President Bush has
suspended some environmental regulations on gasoline. The suggestion such a move makes is that high gas prices are caused by the costs incurred by refiners in complying with these regulations. This is not the cause of the consistently upward spike in gas prices. The cause of the trend is the obvious one; the price of crude oil has nearly tripled in the past 5 years. The reason it has tripled is that most of the worlds oil comes from increasingly unstable countries and regions and because oil analysts are worried about wells starting to run dry. President Bush and his conservative allies are merely taking advantage of the increase in gas prices by scapegoating environmentalists to further their agenda to undermine the regulations that keep our air breathable and water drinkable.
Please continue below the fold.
Following up on my diary from yesterday
"Flashback: Reagan & Carter Debate Energy," I will argue it is clearly not the case that high gas prices are caused by refining costs, try to identify what the real causes are, and how they must be addressed. Few of my points are novel, but my search of recent Kos posts suggests that it might be useful to have a diary that pulls together points that have been made disparately and concludes with a unifying agenda.
Republicans have a generational gap in their understanding of the relationship between security, sustainability and energy independence.
In general, a product comes to market in three stages. First, raw materials are extracted. Next, the raw materials are turned into consumer goods by industry. Then, the consumer goods reach market. This simple relationship can be schematized:
raw material-->industrial processing-->consumer good
Sometimes, a "bottleneck" occurs at the processing stage. That is, there are plenty of raw materials available to meet consumer demand, but there's something slowing down the processing whereby those raw materials are turned into consumer goods. The claim that many conservatives are making is that environmental regulations have caused bottlenecks at refineries that process crude oil into gasoline. This is implicit in Bush's move to weaken environmental regulations. The schema for gasoline looks like this:
crude oil-->refining-->gasoline
Here's the thing. If there is a bottleneck at the industrial processing stage--at refineries in this instance--then there will be dampened demand for the raw materials. Why? Because if there's a bottleneck then processors are using less of the raw material than they would if they were able to meet demand. However, if demand is dampened then we should expect prices to go down for the raw material. Contrarily, oil prices have shot up.
You will often hear conservatives argue that environmental regulations have prevented new refineries from opening, causing bottlenecks in the production of gasoline at the refining stage. It is true that refineries have not opened. In fact, refineries have closed over the past 20 or so years. However, the refineries that have stayed open have expanded their capacity and now run at closer to full capacity, meaning that refineries have become more efficient and that costs at the refining stage should actually have gone down. In fact, internal memos from refiners show that in the late 1990s, when several refineries were closed, refiners were concerned about excess rather than insufficient refining capacity (via RawStory)
"A senior energy analyst at the recent API convention warned that if the US petroleum industry doesn't reduce its refining capacity it will never see any substantial increase in refinery margins."
--Chevron memo
"the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)"
--Texaco memo
It is clear from the rise in the cost of crude oil and from internal memos from refiners indicating that they were more concerned about the industry overshooting demand and hence lowering their margins than about not being able to meet demand that there is no bottleneck in refining. that issue should be put to rest. There are presently some challenges that refiners have to meet, particularly in switching from MBTE to ethanol to meet clean air standards, and these are causing some volatility. However, the general long term upward trend in gasoline prices hsa more to do with concerns about the supply of crude oil.
Moreover, although the oil industry is very profitable there is nothing going on that is quite so simple as "price gouging." There may be something to suspicions of price manipulation in practices like "zone pricing" where gas stations in different regions are charged different rates for gasoline, but this is insufficient to explain the general upward trend. Again, the principle explanation for the upward trend in gas prices is the rising price of crude oil.
Most of the world's crude oil lies in countries or regions that are highly unstable and many oil analysts are concerned that world oil supply may peak within the next several decades. Furthermore, there is growing demand for crude oil from rapidly developing countries like India and China. Prices may fluctuate as regional conflicts resolve or flare up, but the long-term trend is for the cost of crude oil--and hence much of the energy that drives the American economy--to far outpace normal inflation.
America must confront the security implications of our dependence on oil. The first thing to note is that the oil market is not a free market. It is often the case that Western consortiums negotiate contracts with state run oil enterprises (eg, Azerbaijan). This means two things: (1) companies that are supposedly competitors are actually allies in these contracts, (2) the market is distorted by state monopolies.
These two points have important implications. First, If oil companies were truly competitors one would expect that they would be heavily reinvesting their profits in future technologies as a strategy to beat one another whenever oil prices spike. However, since oil companies are co-invested in many oil fields they are acting more like allies with a shared interest and maximizing their return on the existing investments easily trumps risky investments in new technologies. Thus, private investment in alternatives to oil from oil companies, despite their "greenwash" commercial campaigns, are nowhere near what one might predict using economic models of free markets. Second, the role of state run monopolies in oil markets has national security implications. For instance, the OPEC cartel manipulated world oil prices during the Yom Kippur war in 1973. Because the oil market is not a free market prices are subject to influence by non-market, political forces and again it is impossible to apply economic models. Sudden price shocks may severly effect the American economy before natural market forces make alternatives available.
For these reasons, the rising cost of oil must be confronted as a matter of national security. We can't sit back and wait for the market to work because it isn't a free market. There's no invisible hand. In fact, the hands that are on the oil market and around the necks of the American economy are there for anyone who looks to see.
Even if we opened every last inch of our nations natural and wilderness heritage to exploration, the best we could hope for is to offset the losses in domestic production due to existing wells running dry. ANWR gets all the attention, but ever since Carter there has been expanded domestic exploration and we are no better off than we were in the 70s. We simply cannot drill our way out of dependence on foreign oil. It will not work. As long as we are dependent on oil, we are dependent on foreign oil.
The only solution to this problem is the one Jimmy Carter proposed more than a quarter century ago. We need to understand that the Department of Energy is as fundamental to our national security as the Department of Defense. Understanding this, America made significant accomplishments during the Carter Presidency, such as a reduction from 20% to 3% of electricity from oil. Now, most of our oil consumption comes from automobiles not electricity.
A national security strategy for energy independence must include improvements to make our national transportation infrastructure more energy efficient, efforts toward improved efficiency and conservation, and a national scientific and technological effort comparable to the Mannhattan and Appollo Projects. No President since Carter has truly understood the national security implications of our dependence on foreign oil. Some voices in the Democratic Party have sought to continue Carter's vision, but colleagues in the party have had other priorities while Republicans have blocked progress on even the most modest steps that Democrats have pushed for like raising CAFE standards, exhibitting a fundamental, generational failure of the Republican Party and conservative movement to understand the national security implications of energy policy.
The problems we face may not come fully to bear on us for another decade or even two or three, but with oil prices and global temperatures tracking one another we cannot wait to act. For the sake of our security and prosperity, the time has come to act to put America's economy sustainable, independent footing, and to shake of the yoke of our addiction to oil. I believe that America will rise to this challenge to our security with the decisiveness, vigour, and pride. . . as long as the issue does not get buried again by poor prioritization from Democrats and exploitation of wedge issues by Republicans.
Crossposted at ifthenknots.
I'm a Dkos environmentalist.