I’m sure that if you haven’t heard about gas prices rising, you’ve definitely noticed (unless you prefer to walk, or use some other non-oil using mode of transportation…like a unicycle). Surely you’ve seen the memes.
Some, particularly those inclined to lean rightward when the political winds blow, seem to think that there’s only one person to blame: President Joe Biden. Like Kevin McCarthy, who wrote in a recent op-ed:
“Under President Biden’s leadership, energy imports from Russia increased by 34%. This administration has not only stalled oil and natural gas exports to our allies, but has blocked further energy transportation infrastructure in the U.S., like the Keystone XL Pipeline, while supporting projects abroad, like Russia’s Nord Stream 2 pipeline. With investments in our own pipeline infrastructure, American refineries could have easy access to Canadian crude oil instead of Russian oil.
Only after Vladimir Putin invaded Ukraine did President Biden admit this vulnerability.
The only “plan” President Biden has for the current energy crisis is to release oil from the Strategic Petroleum Reserve and ask other countries to produce more oil.
These shortsighted ideas put America last, and the solution is obvious: rapidly increase American energy production, thus replacing Russian oil and gas with energy made in the U.S.A.”
Others have pointed out that gas prices are being hiked up because of just plain old capitalism, that oil and gas companies, along with individual convenience stores, are just hiking up prices to make a quick buck.
I would add this, though: investors are fickle and scare easily. As a result, there’s a lot of volatility in the market, and that can lead to huge swings in prices. Do you think the gas/oil company is going to just eat the losses? No. They’re going to shift it on to the consumer.
I don't share the sentiment that President Biden is to be blamed, generally at all, but even on the premise of compromise, I’d say barely a fraction.
Here's what Biden could do, shouldn’t do, and is likely already doing.
Restart Keystone XL Pipeline
This is a pipedream of epic proportions that benefits producers and investors. That's it. Nor would that fix the issues in the present context. Why? Because after Biden's EO that revoked the permits, TransCanada abandoned the project. It would take, at minimum, three years to complete the project if restarted now, and that's without opposition. And there should be opposition. A 3-5 year project to increase the number of barrels by maybe 510,000 per day does not fix today's problem. So suggesting that this is a blunder on Biden's part is not accurate, or fair.
Suspend National Gas Taxes
Now this is certainly an idea, since it would reduce gas prices by at least $0.184 per gallon. There's not a lot of political capital to get this done, especially because Biden's new infrastructure plan relies heavily on these taxes. Still, it would certainly help, even in the short term. The other thing we have to worry about is whether or not oil/gas companies replace that with price hikes in an effort to make more money.
So sure, Biden could do that. But this isn't just a Biden thing. In fact, your local and state gas taxes are on average higher. Not only has the national gas tax not changed since 1993, but it isn't indexed to inflation.
Only two states have state gas taxes that are lower than the national level, and that's Alaska and Missouri. The rest are higher, with the highest being California with $0.6698 per gallon (it's $0.98 for diesel, which we're not even going to get into here. Not only that, but in some states (like California), there's also sales taxes applied (2.25% for regular gas, and almost 10% for diesel).
Depending on the county in Florida, you may owe up to 12 more cents per gallon on top of the state gas tax of more than $0.42 per gallon.
But let's pick on California for now. Let's say you go get 15 gallons of regular unleaded at the national average of $4.331 per gallon, for a total of $64.97 (or, put another way, that's 54% of your pre-taxed dollars earned for a half-day of work at $15 an hour OR a 9-hour shift working at the federal minimum wage).
What happens when we remove the federal gas tax? Congratulations, you just saved yourself $2.76 (thanks Biden). But what happens if you suspend California's state gas tax?? You save $9.90 (thanks Newsom), and if you suspend the application of sales taxes on top of the already taxed to death gasoline you're trying to buy, well now you're saving $11.36. All told, in this scenario, you're spending $14.12 in taxes, which is 22% of your total purchase, and only 20% that is from the federal government.
All told, state gas prices (except for Alaska and Missouri) are between 2 and 264% more than the federal gas tax before the states that apply additional local taxes and sales taxes.
So again, I struggle to agree that this is "Biden isn’t doing enough" narrative when this boils down to 50 other governors and legislative bodies that should be the ones addressing the needs of their constituents. And then, of course, there’s Congress that could be legislatively tackling these issues, but they’d rather blame the one person who has almost no control over the situation.
Release More Reserves
Biden has already committed to doing this, by releasing 30-million barrels, which is equivalent to 59-days worth of barrels received from previous trading with Russia. So this offsets, but doesn’t impact gas prices. But this is a short lived solution, especially when we consider that committing to this did nothing for volatility in the market.
Commit To More Production
We've been doing this for three years already, and this sort of thing cannot just happen over night. It will take time to restart oil rigs, hire people, train people, produce oil, and ship it. Not only that, but to what extent we produce more is going to depend on how much Biden wants to railroad his own environmental goals, and it’s not likely that he is willing to budge a lot on that.
Allow Winter Gasoline To Be Produced In The Summer
Wait, there’s a summer and winter blend of gasoline? Yes. But there’s a trade off to allowing winter fuel to be used during the summer. For one thing, the summer blend of fuel is more expensive, primarily because it is costlier to make. Why is summer “hotter” than the winter blend? It has to do with the environment. Gas tends to evaporate more quickly in the summer which leads to greater smog problems. So during warmer months - and entirely contingent upon state regulations and production methods - the gasoline is produced so that it is less likely to evaporate. In winter months, gasoline is produced to increased the ignition potential and lowlihood of evaporation so that your car can start easier, this happens to be cheaper to produce, but also more damaging to the environment.
The summer blend tends to be used from May to September, and the winter blend from October to April. So the idea that we ought to use the winter blend in the summer months does not impact gas prices now because we’re already using the winter blend.
This may help to keep prices down by $0.15 per gallon entering into May, however, and so could be a solution for later, but at the expense of environmental goals, keeping emissions lower, and smog related problems in your more congested urban areas.
Trade With Other Countries
Sure. That's fine. We could go to Venezuela, or Iran to replace the 500,000 barrels of oil that we were receiving from Russia, but that comes with trade offs in a political sense. Not only will this take time, but it is also already something that the Biden administration is trying to do, by rebuilding our relationship with OPEC, and Saudi Arabia. So to say that Biden can somehow do more on this is absurd.
And just to play devil’s advocate for one second, if we’re willing to damage the environment, and entertain the ideas of getting oil from Iran, rebuilding with Saudi Arabia, or creating a relationship with Nicolas Maduro (President of Venezuela), then perhaps we ought to entertain the idea that we simply don’t stop getting oil from Russia. Except that’s stupid. We should stop getting oil from Russia because they’re waging a war of aggression against a peaceful and independent country. My point here is simply to highlight that there is no simple or single or short term solution.
These are just some ideas, and as you've likely been able to tell, there are no quick solutions.
And let me say this, too, while I'm here. There's a lot of saber rattling and rhetoric about how this is all just proof that we need to be "energy independent." We're already almost there, and in fact, in 2016 the US was between 86 and 91% self-sufficient with respect to energy. 1% of that came from Russia.
We can be a 100% self-sufficient country in terms of energy, and still suffer from economic volatility due to the calamitous outcomes of other country's (and people's) poor choices.
So when Kevin McCarthy says something clearly rhetorical and propagandistic like:
Then you can kindly point out the following chart:
This chart shows the price of oil and gas traded as a commodity (left: DWCOGS, lines showing open, close, high, low, and average) and the price of gas at the pump (right: yellow filled area).1
So just as much as I disagree with Kevin McCarthy's conflicting statements aggregated into "we need to be independent, but lets demonstrate that by building the XL Keystone pipeline from Canada" [emphasis added] nonsense, I also strongly disagree with the notion that "Biden is messing things up,” not least of which because there's not much he can do and isn’t already doing (and because others can do a whole lot more), but also because it's not Biden's fault that companies are greedy, and investors are flighty every time a foreign country wages war on another.
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