We Abhor/Endorse Higher Energy Prices

By April 2, 2008Energy

The Wall Street Journal’s editorial, “Oil Refinements,” pokes fun at and holes in the logic behind yesterday’s House hearing on gas prices. We’ll paraphrase: House Member A: Gas prices are too high! Outrage! House Member B: We need to discourage oil consumption through market mechanisms!

Or is that also House Member A?

A few facts, summarized by the Journal:

About 70% of the price of gasoline is determined by the global price of crude, which is rising because of world-wide demand and volatility in the commodities markets, not to mention the Federal Reserve’s easy-money policy. Congress might also look to its gas mandates and the corset it has laced around domestic production.

It’s true that industry profits are at a record high, but oil is a classic boom-and-bust business, which is why billions in capital investments are folded back into exploration and production. Besides, the industry’s effective tax rates are in the neighborhood of 40% to 44%. Over the past five years, Exxon Mobil’s total U.S. tax bill exceeded its U.S. revenues by some $19 billion.

Other coverage and commentary:

  • Red Caveny, president and CEO of the American Petroleum Institute, “Don’t blame oil companies.”
  • Houston Chronicle, “Profits realistic, oil execs insist.”
  • CNN, “Clinton, Obama take on Big Oil.”
  • Environmental Capital blog, Wall Street Journal, “Green Ink: Big Oil in the Hotseat.”
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