Obama Doesn't Have an Answer for Rising Gas Prices

About Daniel Simmons:

Daniel Simmons is the director of state affairs at the Institute for Energy Research. Before joining IER, Simmons served as the director of the Natural Resources Task Force at the American Legislative Exchange Council. ALEC's Natural Resources Task Force promotes policy innovations through markets, property rights, and the rule of law in energy, environment, natural resources, and agricultural policy areas.

This week, most of the 590 workers at the Marcus Hook refinery in Pennsylvania received their last paycheck from a plant that has been in operation—with various upgrades—for 110 years. Amid high crude oil prices and increasingly costly regulatory requirements, Sunoco, the owner of the plant, simply chose to exit the refining business altogether.

The closure of the Marcus Hook refinery is devastating news for the surrounding community that depends a great deal on its operation. Sunoco is the largest property owner in Marcus Hook, and in contributing $900,000 in wage and property taxes each year, the company is responsible for roughly a third of the borough's budget. The closure also affects the local school district, which received more than $1.8 million in annual school taxes from the refinery's operations as well as the businesses that service its workers and visitors.

[What Obama and Ben Bernanke Should Do About Gas Prices.]

According to Sunoco, however, the accruing losses in the refinery business—about $900 million since 2009—left it little other option than to get out.

Marcus Hook isn't an isolated case, unfortunately. Two other Philadelphia-area refineries are also shuttering operations, and together these three plants represent about half the refining capacity in the Northeast. As many as 2,500 direct jobs will be lost, with more in indirect losses to follow.

The Obama administration has recently talked about the economic consequences of high oil prices, but has done little to reduce oil prices. Only 3 percent of federal lands are currently leased for oil and gas production. We could produce a lot more oil in the United States if we had access to more resources.

[Republicans Aggressively Gouging Obama Over Gas Prices.]

The effect of policies that restrict domestic oil production is significant. While the president would have you believe that opening up more areas for oil and gas drilling is just a "bumper sticker" solution, one that won't have any effect today, history shows us that markets evaluate the decisions of policy makers for indicators of what future supply might look like, and certainly do respond accordingly.

Take the following example—in 2008, when President Bush announced the lifting of the executive moratorium on drilling on the Outer Continental Shelf, the price of crude oil dropped more than $9 during the speech.

But rather than adopting a pro-energy approach that would increase domestic energy production and reduce overregulation, President Obama's answer to this problem lies in more subsidies for solar, wind, and algae. The problem is that wind and solar will reduce hardly any oil consumption—after all, only 1 percent of our electricity generation comes from petroleum. Also, the number of electric cars may increase in the future, but today very few electric cars are sold.

[How High Gas Prices Could Help Obama.]

The fact remains that the wind doesn't always blow, the sun doesn't always shine, and almost half of our electricity comes from coal—another energy source he wants to do away with.

Another problem just as large as high gas prices for refineries is the administration's crippling regulatory regime. The list goes on and on, but impending initiatives like greenhouse gas regulations, ozone regulations, and renewable fuel mandates that impose fines on refineries for not using non-existent biofuels cost billions every year and are making it harder to do business here.

So what are the consequences of refineries closing? In addition to lost jobs, it means that we could become increasingly reliant on importing gasoline, diesel, and jet fuel that's refined in foreign countries. Not only does this deprive us of the economic benefits of doing it here, where we consume almost 19 million barrels of oil every day, it is a national security problem. The most basic need of the U.S. economy is affordable, reliable energy.

The reality is that the United States is, according to the Congressional Research Service and IER's North American Energy Inventory, the most energy-rich nation on earth. We have the tools at our disposal to have a real, tangible impact on high gas prices and our energy future. However, the short-sighted decisions of policy makers and regulators are locking up resources and driving industries away.

Only when gas prices approach $4 per gallon nationwide does the administration pay attention—not when plants like Marcus Hook close or dozens of coal plants shutter—and even then its answer is more taxes on oil and gas and more subsidies for its pet technologies. Of course, the administration forget to mention that as of January 2012, federal, state, and local taxes accounted for 12 percent of the price of gasoline, and the best we've done in three years of subsidies is Solyndra and failed plug-in car models like the Chevy Volt. When will they learn?

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Tags:

Barack Obama,

Obama administration,

gas prices