Democratic Gasoline

It looks like the Democrats are getting ready to use their new majority in the Congress to make the same kinds of mistakes that brought us all higher oil and gas prices last spring and summer. It's not just that the Democrats are likely to push a foolhardy ethanol agenda (about which we warned in our recent editorial, "Up, Up, and Away") to shift Americans to a rarer, more expensive, less efficient form of fuel. Speaker-elect Pelosi & Co. are also now looking for ways to punish the producers of cheaper traditional fuels.

The trouble is lurking in the agenda for their first 100 days, in which they promise to "energize America by achieving energy independence." Lest anyone be unsure precisely what that means, they add, "we will begin by rolling back the multi-billion dollar subsidies for Big Oil." In other words, as the Associated Press reported recently, they will cut tax incentives for exploration and for expanding refining capacity. Along the way, they might also repeal a two-year-old tax break that encourages companies to explore in America instead of looking overseas. They might even end Clinton-era royalty breaks for offshore drilling.

Yes, you read that right. It turns out that "achieving energy independence" actually means "making our oil and gas more expensive," at least when it doesn't mean "subsidizing Iowa corn farmers." A consistent aggravator of gas (and diesel and home heating oil) prices is lack of refining capacity. There hasn't been a new American refinery built since 1976. Although refiners have been adding capacity at existing facilities, they have been hindered by the expense of complying with new environmental regulations.

The $47 billion refiners spent on compliance after the 1990 Clean Air Act could have added between 2.35 million and 4.7 million barrels a day of refining capacity, a scholar at George Mason University's Mercatus Center, Alistair Walling, wrote in these pages last year. Now Democrats want to eliminate tax incentives designed to encourage investment in the critical but only erratically profitable refining business.

A second driver of high oil prices has been insufficient supply coupled with growing global demand. The Democrats' solution? To punish oil companies that invested in supply-increasing offshore drilling in the lean oil years of the 1990s by reneging on signed contracts with the government that provided incentives for that exploration. Although Democrats couch the move as a way to make Big Oil "pay back" the "windfall profits" it has allegedly reaped during the past couple years, such measures would mainly make ordinary consumers pay even more for gas over the long term. Meantime, Senator Smoot Schumer, among others, wants to spend even more tax money supporting "alternative energy research and development" instead of spending no taxpayer money and simply allowing oil companies to exploit petroleum reserves we already know exist.

All of which points up how ill equipped the Democrats are to deal with America's energy problem. What they don't seem likely to understand is that most of our energy ills result from excessive government intervention in the market, from irrational restrictions on Alaskan and offshore drilling to many states' divergent requirements for boutique gasoline. The last thing American consumers need is another government attempt to "fix" the problem. Americans paid more than $3 a gallon for those earlier fixes last summer. It's not too soon to start worrying about how much the Democratic solution will cost next year.