Wanted: A villain to blame for high price of gasoline
Politicians are so eager to find a politically convenient villain for high gas prices that they’ve neglected to propose a solution that might actually lower gas prices.
Voters are mad, and politicians want someone to blame. Ideally, the blameworthy would be someone who can cast these politicians’ own party as the hero.
For Republicans, the villain of choice is President Joe Biden’s supposed “war on fossil fuels.” Biden’s climate policies have had precious little to do with recent trends in energy prices, however. In fact, much to the chagrin of climate hawks, Biden hasn’t done much on climate.
Canceling the cross-border permit for the Keystone XL pipeline, for instance, has had no effect on oil supply. More than a dozen years into development, the pipeline was still only 8% built when Biden took office. Even if he hadn’t done anything, the pipeline still wouldn’t exist today.
Most of the other climate measures Biden has proposed are carrots (making green energy more attractive) rather than sticks (making fossil fuels more costly).
Aside from Russian President Vladimir Putin, Democrats’ preferred villain is “corporate greed” or “profiteering.” This explanation polls well, but it does little to explain why gas prices are up so much — or what could help to bring them down.
Corporations didn’t suddenly remember that they’re supposed to be greedy. And “profiteering” has little meaning other than “prices are higher than politicians want them to be.”
Because politicians have bought into irrelevant (but politically useful) explanations for the problem of high gas prices, they have also begun offering irrelevant (and, in some cases, actively harmful) remedies for it.
These solutions include yelling at oil executives in congressional hearings. Or “reopening” that oil pipeline that doesn’t yet exist. Or launching yet another in a long tradition of fruitless federal investigations into whether high gas prices are due to “illegal conduct.” At least one Democratic lawmaker even demanded to know why the IRS hasn’t done more to fight high gas prices.
These responses are unlikely to affect prices one way or the other. Far worse are proposals such as a “windfall-profits tax” on oil. This might sound good if you believe “profiteering” is the problem. But the last time Congress tried a similar policy, it reduced oil production. Which could well drive gas prices higher.
So what should politicians do? Options are limited. But they could start by learning what’s behind much of the recent price increases. Basically, demand for energy is really strong, and supply hasn’t ramped up yet to meet it.
This summary is probably somewhat unsatisfying. We want to know why supply hasn’t ramped up, even in the face of prices that would normally encourage a lot more investment. The explanation is complicated.
OPEC countries have deliberately kept their production low. U.S. producers have added oil rigs in recent months, but it takes a while for them to produce commercially available oil.
These U.S. energy companies have been expanding a little more slowly than in previous cycles when oil prices were also high, due to worker shortages and other supply-chain issues. More important, shareholders and lenders are cautious about financing more production. Lots of people lost their shirts when prices plummeted in 2020. They’re nervous that something similar could happen again.
The government could guarantee some minimum amount of demand for oil or otherwise set a price floor. But capping the downside risk for energy companies would be politically toxic. So instead politicians are demagoguing “solutions” aimed at vanquishing villains that don’t exist. They may well make the problem worse.