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What Biden’s Gas Tax Holiday Proposal Misses About the Real Cause of High Gas Prices

AMAC Exclusive – By Daniel Berman

The decision of the Biden administration to reject the advice of House Speaker Nancy Pelosi and embrace a “gas tax holiday” is a concession to political rather than economic reality. The administration has conceded the need to do something about the shock millions of Americans feel every time they go to the pump to fill their vehicles, but their actions are more an effort to simply look like they are responding to demands to do something rather than to actually do it.

For one thing, critics of a gas tax holiday are correct that the concept will do little in the long run to solve high energy prices. Those prices are, after all, a consequence of shrinking supply amidst constant or even increasing demand. Waiving the gas tax will not increase supply, and may even increase demand, further driving inflationary pressure. But, as John Maynard Keynes said in one of his few accurate remarks, “in the long run everyone is dead.” American families who are unable to afford gas right now are unable to get to work, worsening the labor shortage, and exerting inflationary pressure in other segments of the economy. Those who are faced with the choice between liquidating their savings and affording to fill their tank are helping to drive down both crypto and stock markets. In this case, a gas tax holiday, while no long-term solution, is the correct move to stem short-term bleeding.

Nevertheless, those long-term harms will accrue if nothing is done to address the real cause of high prices: a lack of supply. Conservatives are quick to blame a lack of investment, driven in part by the reluctance to invest in fossil-fuel projects (largely thanks to the rise of ESG investing), while Joe Biden has tried repeatedly to pin the blame for higher prices on Vladimir Putin’s invasion of Ukraine. The truth is that the charges against ESG’s are half-right, and Biden’s efforts to blame Putin maybe a tenth accurate at most.

Let’s deal with the investment issue first, as it directly relates to how Putin’s actions have played out when it comes to energy prices. There is, first and foremost, not a single unified global oil market. Different grades of crude are traded differently. This is both for qualitative differences, but also because fuel is of little value unless it can be moved. For instance, Middle Eastern crude is of less value in North America than it is in Europe or Asia to producers, because it takes longer and costs far more to transport it. The result is that production anywhere in the world is less efficient the further away the customers are.
This is one of the key reasons why Donald Trump’s efforts to build up U.S. (and for that matter Canadian and Mexican) domestic production were so important. It will always be more expensive to import Middle Eastern oil to the U.S. in terms of transport costs than to produce oil domestically. Moreover, because it is more expensive to ship, Middle Eastern (and African) producers will generally prefer customers who are located closer because it decreases transport costs. This preference increases when there are worldwide tensions, because both the costs and risks of shipping a product 12,000 miles are much greater than the risk of shipping it 3,000 miles.

As a result, domestic North American production will always be more reliable. It is not merely the supposed “political dependence” on Middle Eastern oil causing wars which is the issue. When times are bad, Middle Eastern oil (and all oil from more distant sources) will become harder to get.

Ironically, this has shielded the United States from the full effects of Putin’s actions. While prices have increased in the U.S., they are well below those in Europe. In the U.K., the equivalent price for a gallon of gas is well over $8. In East Asia it is above $10. To the extent that Putin’s invasion has mattered, it has been less in directly reducing supplies of Russian oil, but more in the political pressure the Biden administration has brought to bear on Europe to buy more expensive (for them) North American alternatives. This has not just forced prices up in Europe, but by increasing demand for limited North American supplies, it has also increased prices for American consumers. Americans are not paying higher prices because they are unable to buy Russian oil – for the most part they never did. They are paying higher prices because Europeans are now also buying American oil.

This brings us to the issue of supply. If it was possible to rapidly increase output of North American production, this problem could be addressed more easily. Here, decisions by both the Biden and Obama administrations regarding projects like the Keystone Pipeline were harmful. ESG and pressure not to invest in “unpopular” fossil fuel projects did not help. But they were only able to do so much damage because the North American market needs some degree of support to function.

The same factors which make North American oil more “reliable,” in other words more stable in price, also make it less competitive in both global upturns and downturns. Just as distance makes North American oil more reliable in North America, those same distances make it almost inherently less competitive in the global market. It will almost always be cheaper to ship Russian oil to Europe through existing pipelines than to transport U.S. oil to ships in ports, where it will compete with other goods for scarce container space, ship it to ports in Europe (or Asia), unload it, and then distribute it. So, while American prices are being driven higher because Europeans are suddenly buying U.S. crude, an end to sanctions and a resumption of Russian supply would not merely cause prices to drop, but potentially to drop through the floor.

This might sound good but it is not. Unlike a stock, which, if an investor loses money on an investment, they have just lost that amount, with oil futures traders are obligated to take possession of a physical product. If suddenly no one wishes to take possession because the value of the oil is less than the costs of storage, a situation can arise where the price turns negative. Those in possession will have to literally pay anyone with storage capacity to take oil off of their hands. This is precisely what happened in April of 2020, when prices for U.S. crude dropped to negative $28. While all oil prices vary, as the two charts comparing West Texas Crude (U.S.) and Brent (North Sea/Europe) show, only U.S. prices tend to drop into negative territory.

Drops are rare. More than 90% of the time North American oil is profitable, and that stability is an asset, both financially and for national security. But that occasional drop into negative territory is enough to endanger investors, especially if they cannot count either on governmental support (price floors, buying up excess for a strategic reserve when negative) or private loans. Any infrastructure projects such as fields and pipelines require borrowing money. If, due to ESG investing, banks are reluctant to lend, and worse, if when prices drop into negative territory those “negative prices” are used by ESG advocates and governments as “proof” that fossil fuels are going extinct and therefore a justification to let companies fail rather than help them, why would anyone invest?

A real national energy strategy has to embrace the unique advantage geography provides the United States when it comes to energy security. But it has to recognize as well that this advantage comes with the occasional hiccup when left to the market. As a matter of national energy security, governments and the private sector need to mitigate those factors so Americans can benefit from the bounty geography and providence have granted them. If instead they see it as “evidence” they should divest from fossil fuels every time this happens, and it does happen cyclically, we will keep ending up in this spot with gimmicks like the gas tax holiday.

Americans need a national energy strategy. A “gas tax holiday” is not that, but nor is it just focusing on ESGs. It is the attitude behind those actions, which is a failure to understand the nature of the market, and how the world interconnects, that matters, and that has led to the crisis facing the country today.

Daniel Berman is a frequent commentator and lecturer on foreign policy and political affairs, both nationally and internationally. He holds a Ph.D. in International Relations from the London School of Economics. He also writes as Daniel Roman.


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Susan
1 month ago

What about the record profits, in the first quarter of 2022, the top 5 oil industry majors (Shell, Exxon/Mobil, ConocoPhillips, BP, and Chevron) are still raking in on the backs of the American consumer? The elephant in the room…

Patty
1 month ago

Joe is largely brain-dead & has NEVER actually been a ‘good’ representative for his constituency. But I guess those fools kept re-electing him???????
President Trump had our nation on the right track. And he did it with both of his hands tied by his idiotic opposition!
I voted for him because he was NOT a politician, but a successful business man who had ‘earned’ his wealth, who did not need to ruin his life by jumping into the DC cesspool & try to put in policies which would save our nation from the enemies within … ( unlike “lifetime politicians” who without the slightest iota of conscience or shame, continually profit personally, while claiming to represent the will of “We, the People”. Most of them are thieving “demagogues”!! )
If you don’t think we are worse off as a nation with the current DC dictator heading our country, you too are a hopeless fool.

Jmcnatt
1 month ago

This gas tax holiday is a joke, just like our President.
I’ve read all these comments and the best way out of some of these problems is to VOTE in every election and try and rid this country of the deplorable Democrats. Nancy P and her puppets should have been gone long ago and as for Biden, well they stole that election and no one has the guts to stand up and defend Trump. Our country was finally headed in the right direction and we are back in the bottom of the barrel drowning. Other countries are laughing at us.

Karen
1 month ago

More ridiculous ideas of the Biden administration. Thanks for nothing Joe.

Rich
1 month ago

You can explain away the crisis with your PH.d education but the bottom line is I know what I was paying for gas on the last day of President Trumps administration and I know what I am paying now. In any market, as soon as there is more product on the market, prices start to stabilize and come down. I would rather buy ANY product made in America than another country. The socialists hate making America great again. It just doesn’t fit with their globalist agenda. As far as the democrats “tax holiday”, it should be part of April fools.

Enuf Said
1 month ago

Americans do not want to get oil from foreign killers-they want oil from AMERICAN DRILLERS! Well, with Biden’s HOLIDAY- you can save $3.60 on a 20 GALLON fill up– not enough to even buy a gallon of gas. Wonder how much loss of tax revenue this HOLIDAY will be! The Dims are masters at spending MORE than they bring in–ALL of them have champagne tastes and BEER INCOMES!!

Walter
1 month ago
Reply to  Enuf Said

Well said!

Steven Tapper
1 month ago

The idea of a Federal Gas Tax Holiday is totally reactionary and a knee jerk reaction to the outrage over gas prices which are currently around $5 a gallon.

This whole “New Green Deal” was never thought through properly. It’s purpose was to make gas more expensive to close the gap between gas powered vehicles and electric vehicles. Right now the average cost of an electric car is roughly $60 K versus $42 K for a gas powered vehicle.

Not figured into this calculation is that the infrastructure to have enough charging stations nationally and having electric car owners foot the bill to add a charging station at their home is going to take several decades at least.

Also noteworthy is that the government is using the pretext that electric cars are environmentally good for Mother Earth and that fossil fuels are dirty and environmentally unacceptable. First of all every modern vehicle produces very little carbon dioxide and other pollutants as they meet extremely rigid EPA and CAFE requirements. What the Administration and Media is not telling us is that the power plants producing the electricity for these electric cars use fossil fuels such as coal, natural gas and nuclear power. Using inefficient windmills or solar power isn’t an option.

Shutting down the pipeline and not allowing for drilling in known oil fields such as Alaska and offshore have crippled our capacity to produce and deliver adequate supplies of oil to the dwindling number of oil refineries still operating. This was done intentionally by Biden/Obama and the negative effects it is having on our economy and the pain it is causing American families with the rising costs of everything is moving us into a Recession if we are not already there.

This gas holiday may not even give the poor American consumer the benefit of the price cut because there will be dealers and distributors who will not pass on the entire Federal Gas Tax to the consumer.

Denise
1 month ago
Reply to  Steven Tapper

And every thing this puppet “president” does is under the direction of a previous “president” (more and more, finally, who are understanding this) who promised to “fundamentally change America.” And who himself is being controlled by those bleeding from the eyes to destroy this nation and “usher in the new world order” so fondly spoken of by George Bush Sr. in his presidential acceptance speech.This nation is sitting on multiple millions of gallons of oil. Everything the leftist traitors to this nation are doing is by design and destruction. Our freedom, our Constitution, Bill of Rights and Declaration of Independence is an anathema to them, and must be destroyed before they can “rule” the masses. Just like once successful and free nations for many years have been destroyed. And the “victors” will dance on the rubble.”

Larry W
1 month ago

Biden insults the American people’s intelligence every time he speaks. Biden’s policies have doubled the price of gasoline and he wants to lower it by 18 cents a gallon. This man has no business being the president. He has no respect for the hard working men and women of this country. And he has no idea how to help the people he is supposed to serve. Or maybe he doesn’t have any desire to serve.

James J
1 month ago

so sick of this Communist Idiot do ray me fa q biden

Dr.Zorro
1 month ago

Wow! This “gas tax holiday” will be a great savings of? Thanks, Joey, for closing the pipeline and buying oil from Dictators at a high price. We need a permanent holiday from you and your corrupt regime.

Tom Fargher
1 month ago

The elephant in the room that no one is talking about, refining capacity of the crude. Oil companies are producing at near 100% and not enough to meet current demand. The last new refinery went into service in 1977, and in the last year alone, 5 refineries shut down, reducing the total capacity by 5%, at a time where demand has increased. With current environmental regulations it will be nearly impossible to build another and the ones we have are getting OLD!

jocko
1 month ago

ALL libs=CANCER

Sean Richman
1 month ago

This thing that the democRATS are doing means absolutely NOTHING.I live in the very corrupt state of Illinois.We,or the people that voted for democRATS have a governor,and a president that are totally screwing the AMERICAN people.But in sloppy joeys case he is totally unaware of where he is,soros and nonobama are controlling him,but pritzker has no excuse for what he and his chitcago hoodlums have done to our state.

Centurion
1 month ago

All that oil released from the strategic reserves did not do anything. Haven’t heard anything. Is it still being released?

Richard charles riggle
1 month ago

the so called leader of this country and all his dumbass party members are the reason we are in this mess to begin with. He is nothing but a son of a bitch, dumbass.Him and his other dumbasses have been in Washington d.c., and have done nothing but all most ruoin this country.he needs to be impeached right after the next elections.

Dave
1 month ago

‘Pausing’ the federal gas tax is a mid-term ‘Hail Mary’;

  1. Gas stations aren’t going to pass the alleged total savings onto the consumer;
  2. The ‘savings’ by dropping the tax on the average ‘deplorables’ car for three months is ~$20;
  3. Once the ‘pause’ has sunset, the printing press for the fiat money will have to make it up – they’re smoking now…don’t really want to count on the Chinese ‘Some Ting Wong’ Fire Department to come to my rescue…

Doing this fool’s errand is akin to having problems at home, going to the bar to ‘drink’ your problems away, get smashed, go home (assuming you didn’t drive impaired – though I’d be hoping for too much) and think your problems suddenly disappeared and everything is ‘OK’ again… In reality, you have just added yet another ‘trouble’ to your life – trust me (not through personal experience, I’ve seen it demonstrated to me over and over by others who performed the skit free-of-charge).

Casey C Matt
1 month ago

Whoever the real President is he/she/they are evil…..pure evil. They relish in the suffering of “the Deplorables” and have no care for rising gas or food or utility costs………not a bit as politicians steal such a high income from insider trading and kickbacks from industry and lobbyists……….inflation is a healed pimple to them.
The people need to think about when the time is right to use the Second Amendment for its intended purpose and that is to fight tyranny both at home and abroad. Tyranny currently has its base in our own government.

Rich
1 month ago
Reply to  Casey C Matt

But isn’t it amazing how the supporters of these tyrants hang on their every word and vote for more.

Stephen Russell
1 month ago

Open up the pipelines, fracking, drilling, Nuclear

Walter
1 month ago

Totally agree. I wonder if J. Biden will travel by rowboat to Europe & Asia for meetings instead of burning high-cost fuel that the taxpayers must pay for. He could even communicate via satellite links Afterall, do you really think he knows he is overseas at a meeting or not? Biden is corrupt and he is destroying our Great Country. He is Totally irresponsible, and we are stuck with him. He needs to be ousted NOW! We should not have to wait 2 years more to see our country continually destroyed. Who the heck is the 30% of voters that approve him? Are you kidding?

BAE
1 month ago

President Joe Biden did this. He made the gas prices what they are today. No excuses, he did it!

Anita Wasemann
1 month ago
Reply to  BAE

And it wasn’t even because of his incompetence.
This is planned. They are determined to show us that “all good things come from Big Brother”, that we are dependent on them, and therefore must toe the line.

Centurion
1 month ago
Reply to  BAE

I’m seeing stickers on gas pumps where his fraudulency is pointing at the price and saying with a big smile “I did that!”

Myrna Wade
1 month ago

The politicians who depend on emotions for votes take advantage of being in a situation in which they know another branch of government will not be influenced only by emotions to make a statement knowing they never have to make good on it. Therefore, Biden can speak out for a tax holiday and know that congress is not going to send a bill to him for signing.

He can also ask Congress to pass a law to take the place of Roe vs Wade and not expect to see any such law because it is not constitutional.

Biden is struggling to look relevant so he can sign whatever congress can pass before the midterms. Thank goodness quite a number are running for re-election and can’t just do anything.

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