At $4 a gallon, gasoline prices have stymied economic recovery here in Central New York and around the nation.
“This is not a robust economy where we can brush gas prices off,” said Don Dutkowsky, economist at Syracuse University’s Maxwell School. “It’s a slow recovery and gasoline prices have a way of making it slower, or stopping it.
Across the country, gasoline prices have gone up roughly 15 percent in the last six months. In Onondaga County, the price of regular unleaded averages $4.03 per gallon according to GasBuddy.com, a website that compiles local gas prices.
Paying more at the pump, say economic experts, means consumers are dedicating money to their gas budget that’s usually spent on other things — hurting the broader economy. Gas prices make manufacturing and services more expensive, which usually means companies pass on increased costs to consumer with higher prices.
Gasoline prices are rising because of a complex market of supply and demand, say experts. Worries about conflict in the Middle East reduces supply and oil speculators drive price, according to Dutkowsky.
“Oil speculation is a self-fulfilling prophecy,” Dutkowsky said. The same people who predict future gasoline prices, he said, also control current gasoline prices.
For example, in the last few months concerns about conflict between Iran and Israel has caused speculators to drive up the prices they’re willing to pay in the future. That means each barrel of oil is now in greater demand at the current lower price. Suppliers raise prices to meet that demand. That’s how the U.S. arrived at $4 per gallon.
Rising gas prices have become a political issue, with demands for government action from voters and among presidential candidates. Among the potential solutions:
- Cut fuel taxes at the pump
For every gallon of gas bought in Onondaga County, about 85 cents of the price is in taxes. The federal gasoline tax is a fixed amount: 18 cents on every gallon. But state and local taxes are a percent of the purchase amount, so the amount of the taxes will vary. For example, New York’s state tax is 12.7 percent, which on a $4 gallon means 51 cents in taxes. And the county sales tax is 4 percent, or 16 cents on a $4 gallon. As the price of gasoline goes up, so does the amount of the tax.
Fuel taxes generate nearly $39 billion in revenue for the federal government, according to the Brookings Institution’s Tax Policy Center. In New York state, fuel tax revenue tops
Some lawmakers have called for changing fuel prices with a simple flat tax. But that complicates revenue for governments. If the taxes go down, it helps consumers. But that deprives the government of more revenue.
In Onondaga County, efforts to reduce prices at the pump have backfired in the past. In 2008, the county legislature scrapped a flat tax that saved drivers only 2 cents per gallon and left the county with a $10.3 million revenue shortfall. They went back to the current percentage model shortly after.
- Cut tax breaks for oil companies
At the federal level, President Obama has called for an end to tax breaks to oil companies.
“I think it’s time they got by without more help from taxpayers, who are having a tough enough time paying their bills and filling up their tanks,” Obama said at a press conference last month. “With record profits and rising production, I’m not worried about the big oil companies.”
Instead of tax breaks for oil companies, Obama wants to the government to put more money into companies that develop alternative fuel sources.
Those who represent the oil and gas industries disagree.
“Higher taxes are a bad idea, not only because they would be discriminatory and punitive — but also because they would hurt investment,” said John Felmy, chief economist at the American Petroleum Institute, in an April 24 press release.
Increased taxes would hurt future financial performance, affecting stock portfolios for millions of Americans, Felmy said.
- Expand the use of fuel-efficient vehicles
In Central New York, local governments and businesses are buying gas-saving vehicles with some help from the federal government.
Fuel-efficient vehicles save consumers money, reduce dependence on oil and protect the environment, according to government officials. In the eyes of the Obama administration, local initiatives are the key to growing fuel-efficient transportation.
“If you make a commitment to buy more advanced vehicles for your community – whether they run on electricity or biofuels or natural gas – we’ll help you cut through the red tape and build fueling stations nearby,” President Barack Obama said in a speech in March when he visited a North Carolina auto plant to push for higher fuel-efficiency standards.
Locally, Clean Communities of Central New York — or CCCNY — heads up those green energy initiatives.
Clean Communities of Central New York is one of 100 federal Department of Energy-sponsored programs across the country. Its mission is to build local partnerships to reduce petroleum use in transportation.
“We have been successful in getting funding to assist in the deployment of 64 electric vehicle charging stations in Central New York,” said Barry Carr, the coordinator of Clean Communities of Central New York. The program also oversaw installation of a natural gas refueling station in Syracuse, Carr said.
Obama’s new energy proposal includes $4 billion to encourage local municipalities to buy electric and natural gas vehicles or to build electric charging and fueling stations.
“The Obama administration has been helpful on the electric vehicle infrastructure side,” Carr said. For example, the administration is funding a program to simplify the building of charging stations for electric vehicles around the country.
Clean Communities of Central New York has partnered with the city of Syracuse and local businesses to deliver fuel-efficient solutions. These partnerships are a part of a economic stimulus program, bringing over $5 million dollars of investment in vehicles, infrastructure and jobs, according to Carr.
Destiny USA has been another leader in clean energy projects in Central New York.
The shopping and entertainment complex formerly known as Carousel Center has nine electric-car charging stations and 30 green-vehicle parking spaces, said spokesperson Sara Wallace. It has an all-hybrid security fleet, Wallace said, and since 2007, all construction vehicles have exclusively used biodiesel fuels. That’s saved over 276,000 gallons of regular diesel fuel, Wallace said.
Americans who buy new hybrid-electric vehicles can receive up to $3,000 in tax credits. Under Obama’s new energy plan, the current $7,500 purchase incentive for plug-in electric vehicles would become $10,000.
- Open the Strategic Oil Reserve
The Strategic Petroleum Reserve was created in 1975 as a backup supply in case of oil market disruptions like the 1974 Arab oil embargo. If oil supply runs dry, the U.S. can release oil from its stockpiles to smooth out global markets and reduce the risks of major price spikes.
Since 1975 it’s been tapped five times — most recently in 2005 by President George W. Bush after Hurricane Katrina damaged offshore production. Last year, President Obama released 30 million barrels of reserve oil to offset supply disruptions during the Libyan conflict.
Opening the oil reserves would drop gasoline prices roughly 6 percent every three months, according to the liberal think tank Center for American Progress. The government has declined to release more oil from the reserves.
(Jared Kraham is a junior with dual majors in political science and broadcast journalism.)