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Paying for the Energy Bill

Created on June 21, 2007

Paying for the Energy Bill

Energy Bill Pumps Up Gas Prices

Congress wants to give our national energy policy a tune-up. But the proposal being debated in the Senate could leave motorists paying more than twice as much at the gas pump within 10 years.

An analysis of the upbeat-sounding Renewable Fuels, Consumer Protection and Energy Efficiency Act by The Heritage Foundation concludes the bill would hike the price of regular unleaded to a national average of $6.41 per gallon by 2016.

In some states -- California, Illinois, Michigan, Oregon and Washington among them -- the price could close on $7 a gallon.

Lawmakers crafted the bill with a worthy goal in mind -- to slow and eventually reverse the rise in carbon emissions from gas-powered vehicles.

But they've gone at it by requiring producers to add more ethanol and other renewable fuels to gasoline. Ethanol is more expensive to make than regular gasoline and delivers less mileage per gallon.

And although the bill doesn't provide any significant steps toward expanding the nation's petroleum supply, it includes price caps to prevent "price gouging" and tax increases for gasoline producers that will boomerang on consumers.

Here's a simple economic truth: High prices spur producers to increase supply, which ultimately lowers prices for consumers. History shows that price controls actually, if unintentionally, reduce supply and drive up prices. Consumer demand rises because of capped prices, but profit-motivated producers have no incentive to meet that demand. Rationing often follows.

Consumers also will take it in the pocketbook as producers pass along the cost of the bill's industry-specific tax hikes -- including smaller tax credits and deductions and new taxes on finished gasoline and U.S.-produced gas sold abroad.

Result: Drivers can expect to pay up to $3.79 a gallon next year if the Senate energy bill becomes law -- and could be on the road to paying $6.41 a gallon on average and $1,594 more a year for gas in 2016.

More information on gas prices and the energy bill (S. 1419, H.R. 6), including a state-by-state forecast of price increases, may be found at heritage.org.