The Washington PostDemocracy Dies in Darkness

White House exploration of gas rebate cards complicated by chip shortages

Administration officials look at fuel rebates, emergency powers if diesel shortages materialize

Gas prices are displayed at a gas station in Buffalo Grove, Ill., on June 9. (Nam Y. Huh/AP)
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Senior White House aides are exploring new ideas to respond to high gas prices and are looking again at some that they had previously discarded, desperate to show that the administration is trying to address voter frustration about rising costs at the pump.

Those efforts, though, come amid early signs of a broader slowdown in the economy, which could ease inflationary pressures but also lead to higher joblessness and slower growth. On Friday, oil prices suddenly dropped to a four-week low — a decline likely to push down gas prices — the latest indicator of a potential recession after the Federal Reserve raised interest rates this week to try to contain inflation.

The week’s staggering decline in the stock market — coupled with weaker-than-expected jobless claims and retail sales data — also reflects the risks in the central bank’s move to crush inflation by tightening monetary conditions. Wall Street recorded its worst week since March 2020, the early days of the coronavirus pandemic, as investors struggle to adjust to the Fed’s dramatic move.

Still, Biden officials are taking a second look at whether the federal government could send rebate cards out to millions of American drivers to help them pay at gas stations — an idea they examined months ago before ruling it out. Aides had found that shortages in the U.S. chip industry would make it hard to produce enough rebate cards, two people familiar with the matter said. White House officials also fear there would be no way to prevent consumers from using them for purchases other than gasoline, according to another person familiar with the discussions. Even if the administration embraces the proposal, it would probably require congressional approval and face long odds among lawmakers wary of spending more money.

Biden aides have also looked in recent days at invoking the Defense Production Act to move diesel and other refined products should localized shortages materialize, two people familiar with the matter said. Diesel prices have risen markedly, posing a major threat to the nation’s trucking and shipping industries, although experts say shortages appear to remain unlikely for now.

But energy markets hinted at the potential downsides of an economy that cools too quickly, with crude oil prices falling on Friday. “The good news is that crude oil prices, which drive gas prices, had a big down day,” said Bob McNally, a former energy official in the Bush administration. “But the reason for it is a bad reason — that people are fearing a recession.”

Gas prices have been one of the most visible signs of inflation. The White House has taken a number of actions to try to address the problem, such as committing to a historic release of the nation’s oil reserves and, on Wednesday, sending a letter to the nation’s refineries calling for more production and criticizing their profits. President Biden has also tried to increase production internationally, prodding the world’s oil producers and coordinating the release from national reserves with U.S. allies.

But those measures appear not to have helped substantially. The average gas price nationally rose above $5 a gallon for the first time this weekend, a roughly 11 percent increase from just last month, according to AAA, although some industry analysts say it could fall back to $4.55 in the weeks ahead. Polling suggests widespread frustration with rising prices, increasing the likelihood that voters punish Democrats this fall and give Republicans control of at least one house of Congress next year.

White House officials have scrambled in recent days to again review all potential federal policy responses. Officials have also discussed telling governors to lower or waive their gas taxes, another person familiar with internal administration discussions said.

States eye gas tax pauses as fuel prices soar

The people, who spoke on the condition of anonymity to discuss private talks, stressed that these measures were being explored in a preliminary way and that no final decisions had been made.

The attempts to explore out-of-the-box solutions to gas prices reflects the paucity of available solutions to the administration, as well as the extent of the challenge they pose. White House spokesmen have said all options are on the table, but one White House official said the rebate proposal — pushed by some Democrats in Congress — was unlikely to advance due to the logistical difficulties. Critics also say the idea could backfire by further pushing up prices by adding to consumer demand.

Other proposals floated by policy experts include suspending the Jones Act, which would reduce shipping costs and make it cheaper to get gasoline from the Gulf Coast to the Eastern Seaboard, imposing price controls and banning exports of U.S. energy. But all these ideas have their own political and practical downsides, with the Jones Act supported by influential union groups and economists warning that any supply restrictions could exacerbate the problem. One person said the White House has also looked at limits on fuel exports, an idea first reported on Thursday by Bloomberg News, although that proposal does not appear to have gained much traction.

“Not only is there not an extant solution, but nobody thinks there’s going to be a compelling solution,” an outside economic adviser to the White House said. “They’re fighting about narrative rather than fighting about substance, because realistically, what are they going to do?”

Inside Biden’s frustration with soaring prices

Biden on Wednesday defended his administration’s record, arguing it is doing everything possible to lower families’ costs — including at the pump — in the face of immense head winds.

“I’m doing everything in my power to blunt [Russian President Vladimir] Putin’s gas price hike,” Biden said. “We’re going to work to bring down gas and food prices. We can save families money and other items.”

The run-up in gas prices has many factors, but it was intensified by Russia’s invasion of Ukraine and subsequent Western sanctions on the Kremlin, which disrupted supply from what had been the world’s third-largest oil producer. Russian output has fallen by more than 1 million barrels per day due to export sanctions that complicate sales and import sanctions that hurt production, according to Rory Johnston, an analyst at Commodity Context. Refineries necessary to turn oil into gas and other products are stretched to their limits, with Russian refineries knocked offline and U.S. refining capacity down roughly 5 percent, according to the Energy Information Administration.

At the outset of the invasion, senior Biden aides said they believed Americans were willing to pay higher prices at the pump to punish Russia. But it is unclear if that calculus was correct, with Republican lawmakers continuing to hammer the White House for high gas prices despite their support of the sanctions.