Congress should hold itself accountable for gas prices

June 12, 2007|By James M. Taylor

The U.S. House last week approved legislation that would make it a federal crime, complete with prison sentences of up to 10 years, for anybody to sell gasoline at prices that are "unconscionably excessive" or that take "unfair advantage" of consumers in an energy emergency. But if causing fuel to be sold at unnecessarily high prices were a crime, Congress would have no alternative but to throw itself in jail.

The legislation is remarkable in that it fails to acknowledge government responsibility for much of the problem of spiking gasoline prices. While gasoline consumption is growing by more than 2 percent a year, U.S. refinery production is growing by only 0.5 percent a year. This is creating a bottleneck in U.S. supply that is largely responsible for recent price increases. This bottleneck, ironically, was caused by government interference in the marketplace.

Last year, U.S. oil companies announced plans to expand refineries to add capacity of 1.6 million to 1.8 million barrels per day. Those plans were drastically scaled back, however, after President Bush, in his January State of the Union address, called for a major increase in biofuel production. Mr. Bush is seeking to induce, and Congress is seeking to require, an increase in annual biofuel production from about 6 billion gallons today to 35 billion gallons by 2017.

With Washington politicians fighting each other to see who can require the greatest increase in biofuel production, it makes no sense for anybody to invest in the expansion of oil refineries. After all, why invest money to produce something the government is doing its best to replace? Investing in additional refinery capacity has suddenly become very risky.

In the meantime, gasoline demand continues to grow, biofuels are nowhere near being ready to meet growing demand, and government has just imposed an 800-pound gorilla of a disincentive to expand refinery capacity. The predictable end result has been sharply rising gas prices.

Still more disturbing is the spike in prices that will occur if and when government succeeds in imposing massive increases in biofuel production on American consumers. Even with a 51-cent-per-gallon federal subsidy (which we all pay for, of course), a gallon of ethanol typically sells for slightly more than a gallon of gasoline. But ethanol is a less-efficient fuel source than gasoline, providing only 70 percent of the miles per gallon that gasoline provides. This makes ethanol substantially more expensive than gasoline.

Ethanol prices, moreover, will rise sharply under a government-induced increase in ethanol production. Corn prices have doubled since last year, largely because of rising ethanol demand. This is pushing up prices of ethanol and food. According to a new study by Iowa State University, growing ethanol production caused a $14 billion rise in food prices last year.

The fivefold rise in biofuel production envisioned by Congress and President Bush will lead to still bigger increases in food and fuel prices. All of this is justified as a response to gasoline prices that have yet to approach the price of ethanol.

This brings us back to the question of who is really forcing American consumers to pay "unconscionably excessive" fuel prices. If Congress wants to threaten prison time for those responsible, it should at least have the decency to make itself subject to the same laws and penalties.

James M. Taylor is a senior fellow for environment policy at the Heartland Institute, a free-market think tank that has received some funding from the oil and gas industry. His e-mail is taylor@heartland.org.

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