May 1, 2008
Bush, Congress Must Hold Oil Industry, Speculators Accountable for High Gas Prices
Statement of Joan Claybrook, President, Public Citizen
With gas prices and oil industry profits reaching new, obscene highs, Americans deserve real solutions to our energy crisis, and not the partisan finger-pointing that is hallmark of this administration.
Beginning with the vice president’s discredited energy task force, the Bush administration has failed to address the root causes of today’s energy crisis: The lack of viable alternatives to car-dependent American families and inadequate regulation of Big Oil and speculators. Bush’s neglect is having a huge impact on our economy and global warming.
Oil executives and speculators are getting rich on the backs of American consumers. Indeed, on average, it costs a company such as ExxonMobil about $20 to extract a barrel of oil, which in turn is sold for more than $115 a barrel. Refiner profit margins have also been soaring at vertically integrated oil companies, which helps explain how the largest five oil companies in America have posted more than $550 billion in profits since 2001. Some of these profits are going into the pockets of the oil company CEOs, with many making more than $30 million a year and some making much more than that when stock packages are taken into consideration, according to published reports.
And speculators on Wall Street such as hedge funds and investment banks are exploiting unregulated trading markets to push prices far above what can be explained by supply and demand fundamentals.
With the current average price for a gallon of gas over $3.60 per gallon, about 70 cents per gallon is attributable to pure speculation unrelated to supply and demand, according to our estimates. A recent U.S. Senate investigation concluded that both Goldman Sachs and Morgan Stanley each earned about $1.5 billion in net revenue from energy trading in 2005. Some oil companies have been recently caught with their hands in the cookie jar, with BP paying $303 million to the federal government in October 2007 to settle allegations it manipulated propane prices. With the irresistible temptation to benefit from this huge cash flow, other manipulations most certainly are occurring in the unregulated oil and gasoline futures market.
Add to this the numerous concessions made over the years to automakers that allowed Detroit to ignore fuel efficiency while flooding the market with gas-guzzling SUVs, and it becomes crystal clear that our energy policy has been built around giving a free ride to the oil and auto industries.
There’s no greater example of this than the fact that in the past 30 years, the only increase of fuel economy standards for cars before 2008 was established when I was head of the National Highway Traffic Safety Administration during the Carter administration in 1977. That increase doubled the fuel economy in cars between 1977 and 1985. Bush’s fuel economy law, by contrast, would increase fuel economy in vehicles from 25 mpg to 35 mpg by 2020. But because under the recent legislation no single company has to achieve that goal, it is almost impossible to enforce.
If Bill Clinton had established strong new fuel economy standards in 1994 when there was momentum to do so, today we would already be saving 1 million barrels of oil per day and would have reduced our oil imports from the Middle East by 45 percent. Likewise, if Bush had passed new standards in 2002, we would already be saving 874,000 barrels of oil per day and by this year would have reduced our oil imports from the Middle East by 20 percent.
Today, the proposals offered by some politicians to enact a gas tax holiday or to withhold new oil from the country’s strategic oil reserves are shortsighted and don’t address the real issues causing higher gas prices.
We urge the president and Congress to develop a sensible, multi-pronged solution that ends the $8 billion a year in annual subsidies to Big Oil and directs that money into renewable energy, energy efficiency and mass transit; fully regulates the futures market; enacts an excess profits tax on oil companies to discourage profiteering; discontinues subsidies for ethanol, which is not a solution for global warming; and establishes a tougher fuel economy standard for vehicles than the one Congress passed last year. We also support House Speaker Nancy Pelosi’s call for the Federal Trade Commission to investigate possible manipulation of the oil market.
The one thing that won’t solve our problem is to continue the system of corporate welfare that Bush and his allies in Congress have carried out. The American people – who are finding it harder by the day to make ends meet because of soaring fuel and food prices – are the ultimate losers in this high-stakes blame game.