While Newt Gingrich travels the country extolling the power of a magical plan to lower gasoline prices (perhaps revolving around unicorns towing our cars), a simple fact:
The Republican policy agenda will lead to increased gasoline prices at the pump in the short, near, mid, and long term while undermining the American economy and American security.
While there are a plethora of other elements, let’s narrow down to just four key Republican agenda items:
- Bellicosity over Iran (and elsewhere) raises short and near-term prices and threatens mid-term increases;
- Promoting Keystone XL pipeline will increase prices in the near and mid-term;
- “Drill, Baby, Drill” will have minimal impact in the mid-term while raising prices in the long-term; and,
- Opposing increased CAFE standards has helped foster today’s high prices and will increase prices in the mid and long term.
The situation with Iran is difficult and this post will not offer a magical solution to dealing with Iranian nuclear ambitions. The pressure on Iran (embargo) and the potential for military action (by Israel or the United States or some coalition) against Iranian nuclear facilities is leading to increased speculation with a ‘war fear tax’ already on global oil prices. While President Obama (and most of the world’s leaders) are emphasizing the importance of seeking a diplomatic and peaceful resolution, if possible, even while making clear a military action might become necessary, the Republican presidential candidates are far more bellicose (as per a prominent Mitt Romney OPED several weeks ago). This bellicosity is already influencing that ‘war fear tax’ with global trader concerns that a Republican President would abandon diplomacy and escalate to a ‘shock and awe’ campaign. While incredibly hard to pin down directly, some experts postulate that a strike on Iran would massively increase U.S. prices at the pump in the blink of an eye. Simply put, want $6 gasoline at the pump? Strike Iran. Now, such strikes might be necessary but no one should pretend that it will cost virtually nothing to go to war with Iraq (oops, Iran). Thus, Republican rhetoric re Iran is already contributing to market jitters over a potential war and thus increasing prices. And, living up to that rhetoric with an actual strike would have an immediate spike impact on prices which, dependent on Iranian reaction to the strike (imagine an attack on Saudi oil facilities), could drive oil prices above $250 barrel.
Counter to fact, Keystone XL pipeline is promoted by the American Petroleum Institute, US Chamber of Commerce, and the Republican Presidential Primary candidates as some form of magical solution to gasoline prices at the pump opposed by President Obama. The reality: the price of crude for U.S. Midwestern refineries is significantly lower than the global price of oil due to, in no small part, the costs of moving Canadian Tar Sands crude into refineries that serve the world market rather than the U.S. domestic market. And, this has real impact on fuel prices: “spot gasoline was 55 cents cheaper in Chicago than in New York.” According to that Bloomberg article on Keystone XL and fuel prices, “project backers including Republican Presidential candidate Rick Santorum, say [it] will create cheaper U.S. gasoline, instead risks raising prices as much as 20 cents a gallon in the Midwest, Great Plains and Rocky Mountains.” The Keystone XL pipeline is intended to resolve the pricing differential between WTI/Brent crude oil prices and provide a path for those Canadian tar sands exploiters to earn in the range of $10-$15 more for every barrel they sell by putting the oil on the world, rather than upper Midwest, market. Thus, building Keystone would actually lead to higher prices at the pump through much of the Midwest (with the potential to lower (very slightly) prices in a few areas of the United States even while driving higher average prices across the nation) in the near-to-mid-term.
The “Drill, Baby, Drill” rhetoric purposely ignores that the Obama Administration is overseeing the greatest boom in drilling activity the nation has seen since serious record-keeping began decades ago and focuses on burning up even more rapidly the nation’s fossil fuel reserves. Expanding beyond that activity could, in the mid-term term, perhaps increase U.S. production slightly (some analysis suggests in the range of 250,000 barrels/day by the 2020s — less than oil production has already increased during the Obama Administration) and thus foster lower gasoline prices, considering the world market, of perhaps 1-2 cents per gallon. However, the United States only has a few percent of world oil reserves. “Drill, Baby, Drill” is based on accelerating exploitation of America’s depletable resources which will increase dependence on other nation’s for U.S. liquid fuel demands over the longer term (as prices go up even more).
Without even considering the impact of truck and other large vehicle standards, the strengthening of the light-vehicle CAFE standards via Obama Administration working with the automobile industry is projected to reduce U.S. oil demand by 2.2 million barrels / day by 2025 (or about 40 percent of current U.S. production and in the range of ten times what might occur from a no-holds barred “Drill, Baby, Drill” regime ignoring environmental consequences). Very simply, if we believe that rather simplistic capitalistic of “supply/demand curve”, this reduction of U.S. demand (negagallons) is a direct equivalent to increased supply and should reduce overall fuel prices (and thus save money not just for those driving the higher mpg vehicles but for everyone who goes to the pump). (One analyst, for example, suggested that the Obama Administration’s plans to reduce U.S. oil imports by 1/3rd would cut oil prices globally by $10-20 a barrel.) This value stream has been, by the way, almost uniformly ignored when discussing the payoff from CAFE standard strengthening — in fact, this ‘indirect’ savings might be three (or even more) times greater than the direct savings that drivers will have due to having to buy fewer gallons of gasoline. (And that calculation, of course, doesn’t even begin to account for the externalities of America’s oil addiction from security costs to health issues to environmental impacts to …) Simply put, the opposition to strengthening CAFE standards over the years has lead to greater 2012 US oil demand, higher gasoline prices, and increased US vulnerability to global oil price and supply fluctuations. Opposing tightened CAFE standards is an argument for extending this problem indefinitely into the future.
As noted, the above are only four examples.
- Should we talk about Republican attacks on exploring the potential for low-cost and low-polluting drop-in ready fuels from biomass (such as algae) with the potential for moderating (e.g., lowering) liquid fuel prices in the mid-to-long-term if (when?) these research and development projects turn into viable commercial fuels?
- How about Republican attacks on improved rail transit, bicycling, electric vehicles, household energy efficiency programs (which would reduce demands for home heating oil), and a whole host of other paths to reduce U.S. liquid fuel requirements and, as a corollary, drive down U.S. prices at the pump over the mid-long term?
- And there are so many other viable paths to improve the economy, reduce energy costs, and reduce our energy system’s external costs (health, environmental, and otherwise) …
Examining the ‘there there’ behind Republican political rhetoric and policy priorities leads to an inescapable conclusion:
The Republican Agenda is to increase oil company profitability while increasing gasoline prices at the pump.
For just some of the myriad of ideas as to how to address America’s oil addiction and — as a corollary — foster lower total energy costs (including moderated prices at the pump), see RMI‘s Winning the Oil End Game (including, for example, a very interesting discussion of why helping lower income people have cost effective transportation (including fuel-efficient vehicles) is good for improved economic equality and reduced oil demand), GESN’s Politics and Gas Prices (written during 2008’s oil price spike and political rhetoric over that spiking), Securing America’s Future Energy (which, sigh, sadly includes the NGV delusion as part of its path forward), etc …
[This post has been slightly changed from the original. The core points are the same but some grammatical/spelling errors have been fixed and additional substance/source material has been added.]