Pam Panchak/Pittsburgh Post-Gazette via AP
The high price of gas is displayed at an Exxon station in Penn Hills, Pennsylvania, February 17, 2022.
With gas prices hitting $3.50 a gallon nationally and the threat of war in Europe driving fuel costs higher, right-wing lawmakers are scrupulously on message: Blame inflation and effete environmentalism.
Democrats, on the other hand, are scrambling for a story. As the electoral threat sinks in, proposals abound. Tax fossil fuels less; tax fossil fuel producers more; limit crude exports; invest in clean energy to compete with China; improve supply chains; break up monopolies. Yet both progressives and moderates conceded in interviews that the short term may be a wash.
Is there an immediate solution available that is both pro-worker and pro-climate?
“Short answer is no,” Justin Guay, a policy strategist at the Sunrise Project, told the Prospect.
“These are long-term structural challenges with no easy short-term fix,” Guay said. “The only way to reduce the economic pain from surging and volatile gas prices is to get off the stuff.”
SEVERAL VULNERABLE DEMOCRATS are currently proposing one response to relieve public frustration: Suspend the federal gas tax.
Sens. Mark Kelly (D-AZ) and Maggie Hassan (D-NH), who anticipate grueling re-election campaigns, say suspending the levy at gas pumps would blunt the pain faced by working families, who are also seeing elevated costs in health and housing.
The White House is reportedly sympathetic, though some staffers worry the tax will be hard to reinstate once lifted. Jamal Raad, executive director of Evergreen Action, a clean-energy organization with close ties to the White House, declined to take a position on the lawmakers’ proposal, but said “we should give them some latitude.”
“There is a direct line between the price of gas and presidential approval,” he added.
Yet even if climate activists are willing to subordinate short-term priorities on energy use to electoral ones, a gas tax holiday wouldn’t necessarily achieve much. While it sounds populist, energy economists and market analysts said it could increase gas consumption without bringing down prices.
At current levels, the federal gas tax of 18.4 cents per gallon accounts for around 5 percent of the nationwide price. That’s much lower than it used to be in real terms, according to Ben Cahill, an energy analyst at the Center for Strategic and International Studies, because it is fixed and never adjusts for inflation. “All else being equal,” Cahill told the Prospect, “a gas tax holiday would encourage more consumption, adding to market tightness.”
The supply of gas available to consumers also isn’t very flexible. The growth of fracking—a form of oil extraction that can be revved up faster in response to new demand—had relaxed that rule somewhat. But wells have been allowed to close after a years-long shale oil binge proved unprofitable, so oil and gas supply remains fairly inelastic in the short term.
As a result of inelastic supply, said J.W. Mason, an economist at John Jay College CUNY, “most of the gains of suspending the gas tax are going to be captured by producers, not by consumers.”
As debate has intensified over the proposal, the politics have become increasingly scrambled. While it was originally proposed by moderates in swing districts, Sen. Ron Wyden, the progressive climate hawk who chairs the Senate Finance Committee, has since backed suspending the tax, along with some left-leaning groups.
“Gas taxes are fundamentally regressive. They hit the poorest people the hardest,” Adam Green, co-founder of the Progressive Change Campaign Committee, said Wednesday. Green wants to sever the link between the gas tax and highway spending, preferring to fund infrastructure through general revenues. “Whether or not we were going through inflation and massive price-gouging by corporations right now, it would be a good idea to get rid of the gas tax for the benefit of working families.”
OIL AND GAS SUPERMAJORS, as Green alluded to, are seeing their highest profits since 2014. Producers including ExxonMobil, Chevron, and BP recorded windfall gains last year and project elevated barrel prices over the coming months. Some lawmakers are crying out for their colleagues to connect the dots.
“Energy companies are recording massive profits and one of the best ways that we can cut the costs of gasoline at the pump is to break up the monopolies that are price gouging American families,” Sen. Elizabeth Warren (D-MA) said in a statement to the Prospect.
“This is a story about the greed of the fossil fuel industry and we need to make sure the American people know that,” Sheldon Whitehouse (D-RI), a climate-hawk progressive, told the Prospect. “If we get rid of the gas tax and keep everything else status quo, the oil majors would likely pocket the extra money rather than lower prices for drivers. It’s time to consider a windfall tax on the industry.”
That idea has scarcely been raised in the U.S., but a debate is raging in the U.K. over whether to tax oil majors’ windfall profits. Originally proposed by the British Labour Party as a way to lower home heating costs, it earned the backing of Liberal Democrats and even some Conservative members of Parliament before being shot down by Boris Johnson. Still, backers pointed out that the proposal put the prime minister in the unenviable position of defending oil majors amid the country’s cost-of-living crisis.
While the Build Back Better bill’s investments would bring down energy costs, that takes time, and midterm elections are looming.
It wouldn’t be the first time Americans levied extra taxes on oil. In 1980, following deregulation of domestic price controls, President Jimmy Carter signed the Crude Oil Windfall Profit Tax Act, which generated some $80 billion in revenue. And California—the only state in the nation that doesn’t tax companies for taking oil out of the ground—is proposing to rectify that with a new oil severance tax.
But new oil taxes imposed now carry optics concerns of their own.
“It’s sort of tone-deaf,” said RL Miller, president of Climate Hawks Vote, a grassroots environmental advocacy group. While she is infuriated by producers’ high profits, Miller said she worries about imposing any tax right now that could be passed on to hard-hit consumers.
Instead, Miller pointed to New York Sen. Chuck Schumer’s electric-car incentive program, which includes a “cash-for-clunkers” provision that would pay drivers to ditch their gas-guzzlers. “If they’re talking about resurrecting the climate parts of the Build Back Better bill, this looks like a lovely place to start.”
THE PANIC OVER high gas prices comes after the excruciatingly drawn-out failure to invest in cheaper, independent energy through Democrats’ infrastructure and jobs bill. The recent gas price run-up has made renewables even more cost-competitive with fossil fuels, which are highly volatile commodities—but making the glaring logical case for Building Back Better is moot if the Senate can’t deliver.
Many say now is the time to salvage energy provisions in that legislation. Asked on Wednesday by the Prospect about short-term solutions to gas prices, Rep. Mike Levin (D-CA) said, “It’s really important that we get the climate investments from Build Back Better across the finish line.”
But while the bill’s investments would bring down energy costs, that takes time, and midterm elections are looming.
On a press call Wednesday meant to rally support for Build Back Better, New Jersey Rep. Tom Malinowski lamented that the supply chain shortage is slowing electric-car sales. The short-term fix, he said, isn’t actually Build Back Better, but a new bipartisan bill to spur microchip manufacturing.
“In the medium to long run, we do need to strengthen the incentives, because we want to get to 100 percent use,” Malinowski added. “But right now, it’s also an argument for getting the supply chain legislation.” Raad, of Evergreen Action, said electric-car uptake is promising—and is a reason to think twice before passing a tax holiday that could make gas cars more attractive.
The internal debate reveals that even with much of the business lobby bullish on a clean-energy transition, the short-term politics of easing gas prices for regular Americans remain intractable.
As a result, climate policy in an era of high gas prices is starting to be coded, in the culture wars, a little like masks in schools. Some segments of the commentariat who cast progressives as out-of-touch elites have begun to grumble about the electoral costs of climate action.
Blunt assessments from centrist and left-wing Democrats alike, however, say long-run investment is the only serious way to bring down Americans’ energy bills. Climate hawks may be losing the battle, but they believe they will win the war. The plan, Raad said, is to “make sure that in the long term, the price of oil doesn’t matter for working families.”
