Wednesday, August 22, 2012

Don't let politics interfere with what SHOULD be done to lower gas prices.

Read CARE favorite Diana Furchtgott-Roth's take on the issue

Tapping the SPR Is a Bad Idea Every Time 
By Diana Furchtgott-Roth
August 21, 2012

We're approaching the Labor Day weekend. Election Day is 10 weeks away. Gasoline prices have reversed last spring's declines and have been rising. President Obama's poll numbers are drifting downwards. Every election year, if gasoline prices rise, rumors swirl in Washington that the president will release oil from the Strategic Petroleum Reserve. It's a bad idea, no matter who suggests it.

Most recently, that suggestion has come from unnamed White House sources, reported by first by Reuters, and then by other news organizations.

Let's give this bad idea some context. On January 20, 2009, when Mr. Obama was inaugurated, the average price of gasoline was $1.84 per gallon and the price of oil was about $39 for a 42-gallon barrel. On Monday refiners had to pay about $96 for a barrel of West Texas Intermediate and the average price of regular gasoline was $3.72, up from $3.45 a month earlier.

However, the purpose of the 696 million barrel Strategic Petroleum Reserve, stored in underground salt caverns in Texas and Louisiana, is to protect America against "severe energy supply disruptions," according to the Energy Policy and Conservation Act of 1975. With imports of oil and petroleum products about 345 million barrels per month, that works out to about two months of supply, in the unlikely event of a complete cutoff of foreign crude. That is hardly an extravagant buffer.

Gasoline prices are the most visible energy prices in America, more obvious than monthly utility bills. Motorists see them regularly as they drive, even if they do not stop to fill up. Rising gasoline prices cause politicians to worry. But a rising price of oil two months before a presidential election does not qualify as a severe supply disruption, even if it may jeopardize the president's chances for a second term.

Rather than release oil from the reserve, Obama could take other actions to enhance the domestic supply of crude oil and modify environmental regulations that tend to push up gasoline prices.

Let's first examine the regulations. People see four kinds of motor fuel when they fill up, regular, mid-grade, premium, and diesel. Most don't know that Environmental Protection Agency regulations require 18 different blends of gasoline in different states, depending on the season and on air quality.

These "boutique fuel requirements," as they are called by critics, keep the price of gasoline high because excess gasoline in one state cannot be sent to another. Waiving these requirements temporarily would let the price of gasoline decline without significantly affecting air quality.

Senator Roy Blunt, a Missouri Republican, has introduced the Boutique Fuel Reduction Act of 2011. The bill, which has 38 Republican cosponsors, would give the EPA administrator flexibility to waive or expand boutique fuel requirements for states if the need warrants. A similar bill in the House, sponsored by Representative Lee Terry, a Republican from Nebraska, has 13 Republican cosponsors.

Another factor increasing the price of gasoline is the statutory requirement that ethanol, made from corn, be included in motor fuel. It was enacted in the 2007 Energy Independence and Security Act with heavy lobbying by corn growers and environmentalists. Now, prices of ethanol are high because there's a drought, corn yields are down, and corn prices are up.

More recently, environmentalists have turned against ethanol because they say it is responsible for avoidable greenhouse gas emissions. Rising corn prices encourage farmers all over the world to transform their land from forests and fallow fields to corn, thereby losing the capture of airborne carbon dioxide performed by trees and shrubs.

In addition, ethanol production diverts corn from the food pipeline. The diversion raises corn, meat, and other food prices-in the United States and all over the world.

Ethanol's use in gasoline lowers a vehicle's fuel mileage. Mileage per gallon of gasoline with an ethanol component is lower than without ethanol.

Ethanol no longer has a federal tax subsidy, but its use in gasoline is required by the 2007 Energy Independence and Security Act. The law required 13.95 billion gallons in 2011, 15.2 billion in 2012, with 36 billion gallons in prospect for 2022.

Rather than be driven by dictate, the composition of ethanol in gasoline should be determined by the relative marginal costs of each product, which would mean greater efficiency in the energy market, and lower prices for consumers.

In addition to such short-run solutions, the administration could consider longer-term supply easures that would enable more gasoline to reach consumers. The administration could speed up approval of offshore oil and gas exploration and production applications, just as Interior Secretary Ken Salazar on August 7 announced that he would "fast-track" seven solar and wind electricity generating plants in California, Arizona, and Nevada.

For instance, Obama could "fast track" the Keystone XL pipeline, which would bring oil from Canada to our refineries on the Gulf coast to replace the diminishing supply of Mexican and Venezuelan oil.

Instead, Enbridge Inc., a Canadian pipeline company, is planning a new pipeline from Alberta to the Canadian West coast so that the oil can be shipped to China, and Kinder Morgan, a U.S. company, is expanding its existing pipeline.

In addition, Obama could give speedy approval to requests from individual states for oil exploration off-shore. Alaska wants to explore for oil in the Chukchi Sea and in a small part of the Arctic National Wildlife Refuge. The Obama administration revoked a permit for exploration off the Virginia shore that had been approved by the Bush administration. The revocation should be rescinded.

There are many actions that the government can take to expand the domestic supply of crude oil and refined gasoline. Release of oil reserves from the Strategic Petroleum Reserve should be saved for a genuine emergency. And a close election just doesn't qualify.

Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute.