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Six Ideas to Counter High Gas Prices

Over the past year, and particularly since Russia’s invasion of Ukraine, gasoline prices have risen sharply, burdening low- and middle-income Americans that rely on cars as their primary mode of transportation and contributing to record levels of inflation. In this blog post, BPC evaluates some of the leading policy proposals put forth to address high gas prices and provide relief. 

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1. Enact a gasoline tax holiday.

In early February, a group of Democratic Senators led by Mark Kelly (D-AZ) and Maggie Hassan (D-NH) introduced S. 3609 to suspend the 18.4 cents-per-gallon federal excise tax on gasoline from the date of enactment through December 31, 2022. The idea has since gained some traction—a companion bill, H.R. 6787, was introduced in the House, six Democratic governors released a letter of support, and a handful of states have advanced proposals to suspend their own state gas taxes.

Our view: Suspending the federal gas tax would provide negligible relief to drivers, while undermining the Highway Trust Fund.

A federal gas tax holiday has limited value as a short-term remedy to high gas prices. Combined federal and state gas taxes amount to only 15% of retail gas prices.

Moreover, a gas tax holiday does not target—and might even exacerbate—the structural causes of rising gas prices. Currently, the United States’ constrained supply is unable to meet increasing demand for gasoline as the nation recovers from the pandemic—and a federal gas tax holiday could further boost demand. When states individually implement state-level gas tax holidays, lower prices could increase vehicle use within the state, boosting total national demand and raising prices only for drivers outside the state who do not benefit from the gas tax holiday.

In addition to doing little to reduce gas prices, a gas tax holiday would exacerbate the long-term insolvency of the Highway Trust Fund, which supports the construction and maintenance of the nation’s highway and transit systems. Even with funding from the Infrastructure Investment and Jobs Act, the HTF faces a structural funding gap, with dedicated revenue from gas taxes decreasing as cars become more efficient. According to the Committee for a Responsible Federal Budget, the proposed gas tax holiday would reduce federal revenues by $20 billion.

2. Boost domestic oil supply.

The Biden administration authorized three releases from the U.S. Strategic Petroleum Reserve—the national stockpile of crude oil— to make up for oil imports banned from Russia and soften the resulting gasoline price increases in the United States. In November 2021, President Biden first authorized the release of 50 million barrels and, along with 30 other countries, the U.S. released 30 million barrels following the start of the war in Ukraine. In late March, the administration authorized an additional 1 million barrels to be released per day over the next six months for a total up to 180 million barrels, in concert with releases from the International Energy Agency states of 60 million barrels.

Our view: SPR releases will have a modest impact on gasoline prices and are not a durable solution.

The SPR is not designed to address short-term, non-emergency impacts but is designed to be used in extreme emergency situations when there is an “energy supply shortage of significant scope or duration; and action taken [….] would assist directly and significantly in preventing or reducing the adverse impact of such shortage.” In addition, it may be expensive to replace these barrels in the SPR, as is required by law, at the elevated oil prices we are seeing now and for the foreseeable future.

Ultimately, increasing domestic oil supply has limited ability to affect energy prices in the near-term. Because the global price primarily drives the cost of gasoline at the pump, addressing energy prices in the U.S. requires significantly increasing the total international supply.

It typically takes at least eight months to drill a well and, if oil is found, get the oil to market, so it would take a long time to meaningfully increase U.S. production. It can take longer now as, unfortunately, COVID-19 disrupted oil production supply chains around the world and destabilized global production, labor, and transportation systems. Moreover, oil and gas shareholders suffered steep losses in the pandemic and are reluctant to support major investments to increase drilling without greater confidence and market stability—as well as the typical time it takes to bring new production online.

3. Lift the summertime ban on E15 gasoline.

On April 14, President Biden announced a plan to lift the summertime ban on selling E15 gasoline during the summer. Regular unleaded gasoline contains up to 10% ethanol by volume, while E15 gasoline has an ethanol percentage between 10.5% and 15%.

Our view: Selling E15 this summer will have a negligible effect on gas prices and increase air pollution.

While the cost per gallon of E15 is roughly 10 cents cheaper than regular unleaded, increasing the volume of ethanol can decrease the vehicle miles per gallon, meaning it may “feel” better to some drivers at the pump, but much of the cost benefit will be eaten up by needing to fill up more often. Moreover, because most gas stations do not have E15 pumps, most drivers would not have access to the E15.

There are also air quality concerns with using E15 during the summer months. The Clean Air Act has long prohibited the sale of E15 in the summertime because ethanol creates more smog (ground-level ozone) in higher ambient temperatures. President Trump similarly announced plans to sell E15 year-round, but the courts ruled that his administration did not have the authority to do so. The Biden administration believes this EPA waiver can survive a court challenge because the action is limited to this summer only and is prompted by an emergency. However, emergency fuel waivers are reserved for acute supply disruptions, such as those resulting from a hurricane.

4. Accelerate EV uptake.

In a press conference, DOT Secretary Pete Buttigieg noted the cost savings for drivers of electric vehicles, who do not rely on gasoline. With the $7.5 billion for EV charging infrastructure and additional spending on EVs and EV infrastructure proposed by Democrats in the Build Back Better Act, some policymakers have pointed to EVs as a potential solution for consumers burdened by high gas prices.

Our view: While supporting increased EV adoption has merit, particularly in meeting climate targets, the high cost and practical challenges of doing so in short term make it an unrealistic short-term solution.

Encouraging EV ownership is crucial to meeting our climate goals and would have the long-term benefit of increasing energy dependence—especially if paired with transition to clean electricity.

However, EVs are not currently a viable option for many Americans. The average EV is about $10,000 more than the average industry model, making their purchase cost prohibitive for many low- and moderate-income households. Like other parts of our economy, the auto industry has also been impacted by the increasing costs of materials and labor and supply chain disruptions, resulting in many dealerships already having low EV inventory. As a result, even if demand significantly increased or additional incentives were offered to buyers, more practical considerations would prevent EV production from ramping up quickly enough to mitigate the impact of short-term gas prices.

In addition, charging networks are not fully built out, particularly in rural areas. Even though most EV charging can happen at home, a scarcity of chargers can contribute to range anxiety and limit access for drivers that frequently travel long distances, as well as those that lack a garage or designated charging spot.

5. Encourage companies to extend work from home.

High gasoline prices have led some workers to express a desire to telework until prices subside. As many workplaces are shifting back to in-person work, while others transition permanently to hybrid or remote models, policymakers could offer guidance or incentives for companies to delay their returns to in-person work until gas prices subside.

Our view: Extended, expanded telework could help some families save on gas by cutting down commutes. However, it is unclear whether this would sufficiently cut overall demand to relieve broader price pressures and help low-income, front-line workers without the option to telework.

A significant return to remote work could temporarily relieve pressure on demand for gas—but not without caveats. According to the U.S. Census Bureau, those who substituted some or all of their in-person work for telework tend to have higher household incomes. For example, 73% of households with incomes of $200,000 or more reported switching to telework since the pandemic began, while just 32% of households with incomes between $50k and $75k reported the same. While encouraging telework could help some workers cut down on commuting, clearly higher-income households—those who are less burdened by higher gas prices—would be helped most unless the uptick in remote work sufficiently cut aggregate demand and reduced the pressure on prices.

Even then, this could have serious economic impacts, particularly for business districts. In 2020, national vehicle miles traveled in the U.S. fell to its lowest level since 1998—and fewer miles of car travel means less gas consumption. While this historic fall in vehicle miles traveled certainly reduced the demand for gasoline, it also came at a significant cost—and required the near-complete shutdown of the U.S. economy.

6. Incentivize drivers to find commuting alternatives.

Transit advocates have encouraged drivers to make greater use of public transportation to avoid paying high gas prices. Congress has signaled bipartisan commitment to revitalizing public transit through the Infrastructure Investment and Jobs Act’s $40 billion investment in public transit agencies. In the past, rising gas prices have motivated travelers to ride transit more, and some transit agencies are already seeing a boost in ridership. Incentives such as reduced fares, subsidies, and employer-provided reimbursements, as well as public messaging campaigns, could reduce the nation’s gas consumption and relieve the burden of high gas prices for drivers. In addition to mass transit, some cities have programs to encourage drivers to consider commuting alternatives like walking and cycling when possible.

Our view: Increasing transit ridership is an important goal but is not universally feasible.
Increasing transit ridership has a myriad of benefits, including reducing emissions, road congestion, and car fatalities, as well as raising revenue so that transit agencies can enhance and expand service. Incentives could advance these goals while helping to relieve the national demand for gas by encouraging Americans to drive less and ride transit more. Research indicates that when transit becomes a more attractive option relative to driving, modal shifts from driving to public transit reduce the number of vehicle miles driven.

Inducing demand would help transit agencies as they struggle to return to pre-pandemic levels of ridership. Nationally, weekly ridership is a little over 60% of pre-pandemic levels. In cities like New York, bus and subway ridership currently ranges from about 50% to 70% of pre-pandemic levels. Incentivizing public transit use in the short-run could inspire some Americans to change their behavior long-term, relying more on transit and less on cars, just as transit agencies are preparing to increase capacity with IIJA dollars.

However, transit is often only a viable option in urban and, to a lesser extent, suburban communities. While rural transit programs exist, rural Americans have fewer transit options, are more likely to drive farther for work, and are more burdened by high gas prices. While enhancing transit, increasing ridership, and supporting commuting alternatives like walking and cycling can all help reduce the demand for gas, the U.S. does not have the systems and infrastructure in place to make driving alternatives easy for millions of Americans looking to cut their spending on gas.

Conclusion

Unfortunately, there is no single policy change to quickly solve high prices at the pump. In the near term, policymakers should seek solutions that reduce overall demand for gas, promote commuting alternatives, and allow those who can afford to drive less to do so. However, even if the administration and Congress took all the above actions, many Americans would have to continue paying higher prices. Over the long term, meeting our climate goals and achieving energy independence will require more efficient vehicles, enhanced public transit systems, and investments in electrification and clean fuels. As this transition unfolds, policymakers will have to maintain sustainable funding for roads and bridges and ensure that EVs and transit are equitably available.

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