Below is a summary of the full testimony (PDF here) from CAPAF’s Daniel J. Weiss to the House Committee on Natural Resources.
High oil and gasoline prices exact a real economic toll on American families, as well as on travel-related businesses. They make everything more expensive, including driving and air travel. Families may take shorter trips to offset higher fuel prices.
Fortunately, we are better able to withstand oil and gasoline price spikes. U.S. gasoline demand is the second lowest since 1997, due to the vehicle fuel economy standards adopted by President Barack Obama in 2009.
We are also producing more of our own oil. The United States imported only 45 percent of our oil in 2011, down from 57 percent in 2008. And the Energy Information Administration determined that in 2011 the United States produced more oil from its federal lands and offshore waters than each of the last three years of the previous administration.
But we still rely too much on a fuel whose price is set on a global market controlled by the Organization of Petroleum Exporting Countries, a cartel. We remain vulnerable to volatile prices or international events beyond our control. And the price of oil is responsible for nearly three-quarters of the price of gasoline.
More domestic drilling has economic benefits but it will not lower gasoline prices. An Associated Press analysis of three decades of production and price data determined that there is “no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.”
But we do know that high prices yield high profits for big oil companies. A Center for American Progress analysis found that the big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—make $200 million in profits for every penny increase in gas prices. In 2011 these five companies made a combined record profit of $137 billion, and more than $1 trillion in profits in the last decade.
Yet Big Oil is producing less. In 2011 the big five companies produced 6 percent less oil worldwide than in 2010. But these and other Big Oil companies receive $40 billion in unnecessary tax breaks, one of which originated in 1916. Ending the tax breaks could provide revenue for programs that reduce oil use. The Electric Drive Vehicle Deployment Act, H.R. 1685, sponsored by Reps. Judy Biggert (R-IL) and Ed Markey (D-MA), would create incentives for communities to deploy electric vehicles.
Instead, Rep. Paul Ryan’s (R-WI) budget keeps these tax breaks while cutting programs that reduce oil dependence. For instance, it would slash investments in transportation by more than one-third, including public transit. Less transit would increase demand for gasoline and drive up its price.
The travel industry has legitimate concerns about high gas prices. The expansion of drilling into previously protected federal lands and offshore waters, however, could be a cure that worsens the disease.
Also, coastal tourism and recreation are vulnerable to oil disasters and spills. Expanded offshore drilling in the eastern Gulf of Mexico, for instance, would make Florida’s tourism and other coastal industries vulnerable to an oil blowout. These industries generate $175 billion in economic benefits and 2.2 million jobs annually.
The Joint Ocean Commission also determined that California’s coastal areas have nearly 12 million jobs from economic activity there. Targeting the Pacific Coast for expanded offshore drilling puts its tourism and recreation industries in danger.
But there are two short-term solutions to provide some relief. Selling a small amount of oil from the nearly full Strategic Petroleum Reserve in coordination with sales from allies’ reserves would boost supplies and reduce prices. A reserve oil sale occurred under the last four presidents and lowered prices every time. In addition, the Commodities Future Trading Commission must crack down on large Wall Street speculators to reduce their impact on volatile, high oil prices.
Today’s hearing on the impact of high gasoline prices is like the rerun of a bad movie. But you can change the finale. Congress must slash oil dependence by supporting the doubling of vehicle fuel economy standards, investing in alternative fuels, rejuvenating our public transportation infrastructure, and paying for some of it by ending Big Oil tax breaks. The American people would give this ending a standing ovation.
Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress.
Download this testimony (pdf)