NCPA - National Center for Policy Analysis


June 8, 2006

Why are gasoline prices so high? The primary reason is simple: demand for oil and gasoline is high, and the available supply is limited, says Kenneth P. Green, a visiting fellow at the American Enterprise Institute and a National Center for Policy Analysis E-Team adjunct scholar.

There are a number of steps Congress and the administration could take to relieve short- and long-term pressure on oil and gasoline prices:

  • Opening the Arctic National Wildlife Refuge (ANWR) for exploration and eventual oil production would not lower gasoline prices in the short-term but over time would increase supplies to the world market, thus providing a buffer against price fluctuations.
  • Modern technology allows environmentally conscientious offshore oil and gas exploration and production. Congress and the president should end their separate moratoria that preclude exploration in coastal areas.
  • Removing all reformulated gasoline requirements could eventually lower the cost of gasoline as well as smooth regional spikes in gasoline prices. Due to improving technology, air pollution levels will continue to decline, independent of reformulated gasoline requirements.
  • Congress should eliminate the requirements in the Energy Policy Act of 2005 for increased ethanol use. It should also end tariffs on ethanol imports. This would help regions which continue to use ethanol-blended gasoline to acquire it at the lowest cost.

Instead of wasting time and causing speculative distortions in the market for gasoline with talk of addiction, attacking Iran, windfall profit taxes, price gouging, executive compensation, alternative fuels and so forth, Congress and the administration should focus on removing impediments to supply and production, and ending actions that raise the cost of energy, says Green.

Source: Kenneth P. Green, "Bringing Down Gasoline and Oil Prices," National Center for Policy Analysis, Brief Analysis No. 557, June 8, 2006.

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