What's Wrong with the Status Quo?

The week President Bush was sworn into his first term, the average price of a gallon of regular gas was $1.47 nationwide. Now the average is nearly $3, with some parts of the country paying significantly more.

Nearly 70 percent of Americans believe that higher gasoline prices will cause financial hardship for them or their family. Yet while working families suffer under the weight of high energy prices, the world's largest energy companies are enjoying record-breaking profits and the oil exporting nations of OPEC are seeing their coffers swell.

Consider a few numbers from 2005:

With global oil demand rising, the United States needs to reduce our oil demand and develop alternatives for gasoline and diesel. Instead, the President's energy policy, conceived in secret by Vice President Cheney and energy company executives, does little to increase conservation or energy efficiency, or take bold steps toward alternative sources of energy. Conservatives have demonstrated their commitment to supply-only solutions -- like drilling in protected areas off our coasts and in Alaska -- undercutting our economic, environmental and national security interests in favor of tax breaks for oil and gas companies that are enjoying record profits.

In the aftermath of Hurricanes Katrina and Rita, the conservative leadership in the House of Representatives strong-armed moderates to pass the industry friendly Gasoline for America's Security Act. The act eases environmental regulations and provides the profitable oil industry with new incentives to increase refining capacity, while doing nothing to help consumers or reduce demand.

While consumers are feeling the pinch, high energy prices have been a boon to energy companies and their CEOs. Over the same period that we have seen tremendous growth in the price of crude oil and gasoline, we have seen an even greater rise in the compensation received by energy industry CEOs. In fact, between 2002 and 2005, their median compensation increased by 215 percent. (Source: Scott DeCarlo, CEO compensation, Forbes, April 21, 2005, available here.) This rise is not just a reflection of across the board increases in CEO compensation. Compared with CEOs from other sectors, oil and gas CEOs had the biggest increase in compensation in 2004 and the overall largest compensations in 2005.

How did they earn their pay raises? Internal oil company memos from the mid-1990s suggest a concerted effort by major refiners to constrain refining capacity in order to increase the profitability of this aspect of their business. These efforts, coupled with rising demand and the impact of hurricanes, has led to a nearly three-fold increase in the amount refiners earned on each gallon of gasoline. In September of 2004, refiners collected an average of $0.28 per gallon, but by the end of 2005, they were collecting nearly $1. (Source: Justin Blum, Gas Profit Guzzlers, The Washington Post, September 25, 2005, available here.)

Our oil dependence leaves our economy dangerously vulnerable to price shocks and upheavals that dampen economic growth and burden the budgets of American families. It makes us more vulnerable to unfriendly oil regimes and terrorists funded out of the Middle East. It contributes to smog and related public health problems and to greenhouse gas build up in the atmosphere and dangerous climate destabilization. Instead of rewarding oil companies for fueling an unsustainable energy pathway, leaders in Washington should be paving the way for alternative fuels and increased efficiency policies that reward consumers, not CEOs.

For a full report on why Big Oil is profiting while regular Americans are paying more read our report: "Pain at the Pump."