Gas price pain is good for you

By ROBERT J. SAMUELSON Washington Post Writers Group
Published May 30, 2007

WASHINGTON - It's one of those delicious moments when Washington's hypocrisy is on full and unembarrassed display. On the one hand, some of America's leading politicians condemn high gasoline prices and contend that they stem from "gouging" by oil companies. On the other, many of the same politicians warn against global warming and implore us to curb our use of fossil fuels that emit carbon dioxide, the main greenhouse gas.

Guess what: These crowd-pleasing proclamations are contradictory. Anyone fearful of global warming should cheer higher gasoline prices, because much higher prices represent precisely the sort of powerful incentive needed to push consumers toward more fuel-efficient vehicles and to persuade the auto industry to produce them in large numbers. Bravo for higher prices!

Perish the thought.

In late May, gasoline prices hit a national average of $3.22 a gallon which, after correcting for inflation, is roughly as high as in early 1981, the recent peak. This elicited the usual expressions of outrage. Sen. Charles Schumer, D-N.Y., suggested breaking up big oil companies that he says may be to blame for "the sky-high gas prices." By a 284-141 vote, the House passed the Federal Price Gouging Prevention Act, which would make it illegal during an "energy emergency" (to be declared by the president) to sell gasoline at a price that is "unconscionably excessive."

It's always fun to blame unpopular occurrences on corporate greed. Schumer's notion, for example, is that the recent wave of giant oil mergers has so concentrated U.S. refinery capacity that companies can constrict supply and create artificial scarcities by refusing to build new refineries. It's a plausible-sounding theory whose major defect is the absence of supporting evidence.

Whenever gasoline prices surge unexpectedly, Congress routinely vents its anger by ordering the Federal Trade Commission to investigate the oil industry for collusive practices. Invariably, the studies exonerate the industry.

Testifying last week before the congressional Joint Economic Committee, FTC economist Michael Salinger said that the industry's concentration levels remain "low to moderate." ConocoPhillips is the biggest U.S. refiner with 13 percent of capacity; the six largest have 61 percent of capacity. The oil industry is less concentrated than the car industry, which is intensely competitive. As for the absence of new refineries, that problem preceded the merger wave by years; the last major U.S. refinery was built in 1976. There must be other explanations (environmental restrictions, past low profitability).

Today's higher gasoline prices mostly reflect supply and demand. "Holiday travelers ignoring fuel costs, " headlined USA Today before the Memorial Day weekend. Meanwhile, gasoline supplies have tightened. More refineries than usual shut this spring for repairs. Imports also declined for many reasons: higher demand in Europe; refinery problems in Venezuela; more gasoline demand from Nigeria.

It's true that oil companies will reap eye-popping profits from high prices. Still, the logic that steep prices, imposed by the market or by taxes, will encourage energy conservation is irrefutable. At the least, high prices would curb the growth of greenhouse gases and oil imports. Congressional Democrats especially have targeted global warming. "We hold our children's future in our hands, " House Speaker Nancy Pelosi, D-Calif., said early this year. "As the most adaptable creatures on the planet, it is time for us to adapt."

Energy prices apparently are the huge exception to this moral imperative. It is not necessary to adapt to them. The way that Pelosi and others navigate around this illogic is to assume painless improvements in energy efficiency. Congress will order car companies to make more efficient vehicles. It will mandate more renewable energy. It will impose stricter efficiency standards on appliances. Presto, everything's solved. No voter must suffer any inconvenience or cost.

But if fuel prices aren't high, people won't want to buy fuel-efficient cars, which will be more expensive, smaller or both. Given expanding populations of people and cars, massive gains in efficiency are needed merely to hold total fuel use constant. All this applies equally to buildings and appliances; higher electricity prices are an essential catalyst.

Americans want to stop global warming. They want to cut oil imports. They want cheaper energy. Who will tell them that they can't have it all? Not our "leaders."