Opinion

Both parties neglect to propose a solution that might actually lower gas prices

For Republicans, the villain of choice is President Biden’s supposed “war on fossil fuels.” Biden’s climate policies have had precious little to do with recent trends in energy prices, however. Among the reasons: Much to the chagrin of climate hawks, Biden still hasn’t done much on climate.

Canceling the cross-border permit for the Keystone XL pipeline, for instance, has had no effect on oil supply. More than a dozen years into development — including four under the Trump administration — the pipeline was still only 8 percent built when Biden took office. Even if Biden hadn’t done anything, the pipeline still wouldn’t exist today.

And most of the other climate measures Biden has proposed are carrots (making green energy more attractive) rather than sticks (making fossil fuels more expensive).

Aside from Vladimir Putin, whose contributions to high energy prices are relatively recent, Democrats’ preferred villain is “corporate greed” or “profiteering.” This explanation polls well, which might be why Biden and others on the left keep citing it. But it does little to explain why gas prices are up so much — or what could help to bring them down.

Corporations didn’t suddenly remember that they’re supposed to be greedy. And “profiteering” might sound like an incriminating accusation, but it has little meaning other than “prices are higher than politicians want them to be.” Blaming “high prices” on “profiteering” isn’t an explanation; it’s a tautology.

Because politicians have bought into irrelevant (but politically useful) explanations for the problem of high gas prices, they have also begun offering irrelevant (and, in some cases, actively harmful) remedies for it.

These solutions include, for instance, yelling at oil executives in congressional hearings. Or “reopening” that oil pipeline that doesn’t yet exist. Or launching yet another in a long tradition of fruitless Federal Trade Commission investigations into whether high gas prices are due to “illegal conduct.”

Puzzlingly, at least one Democratic lawmaker even demanded to know why the IRS — the agency that collects taxes — hasn’t done more to fight high gas prices.

All of these responses are essentially just grandstanding — pointless and cynical, but ultimately unlikely to affect prices one way or the other. Far worse are proposals such as a “windfall-profits tax” on oil. This might sound good if you genuinely believe that “profiteering” is the problem. But the last time Congress tried a similar policy, it reduced oil production. Which means it could well drive gas prices higher.

So what should politicians do instead?

Well, they have limited options. But they could start by learning what’s behind the recent (pre-Ukraine) price increases. The answer is basically: Demand for energy is really strong, and supply hasn’t sufficiently ramped up yet to meet it.

This summary is probably somewhat unsatisfying. We want to know why supply hasn’t ramped up, even in the face of prices that would normally encourage a lot more investment. And here the explanation is complicated.

OPEC countries have deliberately kept their production low. U.S. producers have indeed added more oil rigs in recent months, but there’s a multi-month lag between when one gets leased and set up and when more oil from that site becomes commercially available.

Additionally, these U.S. energy companies have been expanding a little more slowly than in previous cycles when oil prices were also high. Why? As in many other industries, worker shortages and other supply-chain issues are challenges. More important, shareholders and lenders are cautious about financing more production. Lots of people lost their shirts when prices plummeted in 2020. They’re nervous that something similar could happen again — that by the time they get a new rig up and running, prices will have returned to Earth, and they’ll go bust again.

The government could do things to make these investments look less risky. For example, it could guarantee some minimum amount of demand for oil or otherwise set a price floor, at least in the near term. Ideally, this would happen in conjunction with longer-term, green-energy investments.

But capping the downside risk for energy companies (which are still, at least for now, obscenely profitable) would be politically toxic. Perhaps even as toxic as bailouts for banks — another widely reviled industry — were in 2008.

So instead politicians are demagoguing “solutions” aimed at vanquishing villains that don’t exist. And as a result, they may well make the problem worse.