Heritage Foundation: High Gas Prices: Fuel for Thought

When it comes to soaring gasoline prices, we need a federal government that does less.

Less contributing to the problem, that is. As lawmakers and presidential candidates offer a number of proposals to lower pump prices, they should keep in mind that past laws and regulations have made matters worse. Washington ought to eliminate these mistakes rather than repeat them.

We need fewer restrictions on domestic oil drilling. America remains the only oil-producing nation on earth that has placed off-limits a substantial amount of its energy potential. This includes a few thousand acres of Alaska’s 20 million-acre Arctic National Wildlife Refuge that are believed to contain 10 billion barrels of oil — an amount equivalent to 15 years of imports from Saudi Arabia. More oil is in other restricted areas throughout Alaska, and even more in the 85 percent of America’s territorial waters that are off limits — nearly everywhere but the western half of the Gulf of Mexico.

The only reason not to drill is the environmental concerns. But improvements in technology have greatly reduced the above-ground footprint and the risk of offshore spills. Any new drilling would be subject to the world’s strictest standards.

Unfortunately, many in Congress still oppose more domestic oil. Amazingly, some actually want to add to the list of off-limits areas even as pump prices head toward $4 per gallon.

We also need less regulatory red tape affecting refineries and gasoline supplies. Though the jump in oil prices is far and away the biggest culprit in the recent price rise, tight refinery capacity doesn’t help. It would be worthwhile to streamline the regulations that make it all but impossible to build a new refinery and more difficult and time-consuming to expand an existing one.

Simplifying or eliminating the federal requirements that dictate the recipe (actually a dozen different recipes) for fuel also would help. These requirements get more stringent in the late spring and summer and are one reason prices likely are to rise even more in the months ahead.

Worst of all the federal requirements is the one requiring that corn-based ethanol be mixed into the gasoline supply. Not only does ethanol use raise the cost of driving, but diverting corn from food to fuel has raised food prices, as well.

Again, only a few in Congress are looking seriously at ways to cut this red tape. Indeed, we have efforts under way to make it worse, such as America’s Climate Security Act, by Sens. Joseph Lieberman, D-Conn., and John Warner, R-Va., a bill that would pile additional regulatory costs on gasoline in the name of fighting global warming.

We also need fewer repeats of the energy policy blunders of the 1970s and early 1980s. Among other mistakes from that period, the government increased the taxes levied on domestic oil producers, as if that would somehow help. The result, according to the Congressional Research Service, was “reduced domestic oil production from between 3 and 6 percent, and increased oil imports from between 8 and 16 percent.” The government also instituted price controls, which only served to create the notorious gas shortages of that era. Yes, price controls meant consumers could get cheaper gas — but only after waiting in long gas lines and only if stations didn’t run out first.

No rational policymaker should want to repeat the mistakes of those days, yet several members of Congress are trying to do just that. There are new proposals to increase the effective tax rates on U.S. oil companies. There are also price-gouging measures, which act the same way as price controls do. Both try to make high prices illegal. Both discourage badly needed supply increases and, thus, end up doing more harm than good.

It’s not just coincidence that despite the massive 2005 energy bill and another big one in 2007, the price at the pump continues upward. Both measures did little to create oil and gasoline supplies or untangle the red tape afflicting existing supplies.

Congress needs to start undoing the damage it has done. If it enacts more of the same instead, get ready for $4 or even $5 gas.

Ben Lieberman is a senior policy analyst in the Roe Institute for Economic Policy Studies at The Heritage Foundation (heritage.org).