- The Washington Times - Monday, August 22, 2005

The recently approved energy legislation excluded the biggest item that would have cut U.S. dependence on foreign oil as well as help lower record-high oil and gasoline prices: higher fuel efficiency standards for cars and sport utility vehicles.

Meanwhile, the Bush administration has taken no steps to better manage the Strategic Petroleum Reserve to relieve pressure on oil prices, or use it occasionally to pop speculative bubbles and alleviate foreign supply cutoffs that have helped drive up prices, according to Lawrence Kudlow of Kudlow & Co. and other analysts.

John Lichtblau, analyst with the Petroleum Industry Research Foundation, said Congress shied away for ideological and political reasons from the most powerful tools available to the government to counter high oil prices.

“There are in any case no magic bullets,” particularly any that would dramatically reduce dependence on imported oil, he said. “But there are options beyond those in the current legislation that can make a significant impact.”

Americans consume a quarter of the world’s oil, and most is used to fuel cars, trucks, airplanes and other vehicles.

The biggest gains in fuel efficiency were attained in the 1970s and 1980s, when oil prices soared to unprecedented levels and the government imposed fuel efficiency standards that require the fleet of cars to average a minimum of 27.5 miles per gallon.

The Corporate Average Fuel Economy, or CAFE, standards, helped cause the price drops and oil gluts of the late 1980s and 1990s. But they have not been raised in two decades, despite the introduction of gas-guzzling SUVs and new technologies such as fuel-efficient electric hybrids.

Though the CAFE standards are opposed by the auto industry and many Republicans for distorting markets and inhibiting free consumer choice, “there is a case for raising the CAFE standards,” and narrowing the difference between cars and SUVs, which with other light trucks are required to average only 20.9 miles per gallon, said Mr. Lichtblau.

Raising the standard for SUVs and light trucks to the same level as cars would cut fuel imports by 5 percent and shave world oil prices by about 2 percent, not adjusted for inflation, over 15 years, according to the Energy Information Administration.

Much stiffer fuel-efficiency requirements for cars and trucks would yield more dramatic savings, and the deflationary effect might be strong enough to spur economic growth, the agency found.

A poll by Yale University found that 93 percent of Americans want cars and SUVs to be more fuel efficient.

Frustration with Washington’s weak response to record-high prices has led some states to take action. California is imposing higher fuel-efficiency requirements on cars, while other states are pushing various alternative fuels.

Analysts give credit to Congress and the Bush administration for including provisions in the energy bill that encourage development of the country’s dwindling oil supplies and ease bottlenecks at refineries caused by a proliferation of “boutique fuels.” Those measures should help alleviate price pressures, especially during the summer driving season, they say.

Also, Congress may vote later this year to open part of the Arctic National Wildlife Refuge to exploration, which would increase U.S. supplies after several years and might have a small effect on prices.

But while the law increases to 1 billion barrels from 700 million barrels the amount in the emergency Strategic Petroleum Reserve, it does little to ensure the reserves are better managed and used to relieve high oil prices, analysts say.

The Bush administration is putting pressure on oil prices by adding to the reserves at a time of tight supplies, said Mr. Lichtblau and Mr. Kudlow, who is a Republican economic adviser.

It has released reserves once — when a hurricane stopped oil production in the Gulf of Mexico last fall. That release did little to prevent prices from hitting records, analysts say.

The administration has insisted that the reserves should be tapped only to counter natural disasters and threats to national security during wartime.

“While the SPR should never be used lightly, reserving its use for major world supply crises … may be too limiting,” Mr. Lichtblau said.

Mr. Kudlow said President Bush should avoid filling the reserves when oil prices are spiking and consider using them to thwart speculators who have taken hold of the oil markets and are keeping prices at record highs.

“Oil is way out of line. It’s an Internet-type speculative bubble,” he said. “Mutual funds, hedge funds and even insurance companies are buying oil on the momentum trade. This could be dangerous. … The White House could help by leaving the [reserves] alone for now.”

U.S. foreign policies — particularly economic embargoes and war strategies that have thwarted the development of large oil reserves in Iraq, Iran and Libya — also are cited by analysts for contributing to short supplies and high prices.

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