Six Fixes for High Gas Prices

With a nationwide average gas price of just about $4 a gallon, lots of people are thinking there must be something the government can do to help.

Some things which contribute to high gas prices are largely out of the government's control. OPEC will produce as little oil as it sees fit, largely independent of any U.S. intervention. Developing nations will continue to subsidize gas prices, helping their growing economies and keeping demand high.

Areas where the government can help, like a big push into alternative energy, more drilling in the United States, or a jump in fuel efficiency standards, will take years to materialize. Even then, any price decline is likely to be small.

As consumers scramble to adjust their lives to deal with high gas prices experts debate what the government can do to help in the short term.

It's unclear if any of the ideas being discussed will work. Some say Americans will just have to deal with $4 gas and learn to use less of it.

Short-Term Fixes

Tax oil companies more, give the money to motorists. This idea is a central part of Barack Obama's energy platform.

The candidate would impose a windfall profits tax on the big oil companies whenever oil crossed the $80 a barrel mark. The cash would be given to low income people to help them offset their energy costs.

Other proposals in the Senate include selling rights to emit greenhouse gasses - known as carbon credits - and giving the proceeds to all households making under $100,000 a year.

But opponents say raising taxes on oil companies will result in less oil production, and ultimately lead to higher prices. If the government didn't tax oil companies and simply borrowed the cash, that would only hurt the dollar, and send oil prices higher.

Limit oil speculation. Many people believe oil speculators are essential to a properly functioning market.

But some say they have too much free reign and should be subject to greater restriction.

"The amount of money going into oil speculation is driving the price," said Judy Dugan, research director at Consumer Watchdog.

Dugan is calling for increasing the amount of money oil investors need to put up to buy contracts. She also wants more disclosure of trading positions held in overseas or electronic markets.

Dugan may be on to something. The Commodities Futures Trading Commission recently said it is requiring greater disclosure, and oil prices backed off nearly $9 from recent highs.

But opponents urge caution. They say supply and demand are driving high oil prices. Fewer speculators in the market, they say, will just make it harder to secure contracts and make it easier for a single player to manipulate prices.

Ease refining restrictions. Refineries seem to be in a perpetual mess. They currently have to make over 40 types of gasoline blends to meet clean air requirements in different areas. They are also only running at about 85%capacity.

Easing clean air requirements or reducing the number of blends made might bring down prices.

"It's obviously a trade off with environmental concerns," said John Kilduff, an energy analyst at MF Global in New York. "But it might take some of the stress off refiners."

Dugan is also calling for more information about refiner's profit margins, and perhaps laws requiring them to make more gas.

But the industry says making all those different blends actually doesn't cost that much more money. And other analysts say refiners are barely turning a profit running at 85% capacity, as gasoline prices have not risen as much as the price of crude oil. more

Lift the ethanol tariff. Ethanol from places like Brazil, made with sugar cane that packs more energy than U.S. corn-based ethanol, is currently subject to a 54-cent a gallon tariff, designed to protect the domestic ethanol industry from foreign competition.

Since ethanol is a required component in gasoline, critics of the tariff say lifting it would mean cheaper gas for everyone.

But with ethanol making up less than 10% of the nation's gasoline supply, any drop in gas prices would likely be minimal.

Open the Strategic Petroleum Reserve. Congress recently directed the Bush administration to stop filling the reserve to the tune of 70,000 barrels a day, or 0.3% of the nation's daily oil consumption.

Analysts said the amount of oil involved was too small to have any effect on prices. They were right: oil prices actually rose following the directive.

Some say releasing oil from the reserve, located in giant salt caverns along the Gulf of Mexico and holding over 700 million barrels of oil, would send a message to traders that the government is not willing to let oil prices go up forever.

But others say the reserve serves an important role as a buffer against supply disruptions from overseas, and traders would bid up prices if the reserve were smaller. More.

Suspend the gas tax. This idea was roundly criticized when proposed first by John McCain and later by Hillary Clinton.

Analysts said doing away with the 18.4 cent per gallon federal gas tax over the summer would leave road repair dangerously underfunded, and could even lead to higher gas prices as people drove more.

Still, the idea has it's backers.

"I thought it maybe wasn't a bad idea," said Kilduff, who noted that eliminating state taxes as well - which currently average an additional 21 cents a gallon - could translate into savings for motorists. More.

Tough Love

The fact that these proposals have so many caveats, and would likely bring prices down only moderately or not at all, leaves some analysts saying there's not much the government can do to lower prices.

High gas prices are here to stay, and consumers are just going to have to bear the burden until they figure out how to use less fuel, they say.

"Like the president said, it's an addiction," said Lee Schipper, a visiting scholar at University of California Berkeley's Transportation Center. "There's going to be a time when going cold turkey hurts."

Moreover, even if the government could lower prices, it might not be in everyone's long-term interest.

"It's only when the price is high that people actually do things" to conserve, said Schipper. "Gas at $2 a gallon underprices the real cost to the environment and the nation."

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