Gas prices tank Democrats’ agenda for clean energy future

An unrelenting spike in gasoline prices at the pump has thrown Democrats for a loop as they search for ways to make it easier for Americans to do something contrary to the party’s climate change messaging: fill up their tanks.

For years, Democrats have sought solutions to minimize the country’s dependence on fossil fuels by making renewable resources like wind, solar and nuclear power more enticing and affordable for consumers. 

But many Democrats now argue that, amid the record-high prices, extraordinary times call for extraordinary measures, as they now want to ease the financial burden placed on many of their fossil-fuel-consuming constituents.

One of the latest proposals is a “Big Oil Windfall Profits Tax” on large oil companies that would combat “corporate profiteering” by levying a 50% tax on profits when oil is above $66 per barrel — the average price from 2015-2019 — and rebate a portion of the money to taxpayers in the range of $240 for single tax filers and $360 for joint filers. The tax would spare smaller producers by targeting only corporations that produce at least 300,000 barrels of oil per day. 

Rep. Ro Khanna, California Democrat and a lead author of the windfall tax, argued the tax hike would give oil companies an incentive to keep their prices low.

“Whatever we do, we have to take the working-class Americans into account,” Mr. Khanna said. “We can’t be raising gas prices indefinitely.”

The industry, which saw record profits last year, is not a fan. It argues that investment in new production needed to match demand would be stifled by higher taxes. An unintended consequence could also be a sort of vicious cycle that runs counter to a clean energy transition, where the windfall tax is passed along to consumers and then offset with a government subsidy to pay the higher prices.

“The American people are looking for solutions, not finger-pointing,” said Frank Macchiarola, the senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute. “Lawmakers should focus on policies that increase U.S. supply to help mitigate the situation rather than political grandstanding that does nothing but discourage investment at a time when it’s needed the most.”

Another idea Democrats considered in the fall as they tried to keep President Biden’s Build Back Better budget alive was a carbon tax on oil companies to reduce carbon dioxide pollution by making it more expensive to burn fossil fuels. But while a carbon tax could be effective against climate change, it’s one that GOP critics and even many Democrats said would have backfired because of the likelihood that the tax would be passed down to consumers in the form of energy costs.
 
State legislatures across the country have already taken matters into their own hands, with moves such as suspending gasoline taxes. Maryland Republican Gov. Larry Hogan worked with the Democratic legislature to quickly implement a 30-day gas tax “holiday ” that will save motorists roughly 36 cents per gallon on regular fuel.
 
Democrats believe what’s going on at the pumps is separate from the energy sector writ large and the campaign to limit greenhouse gas emissions that cause climate change.
 
“I think, in a lot of cases, it’s hard to compare with what’s going on with gas prices with other parts of the energy sector because for some of us, we do think there’s price gouging going on,” said Mark Pocan, Wisconsin Democrat and a leader of the Progressive Caucus.
 
But gasoline prices always take far longer to fall than they do to rise, a phenomenon known as “rockets and feathers.” Democrats have tried to capitalize on the phenomenon to accuse oil companies of taking advantage of consumers. Industry experts, meanwhile, have said market volatility from inflation and the war in Ukraine has the global energy sector in a delicate position that is vulnerable to price swings. 

The national average for a gallon of regular fuel was $4.25 as of Monday, down 8 cents from a high of $4.33 earlier this month, according to AAA. By contrast, the price of a barrel of oil on world markets was around $107 per barrel Monday, down more than $20 from its high of around $130 earlier this month.
 
Some Democrats, such as Sen. Martin Heinrich of New Mexico, a large energy-producing state, have advocated for climate policies that shift demand away from fossil fuels rather than targeting the supply side with policies that could unintentionally take a chunk out of Americans’ pocketbooks.
 
“My position is that the solutions that tend to work long-term are on the demand side, not supply side,” Mr. Heinrich said.