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President Bush Tries to Tackle High Fuel Prices

25 April 2006

Usgas
Average US retail gasoline prices, all grades, all formulations.

President Bush today announced a range of measures in an attempt to curb the current increase in fuel prices, if not reduce them.

The approach, which he outlined in remarks to the Renewable Fuels Association annual meeting in Washington, DC, consists of four main elements: promoting increased fuel efficiency; increasing supplies of oil and gasoline; investigations into possible price gouging; and investing in alternatives to oil to reduce demand. Some of these items have been in play and discussion for awhile; others (such as a proposed moratorium on reformulated gasoline) are a tactical response to the current situation.

Promoting fuel efficiency. President Bush called on Congress to make all hybrid and clean diesel vehicles sold this year eligible for federal tax credit. The current tax credits apply to only a limited number of hybrid and clean diesel vehicles for each manufacturer.

Increasing supply of oil and gasoline. Most of the President’s proposals were in this area, including:

  • Suspending deposits to the Strategic Petroleum Reserve during the summer driving period, thereby making that oil available to the market. The SPR, which has a storage capacity of 727 million barrels, currently has 687.6 million barrels in inventory, 60% of which are sour. The US consumes about 20 million barrels per day.

    The IEA requires 90 days of import protection from both private and public stocks. The current SPR has 59 days of import protection, but the US has approximately 118 days from both the SPR and private company stores.

  • Formulation_map
    Regions requiring reformulated gasoline. Source: EIA.
    Waiving local fuel requirements for reformulated gasoline. The President has directed EPA Administrator Steve Johnson to use all his authority to grant waivers, as the agency did following the fuel disruptions caused by the hurricanes last summer (earlier post), to waive fuel requirements on a temporary basis.

    Reformulated gasoline (RFG) is gasoline that is blended such that, on average, it significantly reduces Volatile Organic Compounds (VOC) and air toxics emissions relative to conventional gasolines—especially during the summer.

    Oxygenates are a key element of RFG, and it is the switchover from MTBE to ethanol as the default oxygenate in RFG that is causing some of the current supply disruption.

    Reid Vapor Pressure is one of the standards applied to RFG, and is an indicator of the propensity of the fuel to evaporate, thereby emitting Volatile Organic Compounds (VOCs) that contribute to ozone formation. RVP is measured in pounds per square inch (psi), and the lower the psi, the fewer evaporative emissions. Federal regulations require use of lower RVP gasoline in hot summer months to reduce VOCs emissions.

    After Katrina last year, the EPA issued waivers that temporarily allowed refiners, importers, distributors, carriers and retail outlets (regulated parties) to supply gasoline meeting a Reid Vapor Pressure (RVP) standard of 9.0 psi in areas of the affected states where a lower RVP is required. This opened up the opportunity for a broader supply of imported gasoline of differing qualities.

    The EPA also temporarily allow regulated parties to supply motor vehicle diesel fuel to affected states having a sulfur content greater than 500 ppm.

    The exact nature and duration of the waivers the EPA Administrator will seek are not yet defined. The President said that if Johnson didn’t have appropriate authority, the Administration would work with Congress to change that situation.

  • Reducing the number of boutique fuels. President Bush is also directing the EPA Administrator to convene a Governors’s Task Force to reduce the number of localized fuel blends.

  • Calling on Congress to streamline paperwork for refineries seeking to make modifications, and speeding up the permitting process for refinery construction and expansion.

  • Calling on Congress to authorize exploration in the Arctic National Wildlife Refuge.

All I’ve outlined here today are interim strategies—short-term and interim strategy. The truth of the matter is, the long-term strategy is to power our automobiles with something other than oil—something other than gasoline, which is derived from oil.

Fair treatment at the pump. The President is directing the Department of Justice to work with the Federal Trade Commission (FTC) and the Department of Energy (DOE) to conduct inquiries into cheating or illegal manipulation related to current gasoline prices. The FTC is already investigating whether the price of gasoline has been unfairly manipulated since last year’s hurricanes.

The FTC and Attorney General are contacting all 50 state attorneys general to offer technical assistance and to urge them to aggressively investigate illegal price manipulation within their jurisdictions.

The President also called on Congress to repeal $2 billion in tax breaks for energy companies over a 10-year period of time.

Record oil prices and large cash flows also mean that Congress has got to understand that these energy companies don’t need unnecessary tax breaks like the write-offs of certain geological and geophysical expenditures, or the use of taxpayers’ money to subsidize energy companies’ research into deep water drilling...Cash flows are up. Taxpayers don’t need to be paying for certain of these expenses on behalf of the energy companies.

Investing in alternatives to oil to reduce demand. The President used this section of his talk to plug the use of ethanol—corn and cellulosic—in particular, but had no new initiatives to offer or to call upon Congress to enact.

We’re spending—I proposed, and I’m working with these members of the Renewable Caucus—$150 million in next year’s budget for research in advanced forms of ethanol. And that’s a significant increase over previous levels. I think it makes sense. And surely the prices at the gas pump should say to the taxpayer it makes sense for this government to spend money on research and development to find alternative sources of energy.

I also support biodiesel fuel, which can substitute for regular diesel in cars, trucks, buses and farm equipment.

And so we also have got to understand that we got to research not only to find—to invest in ethanol and biodiesel, but part of a comprehensive strategy is to spend money on researching new battery technologies.

And one of the really interesting opportunities available for the American consumer will be the ability to buy a plug-in hybrid vehicle that will be able to drive up to 40 miles on electricity. Seems to make sense to me. If we're trying to get us off gasoline, with crude oil as the main—as its main feedstock, then why wouldn’t we explore ways to be able to have vehicles that use less gasoline? And one way to do so is to use electricity to power vehicles.

The President then touched again on his view of hydrogen as the long-term solution.

What I'm describing to you today is a strategy that recognizes the realities of the world in which we live. Our dependency on oil has created economic security issues for us, and national security issues for us. And therefore, this country must use our brain power and entrepreneurial spirit to diversify away from the hydrocarbon economy.

You all have known this a lot longer than most Americans. You’ve known that we’ve needed to have this strategy, and that’s why you’re on the forefront of incredible changes that are taking place in this country.

Following the President’s speech, oil and gasoline futures dropped slightly on the New York Mercantile Exchange.

Of the laundry list of initiatives, only the suspension of deposits into the SPR and the waiving of clean fuel regulations are likely to have a short-term impact on the present fuel price situation. Unlike during the post-Katrina period, the President did not call for citizens to be “better conservers” of energy by reducing non-essential travel. (Earlier post.)

Also following the address, Democrats labelled the proposals as too little, too late to reduce prices. Both parties are being driven by the national consumer desire for low gasoline prices. Neither party has called for comprehensive conservation measures in the face of supply uncertainty and rising prices—such as reducing the national highway speed limit to 55 mph, as President Nixon did in 1973 the wake of the first oil crisis.

...it’s not gouging when supply is tight and demand is increasing. In this country this year, demand went down slightly after the Katrina hurricane. It’s since recovered, and demand is going up about 1.5 percent a year.

You know, we’re not finding an additional 1.5 percent of oil reserves to convert to gasoline in this country or in any other country. So, you know, the price is a lot higher than I want it to be and Congressman Stupak wants it to be, but it’s because of supply and demand.

—Rep. Joe Barton (R, TX) on PBS’s NewsHour

April 25, 2006 in Fuel Efficiency, Fuels, Policy | Permalink | Comments (40) | TrackBack (1)

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» President Bush and gasoline prices from Econbrowser
Unlike some other pundits, I see a number of good ideas in the President's new proposals and actions announced on Tuesday. [Read More]

Comments

Clue fairy cometh!

Er, actually clue fairy came 30 years ago, but no one noticed until the clue fairy grew into a 3$/gallon gorilla.

Please feed the gorilla with a real reduction in VMT now! In the medium term, hopefully we can feed the gorilla with electrons from the first production EV.

Reducing the SPR seems to be to be a really dumb thing to do. Increasing long term risk for short term small gain. Also while the oil price is high but not catastrophic (which it isn't right now) it is a good market incentive for alternatives. I repeat, lowering the price by reducing the SPR is really stupid!

It seems that Oil prices up again and it seems that we cant do anything about it. It will definetly have a lot on impact on us again. Hope that our government can do something about it.

here is a real solution...

see link for new ethanol feedstock from algae...

it uses CO2 to grow...

http://www.usatoday.com/tech/science/2006-01-10-algae-powerplants_x.htm

http://www.veridium.com/news.php?id=29

Gee W...too bad there are so few "clean diesels" for sale here to be able to take advantage of any federal tax credit. Maybe a slight waiver on restrictive DOT and EPA regs would kick start a move in that direction.


marcus - Were you a Spad pilot?

What a crock. The Dems were arguing for a bunch of this stuff last week, to no avail.

Georgie's proposal consists of:
* tax cuts
* reduction on pollution controls
* reduction on government oversight of a part of the oil industry
* reducing tUSA's preparedness for an oil shock
* destroying the Arctic National Wildlife Reserve for another few months worth of oil

And this is a good plan. Bollocks. Here's [b]stomv[/b]'s plan:

* Tax increases. You buy a car that gets fewer than 25 mpg? Pay an extra $200 per gallon fewer than 25.
* Pollution controls stay. Tinkering with the air is off the table.
* Increase government oversight of oil industry. Why are they making record profits? Why are there so few gasoline manufacturers left? Why are they allowing so many spills?
* Keep socking oil away in the SPR. 30,000 barrels a day is small potatoes anyway.
* Leave ANWR alone -- it won't make a lick of difference in the long run anyway.

and also...

* invest more money in public transportation, particularly in cities colored green on that map, and cities nearby green areas. The goal isn't to break even with Amtrak and commuter rail -- the goal is to provide a way for folks to get from A to B without their own car or via airplane, so that we can increase American's freedom to travel, while reducing energy consumption and pollution. Subways should be expanded where appropriate (for example, Boston T's green line should be made 4 tracks wide between Park and Kenmore), and inquiries should be made about converting bus lines to subway lines in places (Silver line).
* reduce the tarriff on ethanol imported from South America.
* Reduce the speed limits on America's highways
* Remind Americans that they can reduce their gasoline consumption by 25% by merely (a) properly inflating their tires, (b) not speeding, and (c) not blasting their AC in the summer.


When fluid 16 ounces of gas costs more than 16 fluid ounces of Starbucks coffee -- or a 16 ounce bottle of water for that matter -- give me a call. Until then, this is simply not the national 'disaster' folks are making it out to be.

As always clueless people talking... The reason for the waiver is the pollution board screwed the hell up with thier oxegenate clustermuff and the refineries cant convert to ethenol fast enough to meet summer demand. Also its to streamline the number of fuels used and to make it easyer for those companies actauly bothering to expand or retrofit current refineries to actauly do so this year and not 5 years from now.

Oh and clueless.. they already have a gas guzzler tax and in fact some cars already get taxed by it. Didnt do much realy.

The ethanol issue is a short term problem. Every time we have a short term problem, Bush reaches for his favorite approach, relaxing environmental regulations. A few cents one way or another isn't going to break us, so let's quit reaching for these cheap solutions.

This admnistration has made it very clear from the beginning that it thinks conservation is for sissies, that it somehow violates the ethos of the American way of life.

Even now, it still can't really embrace the C world and tries to divert us with long term approaches to increase supply without focusing on the obvious fact that demand drives prices up and that we should do everything we can do decrease demand.

The conundrum, as always, is that a reduction in demand will decrease prices which will make the sense of urgency go away. Until we decide to make high prices a permanent and guaranteed fixture of our so called way of life, we will not give up our addiction until we have reached the bottom of the barrel, so to speak.

No they reach for that because its the only thing that will effect gas suplies this freaking year right freaking now.

There realy arnt alot of things one can do to change gas prices right NOW. The one tool that worked last time and is in fact the only tool that does work comcistently is to easy up on the rules so the refineries can belt out more fuel in the short term.

Thats it nothing else will effect ANYTHING this summer.

The tax credits will realy just allow the high gas prices to translate into even more hybrid sales wich will effect gas prices NEXT year. Trying to add a taxin wont effect this year as any tax would have to go into effect next year not this year;/

As for the environment... you do know most of the world doesnt mess around with this crap of tweaking fuels left right and center and having a zillion odd fuels... they do just fine.

"Oh and clueless.. they already have a gas guzzler tax and in fact some cars already get taxed by it. Didnt do much realy."

t, I believe what stomy is proposing (amongst many other valid arguments) is a more significant gas guzzler tax compared to the current overestimated EPA 22.5 MPG (combined)= No tax. If reality isn't changing behavior, maybe the penalty should be increased.

"As for the environment... you do know most of the world doesnt mess around with this crap of tweaking fuels left right and center and having a zillion odd fuels... they do just fine"

Please elaborate "they do just fine"?

What they say is one thing, what they do is another:

In October 2004, a House-Senate conference committee negotiated a roll back in the SUV deduction to its original amount of $25,000 as part of the larger Corporate Tax Bill. While tightening this loophole is certainly noteworthy, it is by no means the end of significant tax breaks for gas-guzzling SUVs. According to an analysis in the Detroit News, besides the $25,000 basic equipment deduction, SUVs will still qualify for "bonus depreciation," an added write off of 30 percent of the purchase price above $25,000. Beyond that, additional costs can be deducted according to regular depreciation rules, or 20 percent in the first year. For example, a business owner purchasing a Hummer H1, with a sticker price of $106,185, would be able to deduct $60,722 in the first year under the revised rules: a $25,000 equipment deduction, $24,356 in bonus depreciation, and $11,366 in regular depreciation.

Comparing the SUV incentives to Hybrid vehicle credits & The CLEAR Act
In May 2002, the IRS declared gasoline-electric hybrids eligible for tax deductions as "clean fuel" vehicles under the Energy Policy Act of 1992 (PL 103-486). The deduction ceiling began at $2,000, with the tax deduction set to end in 2006, with $500 less available each year as the deduction is phased out.

Mmm, a business owner can deduct $60k for buying a Hummer - an individual can get $2k for buying a Prius.
Talk is cheap!


More tax is not the answer. I went to school for 6 years so I could afford my toys. What makes you think I wouldn't just work an extra hour to pay the tax to keep them. I need the gas guzzler to pull the toys around. On the other hand, my wife drives a TDI that gets 47MPG on BioD. If there was a big SUV that got 30+ MPG on renewable energy I would buy it. Don't just label me evil because I have an SUV, give me some options. I will be more than happy to meet you half way.

Reality check please: gas in Europe cost ~$6/US gallon. Diesel is taxed a little less severely - a sop to farmers and the haulage industry - yet contains 12% more energy by volume, plus diesel engines have better thermodynamic efficiency. Small wonder they are popular and advanced over here.

For those of you living in any US state other than CA, NY, MA, VT or ME, there are in fact a number of modern Eurodiesel vehicles on the market, e.g. from VW and Mercedes-Benz. In the US, these make sense if you tend to drive a lot of freeway miles at speed. Ask your dealer about particulate filters, these should become available sometime after the US switches to low-sulphur diesel in October and will increase your resale value.

If you live one of the 5 states mentioned above yet drive a lot of freeway miles, choose a vehicle with low aerodynamic drag, a small engine (2.0L is plenty), variable valve train, an AT with torque converter bypass clutch and two-wheel drive. If you need cargo space, choose a station wagon or CUV over a truck-based SUV.

A gasoline hybrids may be a better choice if your average trip is short or in stop-and-go traffic (including traffic jams).

If you already own a vehicle and cannot afford to switch anytime soon, check if your AT has an economy setting in which the gear shifts happen at lower RPMs. If you own a stick shift, get into the habit of shifting at lower engine sound frequencies.

In addition, maintain your tire pressure (incl. spare), remove unneccesary items from the trunk, remove roof/bike/ski rack when not in use, coast to stop signs and traffic lights, cut ignition for stops expected to exceed 60 secs, minimize driving with a cold engine, avoid running A/C at full power or with windows open, accelerate gently and, stay within the speed limit.

Separately, consider commute alternatives incl. (electric) bicycle, carpooling and working from home at least some of the time if you have that option.

I've got an idea, why don't we just impose martial law, and force anyone with an SUV to stay home one day per week? Can't go shopping mall, cant go to the grocery store, cant go to the soccer game, cant go to the t-ball game, cant go on vacation, cant go pick up the kids from School... Any SUV's seen on the street will be impounded and crushed and recycled! :)

The majority of American families can not afford to buy new cars. These families are stuck with the choices people made when gas was $1.25/gal. Perhaps we could have a new public works project converting old SUVs into plug-in diesel hybrids for the working poor. Put those closed factories and laid off auto workers back to work.

If the government were serious about this whole notion of "energy independence" and high gas prices, they'd just put an emergency cap on gasoline consumption to about 42% of current levels - which would be about 445 gallons per household.

Simple cap-and-trade mechanism to price any credits sold by people who consume less than that. Our household consumes 292 gallons per year, and that's with early 80s cars.

Gas consumption is about fuel efficiency and miles driven. Let people decide which they want to emphasize to meet a target, and let the market decide pricing to adhere to a cap.

But that's far too rational and it rewards people for living lightly, so it will never happen.

"Reality check please: gas in Europe cost ~$6/US gallon."

A good chunk of which is taxes, in contrast to the 19% or so we pay in taxes on average.

I wish people would stop making comparisons between unlike things.

Sopt prices for Conventional Regular Gasoline as of 4/25/06:

Los Angeles 247.00
U.S. Gulf Coast 218.51
New York Harbor 212.40
Singapore 203.33
Rotterdam (ARA) 196.59

So the Dutch save over 50 cents compared to the average Californian, when looking at wholesale pricing.

http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm

President Bush should NOT award all hybrids a tax credit. Only those that significantly reduce fuel consumption should get the tax credit. Perhaps some measurement of CAFE standards should apply. Fuel economy improvements above 25% over the standard model, or, a basic measurement of say at least 35 mpg could qualify for a rebate.

Car manufacturers should not get an incentive to produce only luxury performance hybrids and hybrids that cannot evolve into super high mileage Plug-ins. GM's psuedo-hybrids which only offer the start/stop feature should not qualify for a tax credit or rebate.

The lack of the word "conservation" in his speech hurts. Hurts bad. But that word don't go well with relatively rich, 'relatively' cheap gas paying America.

"Car manufacturers should not get an incentive to produce only luxury performance hybrids..."

car based suv's

rav-4
crv
element
PT cruiser
highlander
RX 300

etc

yet these vehicles are sold as "trucks" and help the ave truck economy even though they get worse mpg than the cars they are based on.

First of all, Bush does not "award" tax credits... That is congress's job, why do people always put the president as the one person who decides what happens. I made this point before. Bush did talk about conservation, he's mentioned it multiple times:
"And so the fundamental question is, what are we going to do? What can the government do? One of the past responses by government, particularly from the party of which I am not a member, has been to have -- to propose price fixing, or increase the taxes. Those plans haven't worked in the past. I think we need to follow suit on what we have been emphasizing, particularly through the energy bill, and that is to encourage conservation, to expand domestic production, and to develop alternative sources of energy like ethanol"

If private industry and American ingenuity could come together, and Americans can realize the value of conservation, then we could solve this problem within a few short years. Look at this board as evidence that a lot of people are working on lots of different solutions right now.

Give it a rest, Skip. You're certainly not keeping things away from being partisan, so don't decry it when other do the same.

Lead by example.

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