Law and oil order
As proposals swirl around Capitol Hill, experts weigh in on what Congress should and shouldn't do to lower fuel prices.
By Steve Hargreaves, staff writer

NEW YORK ( - With nearly every politician weighing in on how to deal with rising oil and gasoline prices, there are a few moves championed across the political spectrum, a few with strange bedfellows, and a few that experts say lawmakers shouldn't touch.

One of those perceived no-nos is the call to split up oil companies.

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It, like all the other remedies, is cited as part of a solution to bring down gasoline prices, which have surged 30 percent over the last year and brought motorists to the boiling point.

The thinking goes like this: The mergers that took place in the oil industry during the 1990s have left the market devoid of competition and oil companies able to jack up prices at will.

But a breakup, currently called for by some members of Congress, has little support.

"I don't think breaking up oil companies is going to do anything," said George Sterzinger," executive director of the think tank Renewable Energy Policy Project.

The motorist group AAA also doesn't see a need to break up oil firms, pointing to a government study done after the mergers which showed no significant price hikes.

The companies themselves are quick to point out that they need economies of scale to compete in a global energy market dominated by big, foreign-state owned firms - a market in which Exxon Mobil, the largest U.S. oil company, is only No. 12 based on proven reserves in the ground.

Another move, which recently passed the Senate Judiciary Committee, would allow the U.S. to sue the Organization of Petroleum Exporting Countries (OPEC) for price fixing.

But given concerns over the ability to enforce the law, and the fact that OPEC is already pumping at full capacity, few think its any more than political pandering for election year points, and could even backfire.

"Foreign governments are sitting on top of the oil reserves that we so very much need," said AAA's Geoff Sundstrom. "We have to find a way to work together."

Here's a look at some of the other proposals either called for or currently working their way through Congress, and what the experts think.

Stick it to the oil companies

Options in this category include a windfall profits tax, eliminating tax breaks for oil firms, subjecting future oil company mergers to more oversight, and launching investigations into price gouging.

Arguably, the one receiving the most attention is the windfall profits tax, called for by many Democrats and even some Republicans.

"The idea makes some sense, " said Renewable Energy's Sterzinger. "I don't think there is any question there is a windfall. It's not like it's a moral question or that they are bad people or anything, it's just a fact."

Sterzinger said money from the tax, which he said should be temporary and easily adjusted for fluctuating prices, could go into investing in alternative forms of energy or directly back to the consumer to offset the pain of high costs.

But the oil industry and AAA don't back such an idea, saying that it was tried once back in the early 1980s. They say it failed to bring down prices and discouraged investment to expand production.

It's true the oil companies have significantly increased capital expenditures over the last year. But it's also true that they have returned lots of their profit to shareholders through increased dividends and share buybacks.

When pressed on this point, Ron Planting, an economist for the American Petroleum Institute, said "the shareholders don't mind that," noting that 40 percent of all oil company stock was held in pension plans and retirement accounts.

Boost domestic production

Ideas here include opening up Alaska's Arctic National Wildlife Refuge for oil exploration, building more refineries, and a halt in filling the Strategic Petroleum Reserve.

Although drilling in the Arctic generates the juiciest headlines and sends many a college student scurrying for signatures, experts say both the oil extraction benefits and the environmental outcry are overblown.

The petroleum institute's Planting said that drilling in the wildlife refuge, combined with easing environmental regulations for drilling along the coast in the continental U.S., is "one thing that would help in the long run." However, he said it's not a short-term fix because, like building a new refinery, it would take many years to come online.

AAA's Geoff Sundstrom said more emphasis should be placed on stable relationships with places such as Nigeria, Venezuela and Iraq, as "drilling in the U.S. is not going to give us access to the energy we need."

And Renewable Energy's Sterzinger said the debate over Alaska is a "red herring," in that it distracts environmentalists' energy and press attention away from far larger problems, like global warming.


Raising fuel efficiency standards and extending a tax break for hybrid cars are both items on the table, and they have the support of both AAA and Sterzinger.

The oil industry said it had no position on the issue, although Planting seemed to indicate it favored a more market-based approach, saying higher fuel prices have resulted in a drop in demand growth for gasoline.

Direct government assistance

Lawmakers have suggested temporarily suspending the federal gas tax, easing clean air requirements, and the much talked about although recently withdrawn idea of writing every taxpayer a check for $100.

No one spoken to for this story liked scraping the gas tax or writing a check, with AAA's Sundstrom saying that highway safety programs, which are largely funded by gas taxes, could get the short shrift.

President Bush recently asked the Environmental Protection Agency to look into temporarily easing certain clean air requirements so cheaper gas could be sold.

But Sterzinger, AAA and the oil industry opposed this idea.

"Refiners have invested a lot of money to make sure we can meet those levels," said the petroleum institute's Planting. "I wouldn't be in a hurry to suspend them just because of retail prices. These rules were put in place for a reason."


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