The Politics of Gasoline Prices

By Published On: April 10, 2005

The California Legislature is considering a bill instructing state agencies to do what they can to reduce consumption of petroleum products. SB 757, authored by Senator Christine Kehoe (D-San Diego), was heard by the Senate Energy, Utilities and Communications Committee this week. I appeared as a technical expert, but my comments were limited. During the debate on the bill, the committee members provided valuable insight into how politicians view the oil problem. Predictably, some committee members view the bill as an attempt by the government to meddle with the ?free market system.? Equally predictable were other members who believe that there isn?t an oil problem, merely a problem with an unscrupulous industry. While these views resonate with the politicians? constituents, the opposing views miss the mark. Kehoe?s bill would have California exert some influence over oil markets by reducing demand for oil-derived products. Command and control is not the issue because the markets we are dealing with are far from ?free.? A mere handful of countries control potential growth in crude oil supplies. In addition, regardless of whether gasoline companies are gouging their customers, there is a serious global oil problem that needs attention. New regulations may be needed for California refineries, but they won?t create more crude oil. Many energy analysts, myself included, believe that the day is fast approaching when resource depletion will force oil consumption to decline. Dramatically higher prices will accompany this decline unless alternatives become available in the next few years, which seems unlikely. SB 757 is an attempt to get state agencies ahead of this curve and minimize the impact on California consumers. My goal in SB 757 debate is to focus attention on the big picture?on dwindling global oil resources. The hearing this week demonstrated just how difficult this is for political institutions, which are understandably focused on the immediate concerns of their constituents and on preconceived notions of the problem.

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