Gas tops $3 a gallon as fears of rising costs complicate Biden's energy agenda
WASHINGTON (SBG) — Average gas prices in the United States topped $3.00 for the first time in seven years Wednesday as the rising costs of fuel and other products introduced new political hurdles for President Joe Biden’s agenda for energy and the economy.
The average price of a gallon of gas has increased by more than $0.50 since Biden took office, as the easing of coronavirus-related restrictions spurs fresh demand for fuel. The administration’s plans to pursue more climate-friendly energy policies and regulations are drawing fresh scrutiny, with Republicans claiming they would leave Americans paying much more at the pump.
The latest spike in prices was driven largely by a ransomware attack last week on the Colonial Pipeline, which typically delivers about 45% of the East Coast’s gas. Although the pipeline was restarted late Wednesday, the effects of the brief shutdown could linger.
The White House acted aggressively to contain the political and economic fallout of the pipeline attack. That effort included an executive order on cybersecurity, waivers of regulations limiting the transport of fuel by road and sea, and spotlighting Biden’s proposal to strengthen critical infrastructure as part of his $2.25 trillion American Jobs Plan.
Despite steps taken to shore up gas supplies, there have been widespread reports of panic buying, price gouging, and fuel shortages along the East Coast. This is all coming at a crucial moment, as the COVID-19 pandemic’s effects on daily life begin to recede and drivers return to the road for business and pleasure.
“While this is not a milestone anyone wants to celebrate, it’s a sign that things are slowly returning to normal,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a statement on average gas prices hitting $3.00. “In this case, rising gas prices are a sign Americans are getting back out into the world — attending baseball games, going to concerts, taking a road trip — basically staying anywhere but at home.”
De Haan expects that trend to continue into the summer with possible record demand for gasoline as Americans travel more domestically. Any further issues at refineries like the ransomware attack could drive a temporary spike, but he otherwise projected prices would settle around the upper $2 range seen in 2018.
AAA is predicting pent-up demand for leisure activity will spur a 60% increase in Memorial Day weekend travel over 2020 levels. Traffic might not return to pre-pandemic volume for a while, but gas consumption will be considerably higher in the months ahead than during the last year.
Republicans were already pointing fingers at Biden for an uptick in gas prices on his watch before the pipeline incident. They amplified frustration over the situation this week to argue for more oil and gas drilling in the U.S., and to question Biden’s decisions to cancel construction of the Keystone XL oil pipeline and pause new federal oil and gas leases.
“The Colonial Pipeline crisis shows that we need more American energy to fuel our economy, not less,” tweeted House Minority Leader Kevin McCarthy, R-Calif.
However, even some Biden critics acknowledge his policies have not greatly impacted fuel costs in the last four months. A recent Heritage Foundation report pointed to decisions by the Organization of the Petroleum Exporting Countries, Russia, and China influencing prices, as well as seasonal factors and long-standing federal regulations.
Don Fullerton, a professor of finance at the University of Illinois at Urbana-Champaign and former deputy assistant Treasury secretary, said gas prices would likely remain elevated for some time because of the increase in demand and changes in oil supply around the world. Prices are much more susceptible to events abroad than to new U.S. federal policies.
“The problem for making these predictions is oil prices are sort of determined by world markets,” Fullerton said.
According to Mark Jones, a political science fellow at the Baker Institute for Public Policy at Rice University, fuel prices are also up partly because prices of all goods are up. Consumer prices rose by 0.8% in April, the largest monthly increase in over a decade, and the $1.9 trillion Biden already poured into the economy threatens to push inflation higher.
“The Biden administration’s stimulus plan is heating up the economy, thereby boosting inflation, which is affecting everything, including gasoline,” Jones said.
The increased financial strain on drivers could complicate the already-rocky path ahead for Biden’s infrastructure and energy policies. He has proposed massive investments in clean energy and electric vehicles as part of his American Jobs Plan, but Republicans maintain the focus of any new spending should be improving physical infrastructure.
With a narrow majority in the House and 50 votes in the Senate, Democrats could advance Biden’s $2.25 trillion proposal using reconciliation, but the president and some moderates are trying to forge a bipartisan deal. Disagreements over energy are just one of many obstacles in those negotiations.
President Biden met with Democratic and Republican leaders at the White House Wednesday, and he invited several Republican senators to discuss a potential infrastructure compromise Thursday. The two parties remain far apart on what to spend and how to pay for it, though.
“It’s a genuine effort,” Biden said during an Oval Office meeting with GOP senators Thursday. “I think we’ll get there.”
Republicans have proposed a much smaller infrastructure package that could be funded by repurposing unused coronavirus relief funds and imposing user fees on drivers. They have flatly rejected raising taxes, particularly if it entails reversing reforms made in the 2017 Tax Cuts and Jobs Act, which leaves few other options to raise revenue if Biden wants the final bill to have GOP support.
"We're not interested in re-opening the 2017 tax bill... That’s our red line,” Senate Minority Leader Mitch McConnell, R-Ky., told reporters after meeting with Biden Wednesday.
Biden’s proposed tax hikes for corporations and the wealthy have proven far more popular with voters than the prospect of user fees or a gasoline tax increase. Rising gas prices are unlikely to make middle-class drivers more amenable to new fees.
Prospects for a bipartisan agreement on infrastructure were already slim, but concerns about bearing the blame for increased consumer costs could dash any remaining hopes. Democrats are prepared to press ahead without Republican votes, but it is unclear how large of a package more moderate members of Biden’s party would support.
"Let's see if we can get an agreement to kick-start this, and then fight over what's left and see if I can get it done without Republicans, if need be," Biden said in an interview with MSNBC Wednesday.
Experts say the energy policies included in the American Jobs Plan are unlikely to have significant repercussions for gas prices. However, Biden’s broader climate policy goals could drastically alter supply and demand for gasoline in the future if implemented.
Biden has set a target of cutting U.S. greenhouse gas emissions by 50% from 2005 levels by 2030 and achieving net-zero emissions economy-wide by 2050. The White House has not laid out detailed plans to achieve those goals, but they would surely require a massive shift away from fossil fuels toward electric vehicles and renewable energy sources.
Jones said Biden’s proposed regulatory regime, which would impose limits on where drilling can occur, how licenses are obtained, and what companies can do with waste would increase the operating costs of oil and natural gas companies. Those costs would inevitably be passed on to consumers, to some degree.
“Under a Biden administration, consumers should expect prices to be higher than they would have been under a Republican administration,” he said.
According to Fullerton, it would take a major swing in federal energy policy to significantly increase fuel prices. Nothing Biden has proposed so far rises to that level, and encouraging greater use of alternative energy sources might even bring fuel costs down if demand for gas drops.
“The place where policy could have an effect is if the country decided to have a substantial carbon tax... then gas prices might go up, as would coal and natural gas and all fossil fuels,” Fullerton said.
Whether Biden’s policies contribute significantly to higher prices at the pump or not, history suggests voters might hold him responsible for any increased costs if they persist into 2024. A severe gas shortage helped sink President Jimmy Carter’s 1980 reelection effort, but there is no indication of a crisis that dire on the horizon.
“As long as gas prices are in the $3.00-a-gallon range, it’s not a real problem for Biden,” said Gary Nordlinger, a political media consultant and an adjunct professor at the George Washington University Graduate School of Political Management.
A study published last fall by VoxEU of 207 elections in 50 countries found rising gas prices systematically lower the odds of incumbents being reelected. In the U.S., all three presidents who lost reelection bids in the late 20th century faced surging gas prices in the final year of their term.
“Both right-leaning and left-leaning incumbent parties are likely to lose elections following a crude oil price increase,” the report stated. “We verify that the winning parties are more likely to belong to the opposite end of the political spectrum as the incumbent.”
While prices in some parts of the country have jumped north of $3.50 a gallon, Nordlinger doubts the average increases Biden is currently facing would spark a backlash from voters in 2022 or 2024. Prices are not much higher than they were for most of 2019, and supply concerns should mostly work themselves out in the coming weeks.
“I think the bigger risk than energy prices is if inflation breaks out, because that reinforces Republican claims that we’re doing too much too fast,” he said.
Still, the ramifications of a sustained increase in gas prices could extend to other goods, as manufacturers and distributors face higher fuel costs and raise prices as a result. Unlike some more abstract economic indicators, voters are likely to be very cognizant of the cost of gas when they head to the polls.
“In the end, higher gas prices mean consumers are being forced to spend a higher proportion of their income on basic necessities,” Jones said.
