Americans are spending more money at the pump than ever before. According to a recent estimate by the Energy Department, the average U.S. household spent nearly $3,000 on gasoline last year. Earlier this month, theU.S. Energy Information Administration forecast that the price for regular gasoline will average $3.63 a gallon this summer — a slight decline from last summer, not far from the record levels set in 2008. Why do oil prices remain so stubbornly high?
According to some in Washington, the blame lies with “speculators” — investors who buy and sell oil futures contracts to bet on the price of oil. As they see it, these scheming speculators — which may be individuals, but can also be mutual funds, hedge funds, or other investment institutions — inject billions of dollars into commodity exchanges in pursuit of a limited number of barrels, which in turn drives up the price of oil. Speculators, critics say, rake in piles of money at the expense of ordinary people who are going broke fueling their cars and heating their homes. Read More »
In his State of the Union, President Obama set a goal to “cut in half the energy wasted by our homes and businesses over the next 20 years.”
Many Americans get nervous when we hear the government wants to step into our homes. We think we make prudent choices without conferring with Uncle Sam. We shop sales. We clip coupons. We refinance our mortgages. So is the president right? Do we systematically waste energy? And if so, can he help us save? Read More »
This time last year, Washington’s AAA credit rating was downgraded, as Congress held hostage an agreement on a debt ceiling increase while looking for a long-term debt reduction plan. A year later, not much has changed.
Congress is no closer to reaching consensus on reining in our nation’s debt. The Bi-Partisan Tax Commission laid out the harsh reality: Closing the deficit would require both tax increases and cuts to key programs like Social Security. Read More »
The long drought will have real consequences for the nation’s food and energy markets. But it also creates an opportunity for Washington to take a hard look at the Bush-era mandate known as the Renewable Fuels Standard (RFS), which requires that 10 percent of the gasoline we put in our cars be comprised of ethanol, most of which is made from corn.
Because both sides in the debate over the standard tend to exaggerate, we conducted extensive research into the issue. We conclude that the ethanol mandate has some significant negative consequences and few redeeming features. Even without a drought, the policy is inefficient; with a drought it is much worse. Two economic myths drive support for the ethanol mandate. Read More »
A few years ago, I was a bit skeptical when I heard some of the claims being made by supporters of the ethanol industry about how that corn-based fuel was reducing the price of gasoline. But it was only when I took a trip to Washington with my son and I saw some ads that were making even bigger claims that I decided that the truth had to get out.
Right now, Congress is debating the nation’s renewable fuel standard which, among other things, has helped spur a sharp increase in the production of ethanol. To help make their case, the trade group for the U.S. ethanol industry has been citing studies that claim that ethanol production reduced gasoline prices by 89 cents in 2010 and by $1.09 in 2011. Pretty powerful stuff. Except it’s wrong.
A paper I just co-authored for the MIT Center for Energy and Environmental Policy Research finds that the models used to produce those claims are “driven by implausible economic assumptions and spurious statistical correlations.” In fact, we find that the effects of ethanol production on gas prices are near zero and statistically insignificant. Read More »