Taxpayers for Common Sense believe our tax dollars should be wisely spent no matter what – whether that’s long-term solutions to climate change or addressing pressing issues related to the war in Ukraine. Will the policy responses announced by Congress and the Administration do anything to address rising costs? And what impact will these changes have on long-term climate costs? TCS Senior Policy Analyst Sheila Karpf joins host Steve Ellis to drill down on gas prices and common sense climate solutions.

Read more on the subjects discussed in the episode:

• Understanding Gas Prices & Why We Need Federal Oil and Gas Reform
• FAQ about the Effect of War in Ukraine on U.S. Oil and Gas
• E15: 15 Percent Ethanol Fact Sheet

Listen here or on Apple Podcasts

Episode 20 – Transcript

Steve Ellis:

Welcome to all American taxpayers seeking common sense. You’ve made it to the right place. For over 25 years, TCS, that’s Taxpayers for Common Sense has served as an independent, nonpartisan budget watchdog group based in Washington, DC. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are in the political spectrum, no one wants to see their tax dollars wasted. At TCS, we believe our tax dollars should be wisely spent no matter what. Whether it’s on long term solutions to climate changes or addressing pressing issues emerging from the war in Ukraine.

Today we’re here to talk about both of those items because, dear listeners, they’re related. First, gas price hikes. Will the policy responses announced by a Congress and the administration do anything to address rising costs? And what will the effect of these changes have on long term climate costs? These are the questions we’re here to answer today. Joining me now to drill down on gas prices and common sense climate solutions is Sheila Karpf, Senior Policy Analyst at TCS. Sheila, welcome back to the podcast.

Sheila Karpf:

Hey Steve, great to be here again.

Steve Ellis:

Sheila, our listeners know all too well that gas prices have increased. Here in Washington, DC, they’re well over $4 a gallon. The national average is over $4 a gallon as well. And there are spot prices in various parts of the country that are much higher than that. What’s caused gas prices to increase so quickly?

Sheila Karpf:

Well, Steve, obviously the war in Ukraine was unexpected and had a large impact on oil prices. I was just looking at a chart yesterday and you can see a huge jump in oil prices and gas prices that happened right when the war started. So gas prices are up about a dollar per gallon or more depending on where you are in the country from a year ago. So that’s a big jump.

Steve Ellis:

So Sheila, we’ve heard about all kinds of options from policy makers that are thrown out as potential solutions, and I’m using air quotes, to higher gas prices. I guess you can already intimate what my thoughts are on some of these solutions. More ethanol is one proposal, more federal oil and gas leasing, federal gas tax holiday, and more. So Sheila, let’s unpack this. What will these policy changes have on gas prices?

Sheila Karpf:

Well Steve, thanks, but that’s a loaded question. Let’s try to take a step back and start at a higher level. So I’m sure policy makers wish that they could just wave a magic wand and everything would be great again, and we’d have lower gas prices like we were enjoying a few years ago. But it’s not that simple. The price of gas is primarily determined by the price of crude oil. And crude oil prices are impacted by OPEC production in major countries, geopolitical events in top producing oil regions and, of course, supply and demand. And the Ukraine war obviously impacted that equation. We have a lot of resources that dive into some of these details on our website, taxpayer.net. But policymakers have been pressured to do something from all the constituents out in their districts who are upset about these higher prices. But the government has few options to affect these prices, especially in the short term.

Steve Ellis:

The price of oil is set on the world market. And so what we’re doing here is we’re just kind of dancing around the edges. But the bottom line is, we can’t artificially reduce the price of a barrel of oil because the price is set on the world market. There was a fabulous book many years ago that I read on this topic called The Prize by Daniel Yergin that talked about it as kind of the first global commodity. And so we’re just kind of dithering around the edges. But these solutions, again, can have real cost and impacts, right?

Sheila Karpf:

Right. So the President, President Biden announced the release of oil from the strategic petroleum reserve about a month ago. And just this past weekend, the Biden administration also announced an emergency waiver that will allow more ethanol to be sold during summertime months. This is specifically 15% ethanol E 15, and this waiver would allow E 15 to be sold from May 1st to May 20th in certain places, whereas it would otherwise be barred from being sold. So it gets into some complicated issues there. But overall, the bottom line is that there’s not a lot that policy makers can do to influence gas prices, especially in the short term, as you mentioned, since the price of oil is influenced by geopolitical events and other issues outside the United States control.

Steve Ellis:

So if ethanol is such a great thing, why do they limit the use of ethanol or E 15 in the summer months, Sheila?

Sheila Karpf:

Most gasoline that’s sold in the US contains 10% ethanol or E 10. And a slightly higher ethanol blend, E 15, was approved for use about a decade ago. But when the environmental protection agency approved E 15, they said that it couldn’t be sold during summer months because it would impact air quality negatively and increase ozone emissions. So the Trump administration came in and changed this in 2019, allowing summertime E 15 sales kind of ignoring what was in the law at the time that said, you couldn’t do that because it would increase air quality problems.

Sheila Karpf:

But a court struck that down last year, and now we have the Biden administration coming in and saying, let’s use a different emergency authority to try to allow E 15 to be sold during the summertime months. But the waiver that they issued is only for a few weeks. And so it’s not going to be even all summer long. They don’t have the authority to do that per the law. And when you talk about the scope of this and the impact on gas prices, it’s going to have very little effect. One, because it’s a short timeframe. And two, it’s very limited in geographical scope as well.

Steve Ellis:

So podcast listeners, we could go on for quite a bit more about ethanol and ethanol policy and biofuels policy. If you want to learn more though, go to taxpayer.net and check it out, got a lot of good resources there. So there are other proposals though that are on the table to attempt to reduce gas prices as well. And we’ve heard rumblings about a national gas tax holiday. Some states have already implemented gas tax holidays on their gas taxes. There’s also proposals for more federal oil and gas leasing and other proposals as well, and each of these have their own pitfalls. If you have a gas tax holiday, that’s the primary vehicle for funding the Highway Trust Fund, which is where we are spending on roads. And we actually haven’t increased the gas tax in the United States since the early nineties. And so the purchasing power of the gas tax is much reduced and we’re actually been running now since the late 00’s, deficits in the Highway Trust Fund.

Steve Ellis:

And this would only exacerbate and make it even worse where they’re going to have to borrow from the Treasury to pay for all this road building that lawmakers want. So there’s that one. And then, you know, increasing federal oil and gas leasing doesn’t actually lead to more oil being produced. That’s the oil companies, private companies that are making decisions about whether to actually produce on the lands that they are currently leasing. And then it takes a long time for this to even get into production. We’ve even seen is, and we have, again, more good information on this is that many oil and gas companies have used their profits that they’re gaining because of higher gas prices to actually reward their shareholders and buy back stock rather than actually using that money in R&D or other development and investments. These also have other impacts on other parts of this overall equation, Sheila, one of those is climate change, right? And so what are the impacts of biofuels or some of these decisions on the climate?

Sheila Karpf:

Well, you’re right, Steve. We don’t want to take one emergency and turn it into another or worsen the climate change emergency. So it’s great that we’re thinking about these things holistically and not just in the short term or for a few days at a time. So, many academics and independent analysts have come to the same conclusion that today’s biofuels are bad for the climate, environment and taxpayers. A recent study out of the University of Wisconsin just found that ethanol is actually worse for the climate than gasoline. That’s because most ethanol is produced from corn.

Sheila Karpf:

And the more ethanol we produce, the more corn we need, which takes a lot of land. I actually live out here in Nebraska and I’ve seen pastures, grasslands and wetlands destroyed and drained to plant a lot more corn and soybeans. A good portion of that, about 30 to 40%, which is used for biofuels, which is a huge chunk. And then we have even places like the Brazilian rainforest and Indonesia, where forests are being cut down and peatlands are drained to plant more soybeans and palm oil for biofuels as well. Losing all of this carbon rich land, whether it’s here in the United States or internationally, is not good for our climate.

Steve Ellis:

Well, Sheila, what about this promise that we’ve heard for years about the next generation of biofuels and that they’re going to be coming from algae or whatever? What’s happened with that?

Sheila Karpf:

Not a lot, Steve, unfortunately. So as you remember, years ago, the biofuels lobby promised that we would have second generation advanced biofuels from great sources like perennial grasses. You mentioned algae, corn cobs and the like. But this hasn’t come to fruition. We’ve had a lot of facilities out here in the Midwest where I live that have simply failed, even though they were trying to use things like corn cobs to produce cellulosic biofuels. And with that, they took down a lot of taxpayer dollars with them. And that’s despite the fact that there’s a federal mandate for biofuels use and a whole host of other federal subsidies. At the end of the day, we want to make sure our federal policies are compatible with one another and not working at cross purposes. We need a recipe for real climate solutions. What we don’t need are more fuels like E 15 that won’t significantly reduce gas prices, but have a whole host of other negative effects.

Steve Ellis:

Imagine that, having policies that are compatible with one another? I mean, that would be a huge step forward in governance. Speaking of other policies, Congress is apparently still negotiating a pared back version of the Build Back Better reconciliation bill. Sheila, what’s going on with this?

Sheila Karpf:

What we’re hearing right now is that there are still negotiations happening on Capitol Hill related to Build Back Better, the reconciliation bill, or even separately, a tax bill that would impact climate and energy. As we remember from last year, there were several clean energy proposals that Congress was considering, including bioenergy tax extenders, other tax extenders for different forms of clean energy. But that didn’t go anywhere. It wasn’t passed. It wasn’t signed into law by President Biden. So here we are still trying to determine what Congress is negotiating. No matter what happens though, Congress is going to be in a position later this year when several energy tax extenders need to be renewed.

Sheila Karpf:

And we get into this issue every few years where we have a giant tax extenders package that sometimes gets thrown onto a last minute omnibus package or another moving legislative vehicle. So several tax extenders expired at the end of last year, so December 31st, 2021. And so they’re not in law right now. Congress, if they wanted to, could renew those retroactively and have them in place then for this year, even though some of this production has already happened. Which from a tax perspective, doesn’t make a lot of sense.

Steve Ellis:

Makes no sense. I mean, the whole point of having tax provisions is to encourage behavior. But obviously this behavior’s already occurring and so we’re just subsidizing it. And we’ve done some of these retroactive extensions, or I shouldn’t say we, I’m not going to take any credit for it, or blame. Policy makers have done this even like two years going backwards, which clearly everybody made all their decisions well before this. And so it’s just basically lining their pockets, right?

Sheila Karpf:

Right. It doesn’t make a lot of sense. It’s not how we should run our government. However, it is the position that Congress is in. I’ll go into a bit of detail about one of these tax credits that we follow, the biodiesel tax credit, which cost taxpayers anywhere from three to four billion dollars a year. So it’s one of the more expensive energy tax extenders that Congress deals with.

Sheila Karpf:

That tax credit is actually set to expire at the end of this year, in 2022. It was one of the exceptions, it actually received a five year extension the last time Congress renewed it, which is outside of the ballgame. They don’t usually extend these credits for five years, as you know very well, Steve. But speaking of climate change, the biodiesel tax credit is a great example of a false climate solution. And there are many others as well that Congress will be considering, carbon capture and storage for instance, many others. And again, this is regardless of whether Congress comes to any decision on moving forward on a tax and climate package, whether that be through reconciliation or not, they’ll still have to deal with this.

Steve Ellis:

These tax extenders, they’re the cockroaches of the Washington policy establishment. They seem to always survive. You know, they caught a ride on the bailout back in 2008. They caught a ride on the fiscal cliff deal several years ago. So they seem to always hook their caboose onto whatever is the last train going through the Capitol Hill station. And we’ve concentrated here, and particularly because we’re talking about energy and the environment, on a lot of these tax extenders, but there’s provisions in there that are for being able to write off a thoroughbred race horse in three years, which, you know, we’re actually coming up for the Run for the Roses this weekend. That’s the same age as the horses that are in the Triple Crown. And we know whoever wins the Triple Crown, or I should say wins any of these races, the Kentucky Derby or the Preakness or the Belmont Stakes, they’re still worth something after those three years.

Steve Ellis:

They’re going to go out for stud and do pretty well. So that’s kind of a ridiculous item, but there’s other ones that are in there. A rum excise tax cover over, there’s been provisions in there for electric motorcycles. You name it, they run the gamut. But moving back to the energy climate ones, I mean, there are these oil and gas tax breaks that have also been on the books for decades and some of these credits, but then even things that are written into policy and we’ve been calling for their elimination as well. And when you put the whole package together, they cost about 3.2 billion dollars in lost revenue for taxpayers in fiscal year 2022. And as you know, Congress is looking for offsets, Senator Manchin’s talked about offsets for the BBB, this would be a nice place to tap into it and actually get a win-win. It’s not like these are good for the climate, but we didn’t even see that in the house bill that was more bold, right Sheila?

Sheila Karpf:

That’s right Steve. It’s kind of hard when we’re reading these bills to see some of these provisions not included. But there are plenty more examples, as you mentioned, of counterproductive policies and policies that distort markets and create perverse incentives in policies that are currently on the book. So we covered several of them in our recent weekly waste basket published on Earth Day, entitled Tax Day Meets Earth Day. You can find that on our website as well, taxpayer.net. And in an effort to not only talk about all the bad, but also talk about some of the good and positive solutions, we identified several common sense climate solutions in our subsequent weekly waste basket that we can dive into a little bit here if you’re up for it, Steve.

Steve Ellis:

Sure. You’re listening to Budget Watchdog AF, All Federal. And Sheila was just mentioning the most recent weekly waste baskets. Just as a teaser, you can subscribe to those waste baskets. And this week we’re not just always talking about energy, we’re talking about Ukraine, the supplemental there, more than $30 billion is being discussed, which also includes some subsidies for agriculture, believe it or not. And so we’ll definitely be diving more into that in the future, but hopefully you’ll subscribe and read the waste basket. Okay. Going back to Earth Day, remembering now, President Biden on Earth Day went out to Seattle. He signed an executive order that was to conserve forests, reduced wildfire risk, reduce deforestation. He talked about everything from electric buses to cleaner cement. Was anybody paying attention to this Sheila?

Sheila Karpf:

Well, Steve, as you know very well, if things are happening on a Friday afternoon, they don’t get a lot of attention. So no, not so much. But the President did have some good things to say about certain climate solutions like cover crops, for instance, used in agriculture. But I know very well, my dad is a farmer, that we need to do much more than just plant cover crops to really reduce our emissions in agriculture and on ranch land.

Sheila Karpf:

So there’s a lot of other options that we can employ to reduce greenhouse gas emissions in agriculture like conserving wetlands and grasslands and several other working lands conservation solutions. We can also invest more in existing agriculture conservation programs through the US Department of Agriculture. I have to give a shout out to our colleague, Josh Sewell, who is not with us today, but he always has a way to work the USDA into all of our podcasts. But we do need to reform these programs and not simply just throw more money at them in order to ensure that taxpayers are getting the best bang for their buck. And Steve, you’ve worked on farm bills for a long time. We can’t ignore-

Steve Ellis:

Unfortunately.

Sheila Karpf:

That’s right. We cannot ignore the underlying perverse incentives for agriculture that go to millionaires and billionaires, some of which are here in Omaha where I live, that increase commodity and crop production at the expense of the climate, water quality and taxpayers. We really do need holistic reform. We’ll have the farm bill coming up soon, but that’s a way that we can actually enact real climate solutions and reduce greenhouse gas emissions in a smart way.

Steve Ellis:

Got it. The President also, he talked about not just about conserving old growth forest and wildfire risks and what you’ve been discussing, which are good options on reducing climate costs. And you can actually see more about some of our work on climate issues at taxpayer.net/climate. We also outlined, and this was in our most recent waste basket, principles that lawmakers should keep in mind when investing in smart climate solutions, which will lead to good outcomes for taxpayers.

Steve Ellis:

And that is prioritize wise climate investments, get the price right, promote accountability, invest in resilience, mitigation, and adaptation, and emphasize equity in those investments for people who are impacted by climate. And so I think that those are really valuable guideposts that should be undergirding any of these decisions and making sure that we’re not creating some of these perverse incentives that you were talking about, Sheila, that we have, and agriculture policy and benefiting the already existing winners at the expense of other taxpayers. And so I think those are very helpful, overarching principles that we are going to be using to evaluate any proposal that comes out of Congress as far as tackling the very real costs of climate change and the impacts on taxpayers. Well, thank you Sheila. It was great to have you back.

Sheila Karpf:

Thanks for having me on the podcast today.

Steve Ellis:

Well, there you have it listeners. Policy makers must enact forward looking, cost effective climate solutions that build real resilience. Smart investments can do wonders for the climate and taxpayers. We mustn’t lose sight of this, even with the pandemic on our hands, rising gas prices and higher inflation. This is the frequency, mark it on your dial, subscribe, and share, and know this, Taxpayers for Common Sense has your back America. We read the bills, monitor the earmarks and highlight those wasteful programs that poorly spend our money and shift long term risk to taxpayers. We’ll be back with a new episode soon on a related topic, mining reform, and we’ll tackle other Ukraine related issues in our weekly waste basket this week, as I mentioned earlier. All of that’s available to you, free of charge, at taxpayer.net. I hope you’ll meet us right here again, soon, to learn more.