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What Congress Should do Now About Gasoline Prices

By Nick Mottern, Director, ConsumersforPeace.org

This is a list of basic actions by Congress that would begin to address the devastating impact on U.S. consumers of the unpredictable surges in oil prices.  They would also have a positive impact globally in that America accounted for one quarter of the world’s oil demand in 2007.

Gasoline rationing and small car loan subsidies are measures intended to bring oil consumption for private transportation under predictable control and to encourage drivers to adopt small private vehicles.  Gasoline rationing has been viewed as a last resort, but it is an essential step toward reducing oil consumption in a planned way while giving everyone an equal shot at gasoline regardless of her or his income. 

A planned, progressive cutback in U.S. petroleum consumption through gasoline rationing could bring an immediate moderation in world oil prices.

Gasoline rationing would also be a major step in reducing exhaust gases that are causing global warming. 

Two years ago, Harvard economist Martin Feldstein proposed gasoline rationing as an equitable way to cut gasoline consumption.  His plan is similar to that of the Standby Gasoline Rationing Plan drafted by the U.S. Department of Energy exactly 28 years ago, in June 1980, to address the threat of oil shortages.  Putting gasoline rationing into effect, the Plan says, would be costly and complex, but “options have been incorporated into the plan to provide, to the maximum extent practical, equity among gasoline users throughout the nation and to provide flexibility to minimize disparities among States.” 

A windfall oil profits tax has been discussed in the 2008 Presidential campaign as a way of compensating for a proposed cut in gasoline taxes to lower prices at the pump.  The problem with this idea is that a cutback on the gasoline tax does nothing to lower consumption of gasoline.  It would do the opposite. 

But a windfall oil profits tax itself is a good idea, consistent with the history of levying excess profits taxes during wartime – World Wars I and II and the Korean War - to capture extreme profits generated by shortages.  Without question, the oil companies have realized extraordinary profits over the five years.  We estimate that the windfall profits of the top three U.S. gasoline retailers alone – ExxonMobil, Shell and BP –  have amounted to a total of $80-90 billion since 2003.

These profits, as pointed out by Noble Laureate Joseph Stiglitz, co-author of The Three Trillion Dollar War, are directly related to the Iraq War.  The war has stunted oil production in Iraq that would otherwise have been able to meet demand from India and Asia.  Fear that the war will spread, for example to Iran, has also driven up oil prices. More on this below.

The revenue from the windfall profits tax could be used to assist people in moving into 4-cylinder or less vehicles, help develop alternative energy sources, and help pay to dramatically expand public transport for vehicle-dependent commuters.

The physical demonstration of the need for a crash program to expand commuter transportation can be found daily on highways leading into cities of all sizes as the lines and lines of cars crawl toward work in the morning and away at night.  There is an immediate need to reduce these lines with locally appropriate transportation schemes that will get people from suburbs to work centers.  While these plans will be imperfect, something must be done on an emergency basis to help commuters get out of their cars.

Finally, withdrawing U.S. troops from Iraq and ending talk of attacking Iran and the planning for such an attack, could have an extraordinary impact in controlling world oil prices.  The June 7-8, 2008, weekend edition of the Wall Street Journal, reported the following in discussing the jump in crude oil prices on June 6:

“…crude’s big jump was also driven by other irritants, including a sudden rise in political tempers in the oil-rich Middle East.  A senior Israeli official told a prominent Israeli daily Friday that an Israeli attack against Iran was “unavoidable” if Tehran continued to put forward on its controversial nuclear program.  Some observers said that single comment, from Transport Minister Shaul Mofaz, may have given oil prices a greater shot of adrenaline than anything else.”

Congressional approval of a bill like H.R. 5507, which calls for a timed withdrawal of U.S. forces from Iraq, would send a signal that the U.S. is willing to recognize the reality of the need to begin working out oil/political issues through negotiation rather than through military force.  It is critical that this approach be reinforced by a Congressional ban against any attack on Iran without a declaration of war from Congress and the appropriate resolutions from both bodies of the United Nations.

Congress and regulatory agencies have begun to examine the role of speculators in the oil market, and price fixing may get attention.  These enforcement issues do affect price to some degree, but they do not deal with the more basic issues of consumption and the use of military force in relation to oil.

The legislative steps just outlined would not only help stop the hemorrhaging for consumers, they would finally put the U.S. firmly on the road to greater energy independence and direct action to reducing global warming.