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The high price of gas is on everyone’s mind. On May 10, 2006, the price of crude rose $1.19 to settle at $73.72 a barrel on the New York Mercantile Exchange. This has many people wondering how high gas prices will go and what is behind the continued rise.
The price of gas is linked to the price of oil. This cost can be determined by a ratio of 2.1 cents for every dollar a barrel of oil costs. With current refining and distribution costs and federal and state taxes, even if oil were free, gas would cost about $1.00 per gallon. Add that to the ratio calculated price of gas, which is $1.55 at the current price of oil, and you get $2.55 per gallon. This is an underestimate of the average national price of gas today, May 12, which is $2.93 per gallon.
Big business has a lot of buying power in Washington. The top ten oil companies reported spending $33,173,092 lobbying Congress and the Executive branches in 2005. Members of the Senate, Commerce and Transportation committee received the most money, $155,450. They were followed by the House Energy and Commerce Committee at $153,050. The Senate Energy and Natural Resources Committee received $139,600. The oil lobby has been buying policy in Washington for years. In 1999, the Senate voted to allow the oil industry to continue its policy of not paying royalties owed to American taxpayers for drilling on public and Native American lands. This allowed big oil companies to avoid paying $66 million in royalty payments annually.
Some consumer organizations refer to the oil companies as a cartel. Most products follow the law of supply and demand. Consumer groups accuse oil companies of reducing supply and demanding more money. Oil companies have an incentive to produce less. Only about 10% of gas retailers are independently owned and the rest are distributors for the oil companies. This allows them to easily manipulate the spot market for gasoline.
Big oil companies have shut down 25 refineries in California alone since 1983. They blame this on environmental groups and regulations. This is not the case. They don’t want to build new refineries because that would increase supply and lower the cost of gas. There are no plans to build more refineries and there will not be because of this. As an example, in April of 2005, President Bush announced a plan that would make closed military bases available for the construction of refineries. To date, not a single company has taken President Bush up on his offer.
Let’s talk about another lobby that pedals influence in Washington. The ethanol lobby has spent a lot of money. The owners of the 4 million flexible fuel trucks that could use 85% ethanol fuel (E85) know that their vehicles use 30% more fuel on E85 than gasoline, so most choose gasoline. Since 1978, the government has given many tax incentives and subsidies to promote the ethanol industry. Despite the lobbyists’ claims, ethanol has not reduced our dependence on foreign oil or helped reduce pollution. If an alternative energy source is competitive, it will not need subsidies. If it needs subsidies, it is not more affordable.
One company that learned a lesson about the power of lobbyists back in 1992 is Ethos, the manufacturer of Ethos Fuel Reformulator (Ethos FR). Mr. Enrique De Vilmorin, the president of Ethos, approached the EPA with the idea of using Ethos FR to reduce emissions. He got the cold shoulder. “We spent time chasing politicians down, but we found out they don’t spend much money. All they want is your money,” he said. He also stated that Archer Daniels Midland Co. spent more than $50 million getting bio-diesel approved for use. AMD just happens to be the largest producer of ethanol. Some researchers have even called ethanol’s value a hoax. Senator Dianne Feinstein has asked state and federal EPA’s to investigate the use of ethanol blended gasoline following the continued increase in smog in Los Angeles after the introduction of this fuel.
Tax breaks, incentives, and subsidies are not the answer to high gas prices. When the price of gas rises, industry will be motivated to research alternative fuels. Japanese cars are so fuel efficient because the price of gas in Japan has been close to $5 per gallon for a long time. Unfortunately, big business has done a lot to slow our progress toward better fuel efficiency and a solution to pollution problems.
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