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Taking Action on Oil Savings

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To: Interested Parties
From: John Podesta, Bracken Hendricks, Ana Unruh Cohen, Alys Campaigne

Conventional wisdom says there is nothing Congress can do in the near term to respond to gas prices. This is dead wrong. Progressives must seize this moment of public attention to offer a bold, balanced, and far-reaching strategy – not just to ramp up domestic oil supplies as industry demands, but to help consumers and reduce demand.

In the face of record-breaking oil company profits, progressives can offer decisive action and visionary leadership – to provide immediate relief to working Americans, reduce long-term structural demand for oil, create real transportation choice, and retool the auto industry for jobs in the markets of the future. Public opinion is with us. Voters are looking for real answers and concrete action to break our dependence on oil.

With real leadership, we can claim the mantle of consumer advocates and long-term stewards of America’s security, economy, and environment, while exposing the oil-drunk policies of conservatives for what they are, a betrayal of our national interest, in favor of oil and gas companies enjoying record profits.

Reducing oil consumption now will boost the economy in the long run by saving consumers money and creating new jobs at home rather than sending dollars abroad for oil. Progressives should restore America's fiscal priorities, refocusing on investments that make us more resilient, rather than tax cuts for the wealthiest Americans and corporations. Substantial oil savings could be achieved for less than the $70 billion in new tax cuts under consideration in the 2006 budget.

Action is needed now to ease the pain of skyrocketing energy prices and increase our resiliency to future catastrophic events like Hurricane Katrina. This memo offers a clear framework for easing the near-term impact of high energy prices, and addressing the underlying structural causes of rising demand in the face of diminishing supplies. These points can structure an alternative policy agenda, and help guide a progressive response to the administration’s misguided policies.

Changing the debate on gas prices:

As conservatives make the case for public and personal inaction in the face of a national energy crisis and demonstrate again their blind commitment to supply-only solutions, progressives must step up to the challenge of providing level-headed leadership in the public interest. The following framework takes on the challenge of reducing oil demand while helping citizens with the real economic hardship of current energy prices.

1. Congress must demand a serious national commitment to oil savings

2. Target relief to those hardest hit by price spikes and those least able to pay

3. Ensure U.S. workers and industry lead the way in next generation cars and fuels

4. Pay for transition by penalizing inefficiency and profiteering oil companies

5. Use leadership to promote personal action and call for shared commitment to reducing oil demand following 9/11, Hurricane Katrina and in a time of war.

Progressives need a strong, visionary approach to oil that addresses consumer pain while tackling the long-term problem of too much demand chasing too little supply. We recommend that message and policy proposals be clustered around the following themes:

1. Congress must demand a serious and binding national commitment to oil savings: The bottom line is Americans use too much oil. With only 2 percent of global reserves, we account for 25 percent of global demand; there is no way we can drill our way out of this problem.

  • Support a renewed push on Cantwell-Specter oil savings amendment to require 40 percent reduction in imported oil. A one million barrel a day goal had broad bipartisan support in the Senate, and was added to a previous version of energy legislation on a 99-1 vote. This year, Cantwell's amendment went even further—equivalent to 40 percent of projected American imports in 20 years, or 7.6 million barrels a day by 2025. It failed on a 47-53 vote.
  • Strengthen existing standards for replacement tires, government procurement, and other levers that could improve fuel economy within the fleet. Just by requiring replacement tires to be as efficient as new car tires, gasoline savings would begin immediately, saving over 7 billion barrels of oil over the next 50 years.

2. Target relief to those hardest hit by price spikes and those least able to pay: Consumers are hurting from increasing energy prices. While there is little that can be done in the short term to effect the wholesale price of gasoline, home heating oil or natural gas, there is a great deal that can be done to reduce the economic impact on poor and middle-class voters, and to improve near-term incentives for moving to more fuel efficient vehicles that leave consumers less vulnerable to price fluctuations.

  • Increase the EITC and expand eligibility to offer real relief across the board from the regressive impact of energy prices on consumer goods and basic necessities.
  • Fully fund LIHEAP fuel assistance and weatherization and energy conservation provisions that reduce demand and long-term costs.
  • Institute scrappage programs that reduce the cost for families who are replacing older, less efficient vehicles.
  • Ensure that anti-gouging laws are strictly enforced and expanded if necessary. The Federal Trade Commission should thoroughly investigate price gouging in the aftermath of Hurricane Katrina.
  • Expand public subsidy for transit and ride sharing programs to shift incentives.

3. Ensure U.S. workers and industry lead the way in next generation cars and fuels: Concerns over job impacts for domestic workers have slowed consensus on regulatory action to reduce oil consumption. If properly structured, new incentives could actually drive new investment into U.S. plants and workers. Manufacturing conversion must be part of a package of national oil savings measures.

  • Offer legacy health care cost relief to car companies in exchange for fuel savings. This will create a powerful manufacturing conversion incentive and improve the competitive position of U.S. workers relative to foreign workers where government-provided health care and retirement create uneven competition. Sen. Obama and Rep. Inslee are exploring providing legacy health care cost relief to the auto industry in order to spur oil savings.
  • Implement automobile manufacturing conversion tax incentives. Sen. Levin has outlined a manufacturing conversion incentive for auto manufacturers to deploy energy saving technology to accelerate domestic deployment and manufacture of efficient cars. The Energy Future Coalition and National Commission on Energy Policy have also outlined proposals that include standards to ensure oil savings. Manufacturing conversion should be linked to oil savings.
  • Create consumer incentives for using bio-fuels in flexible fuel vehicles. While CAFÉ formulas have long included credits for flexible fuel vehicles and the recent energy bill expands support for producers of bio-fuels, there is no incentive for retailers or consumers to seek out and use bio-fuels within the existing fleet; this should be addressed through an incentive and marketing program.

4. Pay for transition by penalizing inefficiency and profiteering oil companies: Current incentives inadequately account for the public benefits of fuel efficient vehicles. Simple changes in the tax code could increase the incentive for conservation, while fees and penalties could deter price gouging and profiteering.

  • Fix tax incentives with a gas-guzzler tax or “fee-bates.” Hummers, the least efficient vehicles on the road, currently receive a $25,000 tax credit compared to the $2,000 credit for the most efficient hybrids. These perverse incentives in the tax code should be fixed. A gas-guzzler tax could be imposed on new vehicles that are 5 mpg or more below the standards in their class to encourage purchase of more efficient models. A fee-bate would combine taxes at the low end with rebates on highly efficient models within a given vehicle class. This allows such a program to be revenue and technology neutral.
  • Congress should explore a temporary windfall profits tax on oil companies, tied to the price of oil. Record high oil prices have led in many cases to new windfall profits for companies. Congress should explore taxing these windfalls to support energy conservation measures.

5. Use leadership to promote personal action and call for shared commitment to reducing oil demand: Following 9/11 and now Hurricane Katrina, Americans have demonstrated a tremendous willingness to pull together in hard times, to roll up their sleeves and get to work. Current leadership has failed to appeal to the best of the American spirit of can-do optimism and shared responsibility for our nation’s welfare.

  • Call for immediate consumer actions. Improved mileage in the existing fleet can be greatly enhanced through simple actions such as: 1) keeping tires inflated, 2) driving the speed limit, 3) cutting back on idling, 4) carpooling or taking public transit, and 5) keeping cars tuned up.
  • Focus national attention on broader policy opportunities for clean energy. Oil savings should be linked to strategies for rural and urban economic development, including using the Farm Bill to promote biomass ethanol and farm-based renewable energy, and advancing urban mass transit projects, as well as in disaster prevention and reconstruction efforts.

See Also:

A Progressive Response to High Oil and Gasoline Prices

Squeezed at the Pump: Higher Oil Prices Depress Wages, Consumption

State Focus: Responding to High Oil & Gas Prices

Strengthening America's Auto Industry

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