduce investor confidence, as it leaves the U.S. more vulnerable in the event of another terrorist attack. And when investor confidence wanes, gas prices rise.
Although many Americans blame the President for rising gas prices, Bush and Congress simply have little control over the situation. Lifting EPA standards would certainly reduce the cost of refining the fuel, which accounts for over 15 percent of the sale price, but environmentalist groups would not likely stand for that.
The only thing that the President and Congress can control is the federal gas tax. Currently, it is just over 18 cents a gallon. Combined with state and local taxes, this accounts for over a quarter of the cost of gasoline. Congress could repeal the federal gas tax and call on state and local governments to do the same.
But with the recent passage of the $286.4 billion highway bill, funded largely by the federal gas tax, Bush and Congress are not likely to jump on the anti-gas tax bandwagon anytime soon. Never mind that the highway bill has been widely criticized for containing too much "pork," such as $3 million to control dust on rural roads in Arkansas and $2.3 million for landscaping on the Ronald Reagan Freeway in California. Certainly most Americans are willing to pay exorbitant gas prices to drive on less dusty roads with more flowers. Aren't they?
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