By Jim VandeHei and Steven Mufson
Washington Post Staff Writers
Wednesday, April 26, 2006
With gas prices expected to hover at record highs through summer, President Bush yesterday called for price-fixing investigations and several measures aimed at holding down the fast-rising costs of driving.
Amid growing Republican unrest about the politics of $3-plus gasoline, Bush told the Renewable Fuels Association he will take the unusual step of suspending shipments to the nation's Strategic Petroleum Reserve to boost supply and help hold down oil prices. The president also said he will temporarily ease environmental regulations that require the use of cleaner-burning fuel additives to cut down on summertime pollution.
Still, according to industry experts and administration officials, Bush's efforts at best are likely to shave a few cents per gallon off the cost of gasoline.
"Energy experts predict gas prices are going to remain high throughout the summer, and that's going to be a continued strain on the American people," Bush said in his speech.
Under pressure from GOP leaders, Bush is taking a tough public line with the U.S. oil companies that are recording record profits and paying hefty salaries and retirement packages to executives. Bush ordered three federal agencies to investigate whether companies are manipulating the cost of gasoline -- boosting prices as many report record profits. The administration asked state governments to do the same.
Some lawmakers and consumer groups have charged that oil companies are improperly setting high prices -- an accusation that has proven difficult to prove in the past.
Despite yesterday's tough rhetoric, neither the White House nor Congress is rushing to hit the oil industry in the pocketbook.
Republicans negotiating a major tax bill have agreed to strike Senate-passed measures that would raise taxes on the major oil companies by nearly $5 billion over five years. And Bush's statement that Congress should roll back tax breaks for the industry is less dramatic than it sounds. His proposal merely stretches out a tax write-off from oil exploration from two years to five years, a plan that industry officials do not oppose.
Privately, Republicans said price-fixing investigations are good politics but unlikely to result in any significant punishments or price changes this year. Bob Slaughter, president of the National Petrochemical & Refiners Association, said that it "does smack of 'round up the usual suspects.' "
Bush is trying to walk a fine line with gasoline prices. Two years ago, when Democratic presidential candidate John F. Kerry suggested suspending purchases for the Strategic Petroleum Reserve, Bush responded, "We will not play politics with the Strategic Petroleum Reserve," which he emphasized is solely for "major disruptions of energy supplies."
With polls showing that high gasoline prices are creating deep anxiety about the election-year economy, however, the president wants to project the image of a leader doing everything he can to provide some relief -- without alienating corporate allies and economic conservatives who loathe government intervention in the market.
J. Robinson West, chairman of the consulting firm PFC Energy who worked in the Reagan administration, said Bush is in a tough spot in part because "the administration is seen as being very close to the oil industry."
The gas-price strategy was the first major initiative for new White House Chief of Staff Joshua B. Bolten. He spent the weekend working with congressional, agency and industry officials to devise the approach.
Wholesale gasoline futures for June delivery dropped eight cents a gallon to $2.10 on the New York Mercantile exchange after Bush's speech, the Associated Press reported.
Democrats said Bush's response is insufficient and politically motivated. Senate Minority Leader Harry M. Reid (D-Nev.) and other Democrats proposed suspending for 60 days the tax of 18.4 cents per gallon on gasoline and the tax of 24.4 cents per gallon on diesel. The plan would cost at least $6 billion, which Democrats said should be covered by increasing taxes on oil companies.
The White House yesterday rejected one measure backed by Democrats and at least one prominent Republican: a tax on some oil company profits. White House spokesman Scott McClellan called it a "failed command-and-control approach of the past."
Bush's moves are similar to those he and past presidents have proposed during spikes in gasoline prices, even though history has shown that the laws of supply and demand control short-term prices. In his speech, Bush said the best thing government can do is push automakers to produce -- and consumers to use -- vehicles that run on something other than gasoline.
Bush has rejected one change that some experts said could reduce oil consumption: tougher federally mandated fuel-economy standards for cars, trucks and SUVs. The president has supported modest increases for some vehicles. But any increase in those standards would take years to bring down demand and ease prices.
"Increasing domestic fuel economy would have by far the biggest impact. Yet U.S. mileage standards have not risen in 25 years ," said Paul Bledsoe, communications director of the bipartisan National Commission on Energy Policy.
Instead, Bush renewed his call for greater domestic oil production, including in Alaska's Arctic National Wildlife Refuge; the construction of new U.S. refineries; and new tax breaks to anyone who buys a hybrid vehicle such as Toyota's Prius this year. Currently, only the first 60,000 vehicles produced by each manufacturer are covered by the tax break, which tops out at $3,400.
Speaking to an industry group that promotes alternative fuel sources such as ethanol, Bush also renewed his call for Congress to pass new incentives for research and development of hydrogen cars, pollution-free fuel cell batteries and technologies that turn such materials as switch grass and soybeans into fuel.
The tax breaks for hybrid vehicles would cover only a sliver of new cars sales for the rest of the year and, according to Bush's top economist, Al Hubbard, the easing of environmental regulations is more about making sure some stations do not run out of gasoline than lowering prices.
Bush's order to suspend oil shipments to the strategic oil reserve -- the government's emergency supply for national security or other crisis -- will increase the domestic supply by less than 1 percent.
This could save consumers a few cents per gallon at best, energy experts said. Philip K. Verleger, an Aspen, Colo.-based oil consultant, said that Bush's proposals were "more or less like prescribing aspirin to take care of prostate cancer."