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 eorge W. Bush accuses
the Clinton-Gore administration of having no energy policy. He's wrong
to this extent: Government policies endorsed by Clinton-Gore, from taxes
to regulations to land lock-ups, are the reasons that energy prices remain
high. Al Gore's recent proposals would further increase government involvement
in oil markets at the expense of the public.
Last Friday, at Gore's insistence, President Clinton agreed to release
30 million barrels of crude oil from the government's Strategic Petroleum
Reserve (SPR) in order to provide price relief. In a ploy designed to
help Gore's election chances, the SPR oil will be released from Mid-October
to November 1. Energy Secretary Bill Richardson calls this "the right
time to do this." He's right, if the goal is to boost Gore's presidential
campaign.
While prices have dropped since Gore's request for a sale of SPR reserves
last Thursday, this does nothing to change the underlying reality. OPEC
has boosted output this year by a total of 3.2 million barrels a day in
a failed attempt to lower oil prices. The world consumes 30 million barrels
of oil every 10 hours. Tapping the SPR for this trivial amount of oil
will have only minor effects on energy prices.
Of course, Gore is not proposing that the government scrap the nearly
600 million barrel SPR and free oil markets from government intervention.
Clinton and Gore promise that for every barrel of oil removed from the
SPR, more than a barrel of oil will have to be returned later. This guarantees
that the SPR will grow, giving future administrations increased opportunities
to try to manipulate oil prices for political advantage.
Gore also wants to have an energy assistance program for "low-income families."
Clinton complied by releasing $400 million of assistance on Saturday,
as well as releasing a government-controlled home-heating oil reserve.
They can't pass up an opportunity to spend tax dollars and buy some votes,
using other people's money, in the November election. This proposal would
not decrease prices either, but merely shift the burden to taxpayers and
increase the government's role in oil markets.
The Clinton-Gore team is completely ignoring the government's role in
creating high-energy prices. Taxes on gasoline start when oil is produced
and continue through the production process, ending with stiff taxes at
the gasoline pump that average over 40 cents a gallon. These taxes, combined
with the regulatory burdens on the oil industry, penalize oil producers
and raise energy prices. It is hard to escape the conclusion that Gore
promotes these policies as part of his long-running attack on the internal
combustion engine itself.
In addition, Gore accuses the oil industry of "unfair profiteering," noting
that oil companies' profits have doubled in the past year. It's true,
profits have nearly doubled from 3.6 percent to 6.8 percent, but they
are still slightly below the industry average in the U.S. and substantially
under the profit levels in some industries.
Not that this should indicate anything troubling. If the oil industry
did have higher than normal profits, that would signal producers to increase
their exploration and development. The increased production would drive
prices and profits back down. Condemning high profits, or even worse,
taxing away profits, eliminates the incentive to increase the supply of
oil, which is needed to reduce gasoline prices.
Gore further demands that the U.S. pressure OPEC to "get serious about
the supply and the price of oil." As OPEC oil ministers have pointed out,
the U.S. government shoulders much of the blame for the lack of OPEC oil.
Trade sanctions on Iran, OPEC's second largest producer, and Libya have
severely limited foreign investment in those countries, decreasing exploration
and development and reducing their output capacity. And don't forget the
decade long trade sanctions on Iraq, a country second to only Saudi Arabia
in estimated oil reserves. While Iraq has finally been allowed to sell
oil, sanctions, along with the exorbitant 33 percent U.N. tax on Iraq's
oil exports, have prevented Iraq from obtaining the capital needed to
develop its reserves. While it would take years of investment for Iraq
to develop its oil capacity, lifting the sanctions now would help future
consumers.
OPEC produces 40 percent of the world's oil but is blamed for all of the
oil price increase. Think of the irony: The Clinton administration has
condemned reductions in OPEC output while praising reductions in U.S.
production. When OPEC reduces output, it's taken as an assault on its
trading partners. However, U.S. policies that ban exploration and production
in Alaska and offshore reduce U.S. output, increase OPEC's role in world
markets, and drive up oil prices.
Consumers should be warned that there is no quick fix to this situation.
It took years of government intervention to create these problems. We
can, however, take the right steps now. A sound policy would let OPEC
members develop their oil interests, creating competition within their
cartel and lessening their market power. The U.S. should expand its own
reserves by allowing development in areas currently banned. Finally, lifting
the tax and regulatory burdens would allow oil producers to profit from
serving consumers by increasing production and reducing prices.
That is an energy policy worth supporting.
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