Couple the fact that domestic refiners are running at or near capacity with increased global competition for crude oil, and the need to leverage more domestic resources now off-limits and expand existing U.S. refineries becomes
even more apparent. Government-imposed price controls, however, will create
the opposite effect, likely compelling companies to reconsider future expansions at U.S. refineries. From a simple return on investment standpoint, punitive laws simply eliminate the incentive to do so. If legislation that includes price controls becomes law, numerous infrastructure plans around the
country will be placed in jeopardy.
Current proposals also would lead to a sea of litigation for trial attorneys. Bills now being considered define price-gouging as when anyone can claim that the price of gasoline is "unconscionably high" or similar but equally vague thresholds. The result could be 10 years in prison and $150 million in fines for any "person" in the distribution chain … from the gas station owner to the refiner. Basically, sellers of gasoline would set prices and wait to see if anyone complains. This presents a Catch-22 scenario that would be laughable if it were not so seriously close to becoming reality.
Just as alarming are the national security implications. Without increased domestic capacity, we will soon find ourselves not just dependent on foreign sources of crude oil, but also gasoline and other finished fuel products from refineries in the Middle East, China, India and elsewhere. To put this in context, the United States currently imports 10 percent of its gasoline from foreign sources; after Hurricane Katrina, this figure shot up to nearly 30 percent.
Unlike domestic refiners, foreign gasoline suppliers have the option of forgoing the U.S. market if price controls are imposed and prices are too low compared to other markets abroad. This would result in one of two scenarios: Either we face significant national shortages or we are held hostage by foreign suppliers, including nations such as Iran and Venezuela.
The effects of price controls in the United States are well-documented and nearly unanimous in their failure. Days after taking office, President Reagan
issued an executive order ending energy price controls. Later, he vetoed a bill that would have created standby price and allocation control authority. The administrations of President George H.W. Bush and Bill Clinton maintained this wise approach. The result? The real price of gasoline didn't rise above its 1981 level again until 2000.
If the goal of "price-gouging" legislation is solely for the sake of political expediency, proponents are set to succeed. However, if these proposals are being offered as a legitimate means to actually lower gasoline prices or address our broader energy challenges, history has already shown that they will fail miserably.