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Long and short of oil price spike
Question of the Day
John D. Podesta
The high price of oil and gasoline is like the weather - everyone talks about it but no one does anything to fix it. That's certainly the case for the Bush administration. In 2006, President Bush said, "America is addicted to oil," yet his administration did nothing to reduce oil use. Had he acted in 2001, there would be millions more fuel-efficient cars on our roads today, cutting our oil use.
However, there are immediate steps that the Bush administration and Congress can take today to help stem the rising price of oil and also help those Americans hit hardest by rising gasoline prices. Then there are bold, long-term measures that the next president and Congress must embrace to drastically reduce long-term oil use by providing affordable alternatives, which will also increase our energy security.
Record oil prices are due to growing worldwide demand, sluggish production, a weak dollar and speculators gone wild. In the short term, oil demand is unlikely to abate much, which means oil-producing countries have little incentive to pump more oil now when the price may be higher next year. But the United States could upset that calculation by selling 500,000 barrels per day from our nation's brimming Strategic Petroleum Reserve. This is about half of the production increase President Bush unsuccessfully sought from Saudi Arabia. Even if we did this for 100 days, the SPR would still be nearly 90 percent full.
Putting this additional oil on the market would burst the speculative bubble. Investors and speculators in oil contracts would see today's safe, one-way bet challenged. Speculators count on market forces to back up their bets, but when institutional investors and oil traders sense that the supply and price of oil might go in different directions, all bets are off. And with oil at $135 per barrel, this is a profitable time to sell oil bought at a much lower price.
These steps would break market momentum driving oil prices, but gas prices will remain high in the near term. So we need to help those suffering the most from record energy prices, which are ravaging the budgets of low- and middle-income families. These families today spend about 50 percent more of their income on gasoline compared to 2001 - even though wage gains have been stagnant since then. Many households cannot quickly reduce the amount of gas use built into their daily lives due to the location of their home and work and the gas mileage of their cars. Many families cannot afford to buy a more fuel-efficient car right now.
Significantly, Americans are reducing their gasoline use, down 4 percent from a year ago, yet gas prices are up 23 percent since then. So here's a bold idea to help low- and middle-income families cope with rising energy prices - a "fuel price oilbate" program for households based on income. This program would also assist low-income households without cars because they still pay more for food and other goods due to high fuel prices. To pay for these "oilbates," Congress could eliminate some egregious tax breaks for Big Oil and recover lost royalties from wells in U.S. waters. With record profits and prices, oil companies don't need tax breaks.
Ultimately, though, we must invest in affordable transportation options to slash oil dependence and high costs. The new Energy Security and Independence Act increases fuel economy standards to cut oil use by 1.1 million barrels daily in 2020. And its requirement for more "cellulosic ethanol" made from switch grass and plant waste, combined with other biofuels, would reduce gasoline use by another 15 percent.
These measures, however, are inadequate to significantly reduce consumption. We need to invest heavily in transportation options that use little oil. The "plug-in hybrid electric vehicle," such as the Chevy Volt, could help meet this goal. A plug-in car has a rechargeable battery that powers the engine for up to 40 miles - approximately a typical driving day. Gasoline fuels any additional driving. The battery recharges overnight by plugging the car into an electrical socket. Plug-ins could get 100 miles per gallon or more.
Like with earlier new technologies such as nuclear power, government must also help commercialize plug-ins. That can be done by investing in battery research and development, purchasing plug-ins for government fleets, altering vehicle taxes to reward efficiency and granting an $8,000 tax credit to purchase a plug-in or other hyper-efficient automobiles.
Mass transit - rail and buses - is another viable option. Last year saw the highest transit ridership in 50 years, and it's up another 3 percent in 2008. Yet the Highway Trust Fund provides only 16 cents of every dollar for transit, with the rest going for highways. Congress should significantly increase the public transit share.
Record gas prices are exacting a real economic toll on American families. Bold new steps are required to shake up oil markets, give some relief for families and provide affordable alternatives to reduce our dependence on costly, foreign oil from hostile regimes. We must begin these efforts today to protect our economy and security from the future ravages of high energy prices.
•John D. Podesta was chief of staff to President Clinton from 1998 to 2001 and is currently the president and chief executive officer of the Center for American Progress.
By Michael Widlanski
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