Oil and the economy
Dramatic price spikes underscore the need to protect consumers from gouging
WASHINGTON » In the aftermath of Hurricane Katrina, we, as a nation, have learned many painful lessons. Two of the most critical for the nation's long-term economic health are the detrimental impact of runaway gas prices and our economy's insatiable demand for oil.
Gas prices, already high by U.S. standards, skyrocketed in Katrina's wake. The storm damaged oil refineries in Mississippi and Louisiana. Oil and gas from this region, which otherwise accounts for 25 percent of all U.S. crude oil production, was critically curtailed.
Katrina's impact made the "pain at the pump" all the more excruciating, regardless of where you lived. While the disruption to Gulf shore production was bound to have an impact on prices, it failed to explain how, for example, consumers in the Atlanta, Ga., market were asked to pay $6 a gallon, more than twice the national average. Many other markets saw similar, sudden increases. Average gas prices around the country soared to more than $3 a gallon, and while prices have fallen in some areas, this momentary dramatic spike suggested that some people were taking advantage of a national tragedy to line their pockets.
On Sept. 21, the Senate Commerce, Science, and Transportation Committee, which I co-chair, held a hearing on soaring gas prices in response to Hurricane Katrina. Paying particular attention to concerns about price gouging and the impact that oil supply and demand have on pricing, our committee heard testimony from a wide variety of experts, including the Federal Trade Commission, which our committee oversees.
To date, the FTC has taken a minimalist approach to examining the dramatic price changes. The recent sustained gas price spikes, well beyond the impact of Katrina, convince me that the FTC must take a more proactive role. This should include an investigation of gasoline prices nationwide -- particularly in states that might suffer disproportionately, such as Hawaii. The commission is also our nation's authority on price gouging. Americans should have every confidence that the government, through the FTC, will intervene when commercial entities take advantage of nationally significant events to gouge consumers. The commission must be vigilant, and it is the responsibility of Congress to hold it accountable. If the commission lacks specific, necessary authorities to pursue price gouging, or views its consumer role narrowly, then Congress needs to provide it the authority and guidance.
Even before Katrina, there was little doubt that gas prices were having a sustained, detrimental impact on our economy, not to mention the finances of every American household. As we all know, this was most definitely the case in Hawaii. Our state's legislators took a bold step by imposing a sliding cap on the wholesale price of gasoline in an effort to set a maximum amount that could be charged.
While there has been much criticism as to the effectiveness of this law, I respectfully submit that without the cap, Hawaii's gasoline price increases could have been far more dramatic following Hurricane Katrina, such as Atlanta's $6-a-gallon price.
Currently, legislators and state officials across the country are seriously considering specific solutions. For example, in Missouri and Wisconsin, there is a debate on whether to impose state gas tax "holidays." In New Jersey, there is talk of preventing gas taxes from soaring by selling state toll roads to supplement revenue. In Massachusetts, legislators have considered imposing a winter moratorium on natural gas price increases. Bottom line: No matter where Americans live, the continued inflated prices have penalized everyone, and I applaud all who are willing to take a political risk to defend consumers' interests.
Katrina and its aftermath demonstrated that our nation remains perilously dependent on oil, regardless of where it is produced. It is a vulnerability that has both economic and national security implications, and we cannot continue to ignore it. Similarly, we cannot have an honest discussion about energy resources and pricing if we do not examine our country's growing demand for oil. This demand will be further complicated by the burgeoning economies of China and India, whose increasing consumption threatens to eclipse that of the United States.
The lion's share of our national oil demand comes from the transportation sector, primarily automobiles. One of the most immediate and effective steps we can take to remedy our dependence on oil is to increase the fuel efficiency standards of our cars, SUVs and light trucks in a meaningful way. Technology is currently available that would allow us to double our oil efficiency. This would not only reduce our national oil dependence but, by decreasing the demand, would reduce fuel costs for every American.
In 1975, the Senate Commerce Committee helped to establish the nation's first corporate average fuel economy (CAFE) standards, following the oil crisis of the early 1970s. The standards were largely credited with decreasing the nation's oil demand in the 1980s, but they have not been updated since.
Today, the factors affecting the oil market are equally, if not more, volatile than in the 1970s: the unpredictability of international supply, the limits of our domestic supply, the growth of our global competitors and our own escalating demand. Add to this Katrina's stark reminder of our dependence and vulnerability, and the time is ripe to re- examine our national fuel-efficiency standards. It is imperative -- for the sake of our long-term economic strength, as well as our long-term foreign policy.
Setting new standards is only part of the equation. As many experts have recommended, we can help our automakers transition, in part, through our national scientific investments. By directing research and development dollars to the creation of advanced, lightweight, strong, composite materials, we can help them create the vehicles of the future that meet -- if not exceed -- the new standards without sacrificing safety. Through research into alternative fuel sources, we can speed up the development and potential commercialization of technologies like bio-fuel, hydrogen, wind and solar power, and more, that will further decrease our oil dependence.
Oil demand is the key to our dependence and a major source of our economic vulnerability. It can be an Achilles' heel for our nation, or a challenge that prompts policy makers and our corporate citizens to be international leaders in the effort to reduce consumption.
We must better protect our nation's consumers from runaway gas prices and curtail our spiraling oil demand. We have little choice but to tackle these issues directly, because taken together, they have the potential to make or break America's economic future.
Daniel K. Inouye is Hawaii's senior U.S. senator.