Americans don’t want the real answer to dealing with higher gas prices

ADVERTISEMENT

Americans don’t want to hear the real answer to dealing with higher gas prices

Gas prices are one of the biggest political liabilities for the White House this fall. Overseeing a multifront economic war with Russia, one of the world’s largest oil and gas producers, has created an extreme crunch on the global oil market. Simultaneously, the Biden administration has made dramatic pledges to bring down greenhouse gas emissions to combat climate change.


Hear more from Matthew Zeitlin about this story:


To say these goals are in tension is an understatement. The White House has ended up in the position of one day banning Russian oil imports, choking off a small but meaningful amount of supply from the domestic oil market, while the next day pleading with oil companies to produce more, all the while pursuing a last-ditch effort to massively subsidize clean energy through the don’t-call-it-Build-Back-Better bill.

It’s unclear if the current mix of policies, along with state efforts to directly subsidize or de-tax gasoline purchases, will work to bring supply and demand into balance.

Patrick De Haan, head of petroleum analysis at GasBuddy, a gas price tracking service, told Grid that while it’s “not a popular opinion,” he said, “the only way to fight a drop in supply with long-term price relief is Americans modifying their behavior.”

ADVERTISEMENT

There are things the administration can do around the margins — many of which the White House has already tried. It pressured oil and gas companies to produce more while holding off on price hikes. It also released oil from the nation’s strategic petroleum reserve (SPR) — a literal series of caverns off the Gulf of Mexico full of oil.

And it seems to have worked — at least in the short term. Gas prices are still above $4 per gallon, according to the Energy Information Administration, but they have fallen slightly from their peak just after the Russian invasion of Ukraine in late February. Still, prices are up more than 75 cents per gallon this year, and 56 cents since the invasion.

Experts say it was the strategic oil reserve release — not just the fact of it but the way the administration did it, committing to releasing reserves over the course of six months — that has worked to lower prices in the short term. But it’s only a temporary fix.

“There’s not been a whole lot of policy that looks at real long-term ways to reduce prices,” De Haan said.

“If we don’t resolve this supply issue and change the supply-side dynamic, we’re going to get back to square one here, which is a really tight market,” said Skanda Amarnath, executive director of Employ America, an economic policy advocacy group that focuses on full employment. “$150 to $200 per barrel is not implausible.”

ADVERTISEMENT

The only real way to deal with falling supply in the short term is to create falling demand

The Biden administration appears to be pursuing a policy that’s more optimistic about the ability to affect the supply of oil and more pessimistic about American drivers’ desire to reduce their consumption of gasoline.

“For many Americans, it’s almost anti-American to ask people to conserve. We have no control over how much is being supplied to the global market; we do have control over how much we consume; we need to use the tools at our disposal,” De Haan said.

When the Biden administration released its goals for lower emissions by 2030, it included a number of policies aimed at the transportation sector, which accounts for almost 30 percent of the U.S.’s total greenhouse gas emissions. They included investments in electric vehicle infrastructure like charging stations as well as “investment in a wider array of transportation infrastructure, including transit, rail, and biking improvements.”

In short, the goal is to decrease gasoline consumption by providing alternative options to internal combustion cars, so that lifestyles are not hampered or altered in the short term.

But today, there’s both the pressing problem of gas prices shooting up and a political dilemma: High gas prices bring down presidential approval, and the Democrats, for better or worse, reoriented much of their thinking on economic, domestic and foreign policy around climate while Republicans tend to be critical of international agreements to restrain emissions and far more friendly to the oil and gas industry.

This puts the Biden administration in a tricky position of having to act to bring down gas prices in the short term, trying to thread the needle between higher emissions now in order to head off Republican electoral victories in the future — all the while being restrained in what they can actually do to bring demand and supply into balance.

In his own driving, De Haan said, he had tried going 55 miles per hour on interstate highways as opposed to 70 or 75, letting him get over 400 miles out of a tank of gas as opposed to around 300, while his miles per gallon went from 26 to 34.

“The answer is not to release oil to appease America’s appetite for it and bring prices down, but to let Americans to feel the sting of high energy prices to consume less,” De Haan said.

The Biden administration is unlikely to implement a lower speed limit — bringing it down to 55 would likely prompt unwelcome comparisons to a 1970s policy enacted to conserve energy in the wake of the Arab oil embargo that became a symbol of Carter-era malaise (even if the law was changed under Gerald Ford).

While everyone could choose to, say, drive slower or take fewer long car trips, there’s some amount of gasoline consumption that’s baked in — many people have to commute and can’t just go out and buy an electric car.


ADVERTISEMENT

“We need to have some production or supply-side solution here,” said Amarnath. “There’s no ability to flip the electric vehicle switch; the technology and infrastructure has not fully matured yet. We have to work on the here and now.”

Employ America’s plan combines releases from the reserve, government financing for new oil drilling, and use of the Defense Production Act to secure key materials used in both oil drilling and alternative energy production, along with a commitment to refill the SPR at a later date.

“The current challenge is that supply has been intentionally suppressed post 2020 crash, and demand has recovered. We need a rebalancing,” Amarnath said.

States are toying with gas tax holidays and other consumer support

While the Biden administration has announced some aspects of the Employ America plan, including using the Defense Production Act to support miners of minerals used in electric vehicles, state officials are considering a far more short-term solution: lifting gasoline taxes.

Maryland, Georgia and Connecticut have dropped taxes, leading to at least short-term declines in prices, which is consistent with academic research on the topic finding a high rate of “pass thru” from taxes to consumer prices — in short, that gas tax holidays actually result in lower prices at the pump for consumers as opposed to just plumping up profits for oil companies, refiners and gas stations.

ADVERTISEMENT

But experts are skeptical that these measures will actually work to bring down gasoline consumption or spending in the longer term. For one, they can encourage more driving, especially as the weather warms up. “If you have low prices in the summer, you have a lot more options,” De Haan said, referring to the summer driving months. Also, in states (like Maryland) that are close to other states, a gas tax holiday can encourage drivers to go out of their way — and burn more fuel — in pursuit of lower gas prices.

“I think [gas tax holidays are] really unhelpful,” Amarnath said. “Subsidizing more gasoline consumption is not a great idea.”

“If we just cut taxes and that leads to more demand,” he continued, “prices will adjust, and we still have the underlying supply challenge that exists.”

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.