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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Cheaper Gas for your SUV, Wade through the Politics

Gas will play a significant role in the November election in the United States, and though there has been a recent gain in biofuels that could lead to some progress at the pump very soon, most economists predict that prices will remain high throughout the summer.

The average US consumer will be guided by a bombardment of gas-related campaign advertisements, which flaunt a number of misnomers on both sides.

The consumer/voter might also consider that spending on gas represents only a small percentage of consumer spending: In January, for instance, it was approximately 3.8 percent.  So why such a disproportionate significance attached to gas prices, which for some reason seem to be the Holy Grail of voter politics in the US?

Perhaps it is the seamlessness of campaign advertising that distracts the consumer/voter from fact-checking and longer-term thinking.

The Fuel Divide

A cornerstone of the Obama campaign is the effort to push wind, solar power and biofuels to head off an energy crisis and reduce US dependence on foreign fuel imports.

This is a revision of Jimmy’s Carters campaign in the 1980s, which also focused on developing synthetic fuels to stave off an oil crisis. This was also the famous debut of corn-ethanol-mixed gasoline.

A cornerstone of the Republican campaign is that gas prices are high and domestic oil drilling could drive prices down significantly while at the same time reducing independence on foreign imports. Newt Gingrich, former speaker of the house, is one increasingly vocal advocate of more oil drilling, which he says could reduce gasoline prices to $2.50 per gallon - something he claims is possible due to “human ingenuity, and modern technology”.

The divide was most clearly illustrated in the last half of March with the attempted passage of the Obama Administration’s Repeal Big Oil Subsidies Act, which failed in the Senate. The bill would have repealed $24 million in subsidies to the five oil giants and reinvested that money in alternative fuel, including biofuels, natural gas and propane (but also, and importantly, alternative fuel infrastructure).

On the Democrat side, Senator Bob Menendez shot back at oil giant rhetoric to the effect that their tax incentives are a matter of national security.

“It’s an opportunity to change the energy paradigm,” Menendez said on 30 March. “We would’ve taken the $24 billion in tax breaks that we give the big five oil companies, who don’t need it. … and taken half of that and put it into renewable energy sources – biofuels, biodiesel, plug-in electric cars – and the other half into deficit reduction.”

Republican Senator Mitch McConnell quipped that the Democrats were not afraid to vote to end tax incentives for the oil giants because they knew it would fail anyway. Menendez responded by suggesting that McConnell opposed the cuts because he was one of the biggest recipients of oil contributions in the US Senate … and so on.

The campaign advertisements have been of similar fare and are being run by the requisite interest groups on either side.

Obama’s alternative fuels advertisements are being funded to the tune of six figures by the League of Conservation Voters, for instance.

Republican allies in the American Energy Alliance are putting out ads that focus on increased gas prices, saying that gas prices have nearly doubled since Obama took office, that he has blocked new oil drilling in Alaska, and that his biofuels subsidies have caused producers to go bankrupt.

There are plenty of clever misrepresentations of truths in these abridged campaigns. On the Democrat side, it is potentially irrelevant to start throwing figures around that attempt to awe consumer/voters with the huge profits of the nation’s “big five” oil companies. They are big. Their profits are big.

There is also a bit of a red herring to be found in the Repeal Big Oil Subsidies Act: This is not about profit, it’s about economic efficiency, but the average consumer is more likely to respond to the fact that the top three oil companies made a combined profit of $80 billion last year, according to Obama. The second red herring here is that the “repeal” was really not significant when considering total tax breaks enjoyed by the “big five” oilers, which some estimate to be closer to the $1 trillion mark.

The Republican misrepresentations were just as glaring, if not rather less subtle. First of all there is the Alaska oil drilling scenario, which a Republican-inspired advertisement attempts to use while omitting some important facts. The campaign rhetoric holds that the Obama Administration refused new oil drilling in Alaska. The truth is nearly the opposite: The Administration approved extensive new drilling off the coast of Alaska, but rendered one area, off Bristol Bay, off limits.

Another Republican trick has been a very loose application of mathematics in terms of comparative gas prices. Comparing gas prices over the years requires figuring in inflation adjustments. Yesterday’s dollars aren’t today’s dollars. As the Washington Post notes: “A rate of $1.38 per gallon in 1981 sounds amazing until it’s converted to $3.35 in today’s dollars — better than the current price, but still much higher than when Obama took office.”

Though this is a lot to ask of consumers whose concerns are generally immediate or at best near-term, it is important to get past the politics for a better understanding of what is really at stake in the oil-vs-biofuels battle: the future of US energy security, not just filling up the SUV.

By Charles Kennedy


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