What's causing the pain at the pumps? Like me, you may have read the oil companies, the Bush Administration and the Heritage Foundation's arguments that demand from China and India is responsible. You may have read Thomas Friedman, who suggest on April 30 that tax abatement on carbon fuel v.s renewables has stymied the latter's competitiveness. On June 6, the Washington Post's David Cho brought up another possibility in "Investors' Growing Appetite for Oil Evades Market Limits: Trading Loophole for Wall Street Speculators Is Driving Up Prices, Critics Say."
Over the past five years, investors have become such a force on commodity markets that their appetite for oil contracts has been equal to China's increase in demand over the same period, said Michael Masters, a hedge fund manager who testified before Congress on the subject last month. The commodity markets, he added, were never intended for such large financial players.Whatever the case, oil companies are making historic profits: the five largest U.S. oil companies--ExxonMobil, Shell, BP, Chevron and ConocoPhillips--together made $36 billion during the first three months of the year according to the AP's H. Josef Hebert. On June 10, Democrats pushed for two bills to address U.S. energy policy, the first of which, at least, Bush has threatened to veto. Most Senate Republicans saved him the trouble, when their threatened filibusters scuttled both bills. (I've noted the exceptions and linked to the votes below. Although I have not yet had time to abstract comments regarding their rationale for their votes in support of a filibuster, I have provided a link at the bill's number to the "All Congressional Actions" page of the Library of Congress's Thomas legislative data base. There, "consideration: CR" links to the discussion of the bill at each phase.)
"I've never said that financial speculation is behind all of the recent price increase here, but even if it's some of the reason, it's something society needs to look very hard at," he said.
The Consumer-First Energy Act of 2008 (S. 3044 ) would have imposed a 25 percent tax on any "unreasonable" profits. I'm not sure how you could determine what "unreasonable" is, nor whether such a tax is a good idea. Ronald Bailey, science editor for the libertarian magazine Reason certainly argued against it June 11 (hat tip to Jim Hodapp) and liberal economist Paul Krugman called it pointless April 29, at least in the context of his critique of the gas tax "vacation." The bill would have made oil and gas price gouging a federal crime, with penalties of up to $5 million during a presidentially declared energy emergency. It also would have tried to dampen oil market speculation alluded to in the Washington Post piece I opened with--by requiring traders to put up more collateral in the energy futures markets and by authorizing the regulation of U.S.-based trading in foreign markets. So, this seems to be coupling two very different matters.
The Renewable Energy and Job Creation Act of 2008 (H.R. 6049) which would have extended tax breaks that have either expired or are scheduled to end this year for wind, solar and other alternative energy development, and for the promotion of energy efficiency and conservation.
This is the second time a filibuster threat sufficed to stop energy legislation designed to reduce dependence on fossil fuels. On June 6, a 48 - 36 vote had similarly stopped a carbon "tax and trade" proposal, the Lieberman-Warner Climate Security Act of 2008 (introduced May 20 by Barbara Boxer as S. 3036. Lieberman had introduced the bill as America's Climate Security Act of 2007 or S. 2191 on 10/18/2007. Iits transformation and the amendments are so complex that I'll need to cover them in another post.)
Democratic leaders needed 60 votes to stop debate and bring S. 3044 to a vote (invoke cloture) and they got only 51 senators' support. Mary Landrieu (D-LA) whose state is tied closely to the oil industry, voted no, as did Majority Leader Harry Reid (D-NV), who may have done so as a parliamentary move to preserve his right to bring up the proposal again. Robert Byrd (D-WV) and Teddy Kennedy (D-MA), who have been ill, did not vote, nor did Obama, McCain or Clinton. Republicans bucking their party included Norm Coleman (MN), Charles Grassley (IA), John Warner (VA) Gordon Smith (OR), Susan Collins (ME) and Olympia Snowe (ME). On the second measure, the only Republicans voting for cloture were Smith, Snowe and Bob Corker (TN).
Republicans argued that the companies do not set world oil prices and raising their taxes would discourage domestic oil production. Amy Myers Jaffe (bio, email), a fellow in energy studies at the James A. Baker III Institute for Public Policy at Rice University, however, just finished a two-year study looking at oil companies and how they spend their money. She told CNN May 6:
These companies are spending a very small amount of their operating cash flow on exploration. They are spending the majority of their funds buying back stock.The study (for which I'll provide a link, if Jaffee rsponds to my request) looked at the five big international oil companies - ExxonMobil, Shell, BP, Chevron and ConocoPhillips. Spending on share buybacks increased from les than $10 billion a year in 2003 to nearly $60 billion a year by 2006. Meanwhile, spending on developing existing oil fields,went from about $35 to $50 billion and spending on finding new oil fields went from about $6 billion to $10 billion.
So what's causing the high price of gasoline? If Jaffee's research is any indication, much of the information we have been getting so far is more spin than substance. And there's no filibuster or veto-proof consensus in Congress about how to address the question or the larger question of long-term energy policy. Tomorrow, though, I'll share more information on commodities trading and how it may be affecting energy prices and how the current situation came to be.