Streetsblog Capitol Hill

For the last two days, Nigeria has been on fire with national protests against the government’s move to drop the fuel subsidy that has kept gasoline cheap for years. All of a sudden, on January 1, Nigerians awoke to find that gas prices had gone from 65 naira (40 cents) to at least 141 naira (86 cents) per liter.

Think about the nationwide backlash that occurs in the United States every time gas prices rise. Now imagine that this were an impoverished country in which the average citizen subsisted on less than $2 a day. Is it any wonder Nigerians have taken to the streets? They’re now on Day Two of a general strike that’s paralyzing the nation. Two people have reportedly been killed by police violence.

Meanwhile, the Occupy movement in the United States has taken up the banner of cheaper fuel in Nigeria. Yesterday, protesters in Washington, DC rallied outside the World Bank headquarters (though the IMF, across the street, would have been a better target, since Nigerians are blaming IMF pressure for the fuel hike). Today, New York activists targeted Nigeria’s Consulate General for a noontime protest.

Transportation reformers in the U.S., even those that sympathize with the social justice issues at stake, might cringe a little at the thought of the progressive movement embracing the principle of cheap gas. Reformers generally take the view that fossil fuels should be priced far higherthan they are – that subsidies conceal the true costs, direct and indirect, of fuel use and distort our transportation network, our environment, and our economy in unhealthy ways. But it’s more complicated in Nigeria.

Nigeria is an oil-producing nation, but the profits from the 2.4 million barrels of crude the country produces each day don’t trickle down to the people. The government is notoriously corrupt, and people overwhelmingly see the fuel subsidy as the one tangible benefit they get from all the oil wealth that surrounds them – and from “all the pollution and conflict and problems the oil industry has brought to the country,” says Steve Kretzmann, executive director of Oil Change International.

Besides, Nigerians aren’t protesting fuel prices because they want to be able to drive around in single-occupancy vehicles like Americans do. Nigeria ranks 119th in vehicle ownership, with just 31 motor vehicles per 1,000 inhabitants (as of 2007). But the cost of everything has gone up, from food to medicine to school fees and yes, transportation.

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The AP is reporting that for the first time since Harry Truman was president, the U.S. is a net exporter of refined petroleum products. In fact, fuel was the country’s top export in 2011, totaling $73.4 billion.

However, “the small positive net export balance on petroleum products is still completely dwarfed by the huge negative balance on crude petroleum,” wrote James Hamilton, an oil economics expert at UC-San Diego, on his EconBrowser blog. Last year, between January and October, the U.S. spent about $280 billion on 2.7 billion barrels of oil.

The news of the surge of U.S. fuel exports just solidifies oil’s place as a major economic driver in this country — it in no way indicates that we’re becoming self-sufficient producers. The U.S. adds value through the refining process and sells it abroad (buying from abroad almost the same amount) but for the raw materials, we’re still hopelessly hooked on foreign sources.

The U.S. is producing somewhat more crude oil, mostly in North Dakota, but is still importing enormous quantities of the stuff. We’re nowhere near closing the import/export gap on crude oil.

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It’s no secret that higher gas prices are hitting American pocketbooks hard. To a remarkable extent, however, exactly how much pain Americans are experiencing is a function of where they live.

A report released today by the Natural Resources Defense Council details how geography impacts our vulnerability to gas price fluctuation.

Fuel pump pressure is most pronounced in Mississippi, where in 2010 residents spent an average $2,225 fueling up, or more than 7 percent of their income. Meanwhile, Connecticut dwellers were far better situated. Residents of this tiny Northeast state spent less than 3 percent of their income fueling up last year, or about $1,586.

The analysis found that motorists in the American Southeast fared worst, overall. South Carolina, Kentucky and Georgia registered the second, third and fourth highest-paying positions, followed by rural Idaho. Study authors attributed this to a regional orientation toward sprawl and less fuel efficient vehicles, among other factors.

Meanwhile, consumers in the Northeast suffered the least as gas prices soared. New York, Massachusetts and Rhode Island followed Connecticut as the lowest spending states, with bike-friendly Colorado occupying the fifth position.

And in the first months of 2011, regional disparities have gotten even worse, the report found. April gas prices alone meant that Mississippi residents were spending a whopping 11 percent of their income on gas.

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Lisa Margonelli, director of the New America Foundation’s Energy Productivity Initiative, hit the nail on the head on the problem with Congressional action on oil subsidies. Yesterday, she wrote in Politico that ending Exxon’s unjustifiable tax breaks would be nice, but there are far more egregious examples of U.S. government handouts to big oil:

Oh well, never mind that. Oil drilling permits for everybody! Photo: Steadfast TV via National Geographic

Really, a bigger problem is that the U.S. taxpayer simply doesn’t charge the oil companies enough for the oil that we own. A 2008 GAO report found that the US government “take” from oil sales in the Gulf of Mexico ranked 93rd out of 104 countries that sell their oil. THAT subsidy to the oil industry is huge, much larger than the $2.1 billion that is the subject of today’s Congressional theater.

The really problematic U.S. oil subsidies are not even on the table. Here we’re discussing a relatively small $2.1 billion in subsidies, when today American drivers will spend $1.5 billion on gasoline alone. Why? Because even more than we’ve subsidized oil production, we’ve subsidized oil demand. We encourage oil consumption, and even throw money at it through everything from paying for highways without charging for their use, to giving tax write offs for parking spaces and fuel consumption, to selling auto insurance in a “one-size-fits-all” price regardless of whether you drive 3000 miles or 25,000 miles per year, to prohibiting private mass transit systems like jitneys from competing in many cities.

And then there’s the massive amount of money we spend on maintaining military hegemony in the oil producing and shipping hot points around the world without adding that fee to the price of gasoline. These are the subsidies we really need to address and Congress should drop the charade and get to work.

When you add that all up, gas is a whole lot more expensive than even today’s prices would suggest. The late Milton Copulos, president of the National Defense Council Foundation, estimated that if you add in “things like the cost of defending the flow of oil in the Persian Gulf, the loss of domestic jobs and investment, the uncertainties that enter the economy and the costs related with oil supply disruptions,” gas would cost $11.06 a gallon. And that was in 2006.

We pay for those things out of our income taxes (and our grandkids are paying for them through our massive debt load). And to think drivers say that they pay the full cost of the infrastructure that supports their driving habit. We’re all paying for it.

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Gas prices are up to $3.23 a gallon this week, according to AAA. But before drivers complain about “pain at the pump,” they should compare U.S. gas prices to those in the rest of the developed world. A liter of gas costs about 80 cents. A liter of Fiji bottled water costs about $4.00.

According to Ryan Avent at the Economist, the low prices are “almost entirely due to the rock bottom level” of gas tax rates in the U.S. Avent goes on:

The low cost of petrol encourages greater dependence; the average American uses much more oil per day than other rich world citizens. This dependence also impacts infrastructure investment choices, leading to substantially more spending on highways than transit alternatives. And this, in turn, reduces the ability of American households to substitute away from driving when oil prices rise.

The gas tax brings in far less than it did back in 1993, the last time it was raised, because of greater fuel economy in cars. And it’s a set price and not indexed to gas prices (which are three times higher than they were in 1993.)

Avent concludes, “It’s hard to take any fiscal hawk seriously so long as this measure isn’t on the table. It’s as close to a win-win solution as one is likely to find.”

The idea may be finally gaining traction. Everyone from the deficit commission to some U.S. Senators are warming to the notion that a gas tax hike is the best way to pay for the ambitious transportation agenda that President Obama laid out and finally address some of the country’s backlogged infrastructure needs. According to our back-of-the-envelope calculation, we estimate that we could raise $556 billion over six years by roughly doubling the federal gas tax (bringing it up to 39.3 cents a gallon for regular gas; 52.2 cents for diesel). And it would still be puny compared to other developed nations.

Business Insider magazine has an editorial today called, “It’s Time For a Gas Tax.” Tom Friedman proposed a one-dollar gas tax hike in the New York Times this week. Indeed, you could add a dollar to our gas tax and gas would still be a bargain compared to some countries. But it could be just enough to encourage more sensible transportation options.

You may have heard last week that a former Shell executive predicted that gas prices would reach five dollars a gallon by the end of next year. John Hofmeister is now the head of Citizens for Affordable Energy, which advocates for increased coal, gas, and oil production in the U.S. He’s also the author of a book called “Why We Hate the Oil Companies: Straight Talk from an Energy Insider.”

Hofmeister told Platts in an interview last week, “If we stay on our current course, within a decade we’re into energy shortages in this country big time.” He’s predicting “blackouts, brownouts, gas lines, rationing” and says it’s the result of politically-driven decisions to “fritter at the edges” of renewable energy.

Conservatives are going after Obama for rising oil prices (more on this soon), blaming him for canceling Bush-approved oil leases and slowing production after the Gulf oil spill. Hofmeister warns that with the economy recovering, demand is going back up worldwide, especially in Asia.

Although the news media has gone wild over Hofmeister’s predictions, no economist is willing to get behind them. Even John Kingston, the news director of Platts – where Hofmeister first made his prediction – has refuted his numbers.

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The Obama administration's proposal to raise auto fuel-efficiency (CAFE) standards to 35.5 miles per gallon by 2016 could have gone even further in order to reap the maximum environmental and economic benefits of cleaner cars, according to a new analysis [PDF] released today by the Consumer Federation of America.

In his analysis, Consumer Federation research director Mark Cooper used data from federal regulators to compare the pollution and cost savings achieved by the Obama CAFE plan -- which would yield an actual average standard of 34.1 mpg if automakers take advantage of available "credits" -- to a hypothetical standard of 38.1 mpg by 2016.

Cooper found that a 38.1 mpg standard would achieve a net societal benefit of $50 billion, including considerable gas savings for drivers and reductions in pollution (visible in the below chart). Setting that higher standard, Cooper added, would pay for itself within four years and yield a 9 percent return on buyers' investment as the higher cost of more efficient cars was offset by fuel savings.

Cooper wrote in the Consumer Federation report:

The proposed [Obama CAFE] rule delivers far smaller benefits than could be achieved, if the [auto] industry were not holding the agencies back. ... Read more...

As national policymakers hunt for a sustainable way to raise more money for a more efficient, less polluting transportation system, raising the federal gas tax is often at the top of their list -- after all, the tax has remained stagnant since 1993, despite signs that its usefulness is eroding as American drivers choose more fuel-efficient cars.

But political will, not fuel efficiency, is proving the most powerful deterrent to a gas tax hike. Members of Congress freely admit they lack the votes to pass one, the Obama administration has already ruled one out, and many state officials are equally resistant to asking voters to pay up-to-date prices for using local roads.

In Maryland, for example, local officials are acknowledging that transportation projects will stall without the extra money generated by raising the state gas tax, which has remained at 23.5 cents per gallon since 1992. From the front page of today's Washington Examiner:

Maryland is long overdue for an increase in the gas tax to help build new roads and ease congestion, Montgomery County Council President Phil Andrews said Monday. ...

Andrews' comments echo the sentiments of many elected officials in the District's suburbs, who said their constituents would be happy to pay an extra nickel or dime per gallon of gasoline if it meant spending less time sitting in some of the country's worst traffic.

The Examiner reports that the leaders of the Maryland and Virginia state Senates are on board for higher state gas taxes. But both states' governors are decidedly uninterested.

New Virginia Gov.-elect Bob McDonnell (R) credited his infrastructure policy with helping lead him to victory. As he summed it up in a weekend interview with CNN: "New money for transportation, while protecting education funding and not raising taxes."

And Maryland Gov. Martin O'Malley (D), who is up for re-election next fall, sounded a similar note in the Examiner:

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To hear American Trucking Association (ATA) vice chairman Barbara Windsor tell the Senate environment panel today, truckers would face a grim economic future if the price of diesel fuel rises, as the ATA predicts would happen if Congress passes climate change legislation.

"If we have to add costs for diesel, I think we'd have a decline in jobs," Windsor told Sen. Jim Inhofe (R-OK), the senior Republican on the environment committee.

But for the ATA, more expensive diesel fuel isn't always a bad thing -- only when it results from putting a price on carbon.

The truckers' group supports increasing the federal diesel fuel tax, which has remained static for 16 years at 24 cents per gallon, but only "so long as the revenue is not diverted to other causes," as ATA's chairman explained this month.

So the ATA is in favor of putting a price on high-emissions diesel fuel, but only when the resulting revenue is used to advance transportation policies that meet with the trucking industry's approval. What makes the truckers different, then, from any other D.C. interest group that lobbies tooth and nail for its own bottom line?

For one, the ATA-endorsed claim that the climate bill amounts to a "$3.6 trillion gas tax" uses inflated estimates that differ markedly from those used by the independent Congressional Budget Office (CBO) and the Environmental Protection Agency (EPA).

Both the CBO and EPA have found that acting on climate change would lead to fuel price increases of around 25 cents per gallon by 2030. Meanwhile, diesel prices rose by 56 cents per gallon over a span of just three months this spring, a phenomenon the ATA chalked up to oil speculators. (The ATA has yet to endorse Rep. Pete DeFazio's [D-OR] proposal to tax oil speculators to pay for infrastructure improvements.)

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Seven months after first trying to re-brand congressional climate change legislation as an "energy tax," Senate Republicans were back at it today with a new report and op-ed that attempts to expose the climate bill as a "$3.6 trillion gas tax."

Sens. Kay Bailey Hutchison (R-TX) and Kit Bond (R-MO) gathered outside the Capitol today, flanked by aides wearing black stickers imprinted with the slogan "CAP & TRADE = GAS TAX," to promote a new report [PDF] that presents their "gas tax" assertions.

How did Hutchison and Bond get to their $3.6 trillion total, which their report calls "relatively simple and straightforward to calculate"? They simply multiplied their estimate of how much fuel the U.S. would consume between now and 2050 by their estimate of the per-gallon gas price increase that would result from an economy-wide emissions cap.

Hutchison and Bond got their numbers from the National Black Chamber of Commerce (NBCC), a business group that released projections on the cost of the House climate legislation at around the same time it joined the official astro-turf lobbying campaign against the bill. The NBCC's analysis, produced by consulting firm CRA International, is one of many competing cost estimates for the climate bill, each of them relying on different assumptions and models that claim to predict the future price of carbon under the pending legislation.

In fact, the NBCC analysis states (in Appendix C) that it has assumed higher CO2 allowance prices than the Environmental Protection Agency (EPA) analysis of the same House climate bill, thus resulting in higher estimates for the plan's impact on real-world carbon prices.

What does the EPA say about the House climate bill's likely effect on fuel prices? Its analysis found a 25-cent per-gallon increase by 2030, or less than three pennies per gallon per year -- small potatoes compared to the oil price swings of recent years, as the Pew Center on Global Climate Change pointed out.

Center for American Progress senior fellow Joe Romm has delved further into the claim, promoted by the oil industry, that a cap on carbon emissions would increase gas prices. Using the non-partisan Congressional Budget Office's estimate of allowance prices, Romm found a per-gallon gas price increase similar to the EPA's.

Still, it's unlikely that Hutchison and Bond would be fazed by economic models that discredit their case. Although they told reporters at today's event that they support cutting carbon emissions, the first page of their report makes clear that they dislike the very idea of more moderate energy consumption:

Advocates of climate change legislation want to increase the price of traditional forms of carbon-based energy, such as coal and oil, so that consumers are forced to respond by using less of those forms of energy. Policy-makers call this putting a price on carbon. Economists call this sending a price signal. The bottom line is that the price of energy will go up.

More expensive energy from climate legislation can be seen as a new national energy tax on American consumers and workers.

Late Update: Senate Foreign Relations Committee Chairman John Kerry (D-MA), the lead sponsor of the upper chamber's climate bill, came out swinging in response to Hutchison and Bond's report.

"Let’s actually have a debate based on reality,” he said in a statement that accompanied a rebuttal from his office. Check it out after the jump.

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