The NewStandard ceased publishing on April 27, 2007.

High Gas Prices Result of Industry Profits, Watchdogs Say

by Michelle Chen

Consumer advocates point to skyrocketing oil profits as evidence that the current rise in gas prices is the result of greedy companies and a corporation-friendly government.

New York City; Aug. 22, 2005 – When New York cab driver Mohammad Faruque pulls his taxi into a downtown gas station, he knows he is losing money by the minute.

Toolbox
Email to a Friend
Print-friendly Version
Add to My Morning Paper

"The more I drive, the more it costs," he said. Fuel eats up about $40 of his earnings from each ten-hour taxi shift, so, "Whatever I make, almost all of the money goes in the gas."

With local prices hovering around $2.70 a gallon, Faruque is one of countless motorists nationwide who find themselves emptying their wallets to fill their tanks.

Department of Energy analysts have blamed the high prices on a rise in crude oil costs, caused by growing worldwide demand and economic instability in the conflict-ridden Middle East.

But groups watching the energy industry say this is only part of the problem. The real culprits, according to public interest organizations like the Sierra Club and Public Citizen, are oil and gas corporations, which exploit consumers with the backing of pro-industry government policies.

Public Citizen analyst Tyson Slocum said that the federal government has allowed corporations to manipulate prices and perpetuate an unsustainable oil-based economy. Politically influential oil conglomerates, he said, are "very upfront about what they want from Congress, and they’re very happy about what they get."

So far, the fuel market has given the industry little to complain about. While drivers balk at gas prices that are about 35 percent higher than what they paid last summer, oil companies boast unprecedented profits. ExxonMobil and ConocoPhillips, for instance, recently announced that quarterly earnings had increased over the past year by approximately 35 and 50 percent, respectively.

ExxonMobil and ConocoPhillips, for instance, recently announced that quarterly earnings had increased over the past year by approximately 35 and 50 percent, respectively.

Although current gas prices – when adjusted for inflation – are still below the historical high, the potential effects of this summer’s price spike reveal the scope of the country’s dependence on oil.

"When you’re filling up your own tank, you’re most aware of the high fuel prices, but that’s only the beginning of where it impacts your life," said Sean Comey, a spokesperson for the California State Automobile Association, which advocates on behalf of the state’s gasoline consumers.

Consumer groups warn that higher fuel costs could drive up retail prices by raising the cost of transporting goods. Meanwhile, more expensive gas could also impact consumer spending by cutting into the budgets of working households.

"High oil prices impact… the most vulnerable in society," said Ana Unruh Cohen, an environmental policy fellow with the liberal think tank Center for American Progress.

Critics of current national energy policy say that gas market volatility could be avoided if the government took measures to curb the country’s dependence on oil and other fossil fuels.

The growing cost of gasoline, said Sierra Club analyst Brendan Bell, symbolizes "the failure of Congress and various administrations not to really put us on an innovative energy path over the past 20 years."

Critics of current national energy policy say that gas market volatility could be avoided if the government took measures to curb the country’s dependence on oil and other fossil fuels.

The Sierra Club and other environmental groups say that one partial remedy, which the automobile industry has resisted, would be simply making cars go further on a gallon of gas. The current federal standards for vehicle fuel efficiency have not been updated for nearly a decade.

If the average automobile were designed to go 40 miles per gallon, the nation would decrease oil consumption by three million barrels per day, the Sierra Club estimates, in turn reducing US demand for oil. The amount conserved, according to the group, would be more than what the United States imports from the Persian Gulf.

But consumer advocates say initiatives to reduce demand may be ineffective as long as energy conglomerates have the power to capitalize on, and even deliberately orchestrate, higher fuel prices.

Public Citizen has charged that the increasingly consolidated oil industry makes gasoline artificially scarce by limiting production at oil refineries.

In California, for example, the California-based public interest group Foundation for Taxpayer and Consumer Rights (FTCR) traces the trend to a handful of corporations that run 90 percent of the state’s refining facilities.

Jamie Court, FTCR’s president, said that the state’s requirement for a specially refined fuel formula, designed to meet environmental standards, places "power in the hands of the people who make that refined supply, that lets them rig the market." The oil industry, he said, is thus able to keep inventories artificially low and prices even higher than in other parts of the country. Gas prices in California exceeded the national average by as much as 17 cents this month.

Consumer advocates say initiatives to reduce demand may be ineffective as long as energy conglomerates have the power to capitalize on, and even deliberately orchestrate, higher fuel prices.

Across the country, the gasoline industry is becoming more concentrated. Public Citizen reports that, as of 2003, over half of the country’s refinery capacity was controlled by five oil companies, compared to about 35 percent in 1993.

In 2001, Federal Trade Commission investigators uncovered that gas companies had deliberately suppressed supply to keep prices high in the Midwest. Yet, because the commission found that the firms had acted independently -- not in cooperation -- to fix prices, they determined that the companies had not violated antitrust laws.

Responding to public anxiety about gas prices, the energy industry has tended to shift the focus from its own practices to what is sees as "short-sighted" government policies.

Earlier this year, Bob Slaughter, president of the National Petrochemical and Refiners Association, testified before Congress that federal energy policy should prioritize "maintaining the flow of adequate and affordable gasoline and diesel supplies" by keeping government regulation to a minimum. The association pressed Congress to permit more fuel exploration on protected federal lands, including the North Slope of Alaska, and to restrict environmental protections that it said could impact the country’s supply.

Striving to counter the industry lobby, public interest groups have pushed the government to check corporate profiteering and to invest more in energy alternatives.

The Center for American Progress, for example, has recommended efficiency-based guidelines for vehicle prices to ensure that more efficient cars are cheaper, as well as programs to help low-income people purchase more efficient cars at discounted rates.

In Congress, Senator Dennis Kucinich (D-Ohio) has introduced legislation that attempts to stabilize gas prices by both reining in oil companies and reducing the amount of gas US consumers use. The bill would impose a "windfall profit tax," which would skim money from gas and diesel sales that exceed a certain "reasonable" profit level, determined by an appointed board. The tax revenue would then subsidize purchases of more fuel-efficient vehicles.

But the environmental community’s hopes of reshaping the energy system have sunk since Congress passed the 2005 energy bill, signed into law on August 8. The legislation includes ample subsidies and tax breaks for fossil-fuel-based industries, largely to the exclusion of greener alternatives.

"Despite $2-a-gallon gas and despite 140,000 troops in Iraq and despite rising global temperatures," Cohen said, "there isn’t a lot of political will to take this on."

Cohen predicts that the country will eventually have no choice but to confront energy issues, as humans steadily drain the world’s supply of petroleum. "We’ve really designed our cities and our lifestyle around the automobile and driving places," she said, "and I think we’re going to see a painful readjustment."

Yet as the prospects for an energy overhaul remain distant, swelling gas prices are currently leaving millions of Americans with little room to adjust.

Aside from turning off the air conditioner when he is not carrying a passenger, cabbie Mohammad Faruque cannot do much to limit the amount of gas he uses, and has even less control over the price he pays. "If I drive less," he said, "then … it will be very hard to survive."

Send to Friends Respond to Editors or Reporter

The NewStandard ceased publishing on April 27, 2007.


Online Sources
Michelle Chen is a staff journalist.

Recent contributions by Michelle Chen:
more