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Report Blames White House Inaction for High Gas Prices

Governors Fret, Think Tank Advocates More Nuclear Power

August 9, 2006
One year after the Administration's energy policy was signed into law, consumers are paying record high prices for gas and the majority of the cost increases have turned into profits for domestic oil companies. At their summer meeting, the nation's governors also expressed alarm about high energy prices but differed on the proper solution and a conservative think tank called for expanded use of nuclear power.

"As gasoline prices and oil industry profits hit record high levels, so too has public frustration and concern," said Ann Wright, Senior Policy Analyst for Consumers Union. "The oil companies continue to be the largest benefactors of our nation's energy policy -- not the American public."

A report released by the Consumer Federation of America and Consumers Union claims the following:

• The increase in the domestic refiner/market spread -- the amount oil companies take for domestic refining and marketing -- since last summer is about 34 cents per gallon, which is more than the increase in crude oil costs (about 31 cents).

• This increase in the domestic spread adds about $12 billion to summer driving costs for consumers.

• Compared with 2002, the last time summer gasoline sold at $1.50 per gallon, domestic crude and refining/marketing have accounted for an 85-cent increase in the price of gasoline.

"Because the price increases are not driven by costs, oil industry profits have skyrocketed," Mark Cooper, CFA's Director of Research, contends. "Oil companies will make more money this year than they did in 1995 to 1999 combined. Comparing oil industry profits to the Standard and Poors Industrial, the industry will have $120 billion in excess profits in the 2001-2006 period. Cash flow has increased so fast that the industry simply cannot absorb it. Cash flow has exceeded net new investment by $120 billion, yet, Congress continues to lavish favors on the industry."

CFA says its membership consists of about 300 nonprofit organizations and claims it speaks "for virtually all consumers." Consumers Union says it is "an independent, nonprofit testing and information organization serving only consumers."

In Charleston, S.C., the nation's governors complained that high gas prices and the Alaska oil field shutdown are just the latest results of years of White House neglect.

Democratic Gov. Kathleen Blanco of Louisiana, a key state in fuel production and distribution, criticized the federal government's monitoring of critical infrastructure. But Republican Gov. Haley Barbour of Mississippi said the problem was environmentalists and others who fight increased drilling and pipeline construction.

"From our perspective in Louisiana, our wetlands are disappearing and it's exposing our network of pipelines," Blanco said, according to press reports. "That's potentially putting our whole infrastructure at greater risk." She said local development and pollution also spurs erosion, but said more federal involvement is needed.

Barbour disagreed. "We need supply to grow. That means more drilling ... more nuclear energy, more coal to liquid," he said. "We see how the shortsightedness of not-in-my-backyard resistance can cause enormous reduction in supply, which is going to result in higher prices."

More Nukes

A report from the National Center for Policy Analysis (NCPA) suggests combating climate change and ensuring an adequate supply of affordable energy requires creative thinking about the world's energy needs. According to the report, nuclear power holds the most promise as a clean, practical alternative to fossil fuels that could help satisfy the world economy's growing demand for energy.

"If we buy the theory that human use of fossil fuels (coal, oil and natural gas) is causing global warming, we must reassess how we are going to fuel economic growth in the future," said Pete Geddes, executive vice president of the Foundation for Research on Economics and the Environment (FREE) and co-author of the report. "Nuclear power very well could be the best choice to reduce the threat arguably posed by fossil fuels."

Sustaining economic growth in developed countries and accelerating growth in the developing world means that energy demand will increase dramatically in the coming century. The International Energy Agency projects world energy demand will grow 65 percent by 2020.

According to the report, reducing the amount of CO2 humans put into the atmosphere, while still meeting the energy demands of an expected population of more than 9 billion people by 2050, requires reconsidering nuclear power - a safe, practical alternative.

CFA's Retort

The report charges that the recently passed legislation to expand drilling in environmentally sensitive coastal areas will do little to lower prices or free our nation from its addiction to oil.

• About 85% of the oil in coastal areas is already available for drilling.

• The small increment of oil to be drilled in the new areas constitutes less than 2% of global reserves.

• It equals just two years U.S. consumption, hardly a long-term solution.

"The drilling legislation will fatten the oil industry's bottom line, since the oil companies will find "cheap" oil, but charge the world price," Cooper charged.

"While the Administration and Congressional leadership continue to push traditional supply-side strategies by promoting drilling, many of the policies we have been advocating for years are garnering bipartisan support. Congress and the Administration should turn their attention to enacting a meaningful energy plan that includes strong efficiency standards and better oversight of the price raising practices of industry," Wright said.

The report points out that members from both sides of the aisle have cosponsored proposals to:

• cut oil consumption and imports by as much as 10 million barrels per day (almost 40%) over the next quarter century;

• dramatically increase auto and truck fuel economy standards;

• require the Environmental Protection Agency to update miles per gallon estimates on new vehicle window stickers and require manufacturers to use accurate estimates in compliance with federal mileage standards;

• make mileage information readily accessible on new car stickers, in advertising and even on real-time dashboard displays during driving;

• empower antitrust and commodity market regulators to scrutinize the price raising business practices of the oil industry and commodity speculators.

"These aggressive efficiency measures will ‘deliver' five to ten times as much capacity to the oil market as the drilling bills recently passed by the House and Senate," Cooper claimed, "and fuel economy-driven oil savings are sustainable for the long term, while the small increase in production that results from expanded drilling is not."

The report contends that the results of a recent CFA-sponsored public opinion poll indicate that people are ready for a change in energy policy. According to the results, based on a random national sample:

• Over three-quarters of respondents support requiring major increases in the fuel efficiency of cars, requiring auto companies to boost alternative fuel vehicles from 3% to 25% of the new car fleet, and making mileage information more readily available as well.

"Hopefully, if the members of Congress get an earful from their constituents during the summer recess, the Congressional leadership will feel the heat and give these important efficiency measures and consumer protection bills votes when they return in September," Wright concluded.

The Nuclear Option

The NCPA report notes that despite opposition, nuclear power currently produces much of the electric power in developed countries.

• Nuclear power provides about 75 percent of the electricity in France and 20 percent in the United States.

• With 434 operating reactors worldwide, nuclear power meets the electrical needs of more than a billion people.

• China alone is planning to build 30 nuclear reactors over the next five years.

Nuclear power has advantages over fossil fuels, the report noted. A single, quarter-ounce pellet of uranium generates as much energy as 3.5 barrels of oil, 17,000 cubic feet of natural gas, or 1,780 pounds of coal, with none of the CO2 emissions. However, conventional reactors only utilize approximately 3 percent of the energy contained in nuclear fuel.

If the United States joined France and Japan in recycling used fuel, and recycled the more than 15,000 plutonium pits removed from dismantled U.S. nuclear weapons, existing and recycled supplies would provide an almost unlimited amount of nuclear fuel.

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