Gas Prices: There Are Things the Government Can Do

Nicolas Loris /


Gas prices have been consistently climbing across the country, up 46 cents per gallon in the past month and 20 cents higher than they were a year ago today. The pain at the pump appears to be on everyone’s front burner, except in Washington, D.C., where all the attention is on the $85 billion in budget cuts that will take effect next week.

Although the federal government does not have a silver bullet remedy to lower gas prices to $2 per gallon, there are actions that Congress and the Obama Administration can take to allow for more domestic oil production, which would increase supply to offset rising demand and increase America’s percentage of the world’s total production to help minimize supply shocks.

A number of factors are contributing to rising prices. Over two-thirds of a gallon of gasoline comes from the price of oil, which is set on the global level. Developing countries are using more oil and China and India are also using more oil as they continue rapid economic growth. A weaker dollar means it takes more money to buy the same amount of oil.

The Organization of the Petroleum Exporting Countries (OPEC) have agreed to cut output and are producing 700,000 barrels of oil per day less than they were a year ago. The mere threat of a supply shock as a result of political unrest in Iran, Iraq, Israel, Libya, and Syria is driving up the price.

Domestically, refineries in some regions of the country have temporarily closed for maintenance to switch to required summer blends that evaporate fewer emissions into the atmosphere under warmer temperatures. Further, a weaker dollar means it takes more money to buy the same amount of oil.

Despite the high gas prices, the reality is—it could be worse. Without the dramatic increase in oil production on state and private lands, prices would be higher and the American economic situation would be grimmer. In just the past few years, unconventional oil and gas operations have generated over 1.75 million jobs.

But there’s more the U.S. could be doing to increase oil supplies that will create jobs, increase economic growth, and raise government revenue—without raising taxes. Approving the Keystone XL Pipeline would result in 830,000 barrels of oil per day (more than OPEC cut its production) coming from Canada to Gulf Coast refineries.

The United States is the only country in the world that has placed a majority of its territorial waters off-limits to oil exploration. Congress should lift the ban on exploration in the eastern Gulf of Mexico and the Atlantic and Pacific coasts, and should conduct more lease sales off Alaska’s coasts.

Another obvious area in which to expand oil production is in Alaska’s Arctic National Wildlife Refuge (ANWR), where an estimated 10.4 billion barrels of oil lie beneath a few thousand acres that can be accessed with minimal environmental impact. Congress should require the Secretary of the Interior to conduct lease sales if a commercial interest exists to explore and drill.

Oil shale production in the U.S. could be a global game-changer for oil production. The U.S. holds the largest known reserves of oil shale in the world. According to the Bureau of Land Management, the U.S. has more than five times the proven reserves of oil in Saudi Arabia. Although not technologically or commercially viable yet, the Obama Administration has backpedaled on oil shale development by applying new regulations, unworkable time frames, and significantly reducing the land available for research and development leases.

The most effective response to oil price spikes and high prices at the pump is to allow markets to work. Regrettably, government restrictions and regulations impede the market’s effectiveness in responding to changes in oil prices. The economic gains from energy production over the past few years have been undeniably encouraging. What’s happening on state and private lands should be the model for the energy and economic potential we can realize on federal lands. Congress and the Administration should set the framework to allow it to happen.