GOP Energy Bills Won't Save You at the Pump

Even as Republican Congressmen applauded the passage of three energy bills they said would address skyrocketing gas prices, conservative economists told FrumForum that the legislation – even if it was signed into law – would not have much impact on gas prices within the next year.

Over the last two weeks the House has passed three pieces of legislation (known as the ‘American Energy Initiative’) that attempt to address energy policy and rising gas prices:

• H.R. 1229, the 'Putting the Gulf of Mexico Back to Work Act', expedites the process of the Dept. of Interior being required to issue Gulf drilling permits.
• H.R. 1230, the 'Restarting American Offshore Leasing Now Act', would require the administration to conduct offshore lease sales in the Gulf and near Virginia.
• H.R. 1231, the 'Reversing President Obama's Offshore Moratorium Act', would lift Obama's ban on offshore drilling and require the administration to establish a five-year offshore lease plan in productive areas with the goal of producing three million barrels of oil a day by 2027.

Freshmen members of Congress greeted the passage of these bills as job creators that would also reduce the price of gasoline. The Putting the Gulf of Mexico Back to Work Act “not only would put thousands of Americans back to work, it would increase our production of oil here at home and lower the cost of gas,” noted Rep. Paul Gosar (AZ-01) in support of the bill.

“By speeding up the drilling permitting process and increasing domestic energy production, we will… help address the concerns of rising gas prices,” said Rep. Alan Nunnelee (MS-01) after the bill’s passage.

“We need to be doing everything in our power to keep energy prices low, especially during these difficult economic times,” added Rep. Scott Desjarlais (TN-04) after the Restarting American Offshore Leasing Now Act passed.

Indeed, in their statements, first supporting the bills and then later touting its passage, many congressmen cited the rising cost of gasoline and the pressures high summer prices would have on families.

But conservative economists were not optimistic about a short run impact on gasoline prices. When asked by FrumForum whether the passage of these three bills would have any discernible impact on the price of gas in the next year, we received a resounding ‘no’ in reply.

“There's very little that the President and Congress can do to substantially lower the price of gas over the short term, because the price of gas is largely contingent on the price of oil, which is traded on a world market. Even if we increase domestic production, we do not have the ability to seriously shift the world price, and our own oil will sell at that same price,” explained Dr. Kenneth Green, a resident scholar at the American Enterprise Institute.

“In general it is very difficult to have policies to significantly increase oil production within one year,” concurred Dr. David Kreutzer, a Research Fellow in Energy Economics at the Heritage Foundation.

This does not make the ‘American Energy Initiative’ a bad series of legislation, he argued.

“If the one-year impact on price is the only measure of policy success, there will never be a policy to significantly increase oil production.  Unfortunately, this short-run focus has been a dominant factor in energy policy for the past decade and is one of the reasons we do not currently have more production from Alaskan lands and waters as well as from the Lower 48 and the outer continental shelf,” said Kreutzer.

Cato Senior Fellow Peter Van Doren had a technical analysis for the longer-term impact of the legislation. “In the long run if these actions increased total supply by 2 million barrels a day…this implies a 3.9% reduction in global crude oil prices,” said van Doren, citing estimates from academic articles. “But a price decline is going to increase demand somewhat - these are dynamic markets, remember - and once we take that into account… the price decline drops to 2.4%.  So if oil would otherwise have sold for $100 per barrel, it would now sell for $97.60 per barrel.”

The American Enterprise Institute’s Kenneth Green did have at least one suggestion that would immediately decrease the price of gasoline: cut the gasoline tax. “One thing they could do would be to declare a gas tax holiday,” said Green, which would promptly reduce the cost of gas.

However, even this has caveats. “They’d have to make up the shortfall from somewhere else to maintain transportation infrastructure. They could do that by switching to something like tolling, or VMT-fees (fees based on miles-traveled), but the money would have to come from somewhere,” said Green.

Therefore, if Congress were serious about immediate relief at the pumps, it seems as if the solution lies in calling for a gasoline tax holiday.

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