President Bush Tries to Tackle High Fuel Prices

25 April 2006

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.

• 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