Order Code IB10134
CRS Issue Brief for Congress
Received through the CRS Web
Gasoline Prices: New Legislation and Proposals
Updated October 5, 2005
Carl E. Behrens and Carol Glover
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Policy Options
Oil-Related Issues Beyond the Energy Policy Act
ANWR
CAFE
OCS Leasing
Refinery Revitalization
Price Gouging
LEGISLATION
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Reports

---

IB10134
10-05-05
Gasoline Prices: New Legislation and Proposals
SUMMARY
The high price of gasoline was an impor-
The gasoline price surge influenced the
tant consideration during the debate on major
debate over P.L. 109-58, but the urgency of
energy legislation, which ended August 8 as
previous energy crises was lacking. In part
the President signed the Energy Policy Act of
this may be due to the fact that there has been
2005, H.R. 6 (P.L. 109-58). However, prices
no physical shortage of gasoline, and no lines
continued to surge, spiking at the end of
at the pump. In addition, the expectation of
August when Hurricane Katrina shut down
former crises, that prices were destined to
refining operations in the Gulf of Mexico.
grow ever higher, has not been prevalent.
The continuing crisis has renewed attention to
some issues that were dropped or compro-
However, the persistence of high gaso-
mised in the debate over P.L. 109-58.
line and oil prices into a second summer has
raised alarms over the economic consequences
A large number of factors combined to
of the situation, heightened following the
put pressure on gasoline prices, including
disastrous effects of Hurricane Katrina.
increased world demand for crude oil and U.S.
refinery capacity inadequate to supply gaso-
Another post-Katrina issue is the wide-
line to a recovering national economy. The
spread suggestion that price gouging occurred
war and continued violence in Iraq added
in the surge in gasoline prices following the
uncertainty and a threat of supply disruption
disaster. On September 14 the Senate, in
that added pressure particularly to the com-
considering the FY2006 Appropriations bill
modity futures markets.
for Commerce, Justice, Science programs
(H.R. 2862), passed an amendment by unani-
Among the issues that have received new
mous consent requiring an expedited study by
attention are vehicle fuel economy standards,
FTC into price-gouging following Katrina.
leasing on the Outer Continental Shelf, and
refinery “revitalization” provisions.
Congressional Research Service ˜ The Library of Congress

---

IB10134
10-05-05
MOST RECENT DEVELOPMENTS
As gasoline prices shot over $3.00 a gallon following Hurricane Katrina, Congress
began to revisit the energy issue despite having just passed the massive Energy Policy Act
of 2005 (H.R. 6, P.L. 109-58). Katrina caused shutdown of refining capacity in the Gulf of
Mexico area and closed some pipelines, as well as disrupting oil and gas production offshore.
By September 22, many refineries closed down again because of Hurricane Rita. After
the storm, significant amounts of refining capacity remained shut down, and it was uncertain
how soon it would return to operation. (For details see CRS Report RS22233, Oil and Gas:
Supply Issues After Katrina and Rita, by Robert L. Bamberger and Lawrence Kumins.)
Meanwhile, following seasonal patterns, consumption of gasoline fell from a peak of nearly
9.5 million barrels per day (mbd) in July to about 8.8 mbd in September (See Figure 2).
At hearings by the Senate Energy and Natural Resources Committee September 6 and
the House Energy and Commerce Committee on September 7, suggestions for further
legislation to deal with the energy crisis included reexamination of fuel economy standards
and expanding off-shore oil and gas production beyond the Gulf of Mexico. Also of concern
were allegations of price gouging by gasoline retailers and distributors.
On September 28, the House Energy and Commerce Committee reported out H.R. 3893,
the Gasoline for America’s Security Act of 2005. The bill would amend environmental
regulations for construction of facilities such as refineries, provide for designation by the
President of potential sites for refineries on public lands and closed military bases, limit local
designation of special components of gasoline, and strengthen the Federal Trade
Commission’s powers to investigate price gouging. The bill was expected to come to the
House floor October 7.
Also on September 28 the House Resources Committee approved a bill that would lift
the moratorium on leasing and production of natural gas in the Outer Continental Shelf
(OCS), and allow states to opt out of the moratorium on production of petroleum. However,
plans to bring the legislation to the House floor along with H.R. 3893 were dropped October
3 in the face of opposition to the natural gas provision.
BACKGROUND AND ANALYSIS
The run-up of gasoline prices that began in spring 2004 (see Figure 1) climaxed a
period of almost five years during which gasoline prices demonstrated a great deal of
regional volatility but less of an increase at the national level. In 2004 a large number of
factors combined to exert pressure on gasoline prices in all parts of the country. Some of
these factors have affected the price of crude oil, and others the cost of producing and
marketing gasoline.
Past energy crises have demonstrated that oil is traded in a world market, in which
events in remote areas affect the price of crude for almost everyone. In the 12-18 months
leading up to the crisis, these events included the following:
CRS-1

---

IB10134
10-05-05
! Decisions by the Organization of Petroleum Exporting Countries (OPEC)
cartel, after having reduced production quotas in 2002, to raise them only
slowly and reluctantly;
! Unexpected demand growth in China;
! Disruptions in oil production in major exporters, including Venezuela, Iraq
and Nigeria;
! Decline in the value of the U.S. dollar, the currency in which oil is traded in
the world market, compared to other major currencies, particularly the Euro.
! Uncertainty and fear of major disruptions in Iraq and Saudi Arabia, in the
context of the war in Iraq and the threat of terrorism.
Figure 1 . Average Daily Nationwide Price of Unleaded Gasoline,
January 2002 - October 2005
3.20
3.00
2.80
2.60
llon
2.40
a
r G
2.20
2.00
llars pe
1.80
o
D
1.60
1.40
1.20
1.00
l
t
r
t
4
r
t
5
l
ct
'02
pr
pr
A
Ju
Oc
'03
Ap
Jul
Oc
'0
Ap
Jul
Oc
'0
A
Ju
O
Jan
Jan
Jan
Jan
Note: Prices include federal, state and local taxes. Last date above is Oct. 4, 2005.
Source: Daily Fuel Gauge Report, American Automobile Association,
[http://www.fuelgaugereport.com], compiled by CRS.
As often happens when commodity prices are volatile, speculation in futures contracts
accentuated the upward price pressure and appeared to continue high prices longer than
would be expected as market fundamentals push toward lower prices.
Just as a number of factors led to increased crude prices, a combination of features in
the U.S. refinery industry contributed to an increase in gasoline prices.
CRS-2

---

IB10134
10-05-05
! U.S. demand for gasoline has increased as economic growth has continued
(See Figure 2).
! Domestic refining capacity has declined, both in number of refineries —
from 324 in 1981 to 153 in 2002 — and in total capacity — from 18.62
million barrels per day (mbd) in 1981 to 16.78 mbd in 2002.
! The structure of the refining industry has changed. In 1981 most refining
capacity was owned and operated by integrated oil companies that supplied
their own crude oil, refined it, distributed it, and marketed the products.
Refining was only one part of the company’s profit-making operation, and
frequently was not an important profit maker. Now the refining industry is
characterized more by independently owned, nonintegrated firms. When
refineries are the sole source of revenue to the owners, it becomes more
important that the operation be profitable, leading to pressure to raise prices.
! The refining industry has been operating with lower inventories of both
crude oil and gasoline, as a means of cutting costs. The side effect has been
reduced ability to meet unanticipated demand, leading to greater price
pressure.
! Gasoline markets are fragmented regionally because air quality requirements
have led to numerous different formulations to meet varying standards. In
meeting demand for these regional formulations, called “boutique fuels,”
refiners lose flexibility to meet local variations in demand elsewhere,
leading to increased price pressure.
! With domestic refining capacity constraints, a greater proportion of gasoline
demand is being met with imported products. Foreign refiners typically
manufacture products designed to sell in the international market, not the
special product “boutique fuels” demanded by a significant share of the U.S.
market.
! Refiners have had increased costs in the past year to comply with new
requirements to limit sulfur content and to switch from the oxygenate
additive MTBE to ethanol.
These various factors pushed the nationwide average price of gasoline over $2 per
gallon in May 2004. By mid-June, Energy Information Administrator Guy Caruso was able
to note a slight decline in prices, and tell a Senate Energy Committee hearing that, “absent
major disruptions, oil and gasoline markets may be turning a corner.”1 However, persistent
high crude prices pushed gasoline prices over $2 again in October, and yet again in March
2005. By April 2005, Caruso was suggesting that increasing world demand for oil might
1 Guy Caruso, statement before the Senate Committee on Energy and Natural Resources, June 15,
2004.
CRS-3

---

IB10134
10-05-05
keep the price of crude above $50 per barrel through 2006.2 In fact, in August the price
surged close to $70.
Figure 2. Consumption of Motor Gasoline, 2000-September 2005
Source: EIA, Monthly Energy Review, January 2003, January 2004 and September 2005, Table
3.4 and Weekly Petroleum Status Report, September 28, 2005, Table 10.
The price surge intensified discussion of energy policy and led to further calls for
passage of energy legislation. However, until the climax of the Katrina disaster, the urgency
of previous energy crises has been lacking. Throughout the period, U.S. gasoline
consumption has continued to rise, although the usual summer peak in consumption appears
to have been somewhat blunted in 2004, as shown in Figure 2. In part this may be because,
although the price of gasoline in nominal terms set a record, in real terms it did not appear
to be reaching the level of the Iranian crisis years of the early 1980s (see Figure 3), again
until Katrina pushed it toward the $3.00-per-gallon mark. Further, unlike the earlier crises,
there was no physical shortage of gasoline, and no lines at the pump, except in local disaster-
affected areas. Consumption of gasoline fell sharply after prices peaked, but the drop was
typical of the post-Labor Day decline.
As Figure 4 indicates, the proportion of consumer expenditures on oil and gasoline had
declined from the high levels of the 1970s and early 1980s, and the current price increases
2 “EIA: Oil to remain above $50 through ‘06.” Oil Daily, April 8, 2005, p. 1. Report of a speech by
Guy Caruso at the National Press Club in Washington, D.C., April 7, 2005.
CRS-4

---

IB10134
10-05-05
did not appear to be significantly reversing that trend. Perhaps most important, the common
view during the earlier crises was that oil prices not only were high, but were destined to
become ever higher in the coming years. This view is no longer prevalent, and the general
expectation has been that the run-up of prices starting in 2004 is a temporary phenomenon,
although lasting longer than expected. The current crisis has led to some analytical
speculation that world oil production has peaked, but additions to proved world oil reserves
seem to contradict that thesis. Oil industry analysts appear confident of a long life remaining
for the resource and argue that if oil is replaced, it will be because of improved alternative
technologies, not because the world is running out of oil.
Figure 3. Nominal and Real Price of Gasoline,
1973-2004 and March 2005
3
2.5
2
1.5
1
0.5
0
1973
1977
1981
1985
1989
1993
1997
2001
Mar '05
Nominal Price
Real Price (2004 Dollars)
Source: EIA, Monthly Energy Review, May 2005, Tables 1.6 and 9.4, calculated by
CRS.
CRS-5

---

IB10134
10-05-05
Figure 4. Consumer Spending on Oil as % of GDP, 1970 - 2001
10
8
6
4
2
0
1970
1975
1980
1985
1990
1995
2000
Source: Calculated by CRS with data from EIA, Annual Energy Review 2005, Table
3.5. GDP from Bureau of Economic Analysis, Department of Commerce.
As shown in Figure 5, gasoline prices historically have increased less than the general
rate of inflation, as measured by the Consumer Price Index (CPI). After the surge in 1973,
and again after the 1979-1980 run-up, gasoline prices grew very slowly and even declined,
dropping sharply in 1986. A sudden increase in 2000 was similarly followed by slow or
declining prices. During the current run-up, for which data are not yet available, gasoline
price increases have far outpaced the general CPI increase.
CRS-6

---

IB10134
10-05-05
Figure 5. Percent Change in Gasoline Prices Compared to the
Consumer Price Index, 1973-2003
30
20
10
0
-10
-20
-30
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Source: EIA, Annual Energy Review 2003, Table 5.24. CPI from the Bureau of Labor Statistics.
Calculated by CRS.
Policy Options
The several energy crises of the past led to major legislative action, twice in the 1970s
and once following the 1991 Gulf War. The just-passed Energy Policy Act of 2005 differs
from the previous actions because the Congress had been considering major energy
legislation for three years before the situation became a nationwide concern. By the time the
bill finally moved through the Congress, the major issues had already been fully debated, and
the final version differed little from previous initiatives except for resolving a number of
issues that had blocked passage before.
As in previous legislative energy debates, a major policy divide existed between those
who view the gasoline-fueled automobile as a temporary necessity to be tolerated only until
a substitute fuel or alternative means of transportation can be developed, and those who
expect oil to be the same dominant transportation fuel in the indefinite future that it is at
present. Compromise agreements have been reached via a combination of measures that
enhance the development of alternatives or restrain the growth in demand for oil, on the one
hand, and those that increase production or reduce the cost of supplying that demand, on the
other. However, individual measures often carry with them complicating features that make
passage more difficult. In addition, major legislation often becomes the vehicle for measures
that typically would not find enough support to pass as individual bills, or which may be
added to gain support for the whole measure. In the legislative climate of the 108th Congress,
CRS-7

---

IB10134
10-05-05
balancing the various interests involved proved too difficult a task, despite the influence of
a nationwide energy crisis in an election year. Under the stimulation of continued high oil
and gasoline prices, the 109th Congress pursued the goal again, this time successfully.
However, as gasoline prices continued to surge, and damage to Gulf of Mexico oil and gas
resources and facilities by Hurricane Katrina was assessed, calls for further measures to
address the crisis were heard in Congress.
Oil-Related Issues Beyond the Energy Policy Act
A number of issues that were major barriers to passage of omnibus energy legislation
were either resolved or dropped in passing P.L. 109-58. In light of the current crisis, some
of those issues have received renewed attention. Among oil-related issues are proposals to
lift the moratorium on offshore oil and gas development outside the Gulf of Mexico, and
measures concerning Corporate Average Fuel Economy (CAFE) standards. Measures
involving the gasoline fuel additive methyl tertiary butyl ether (MTBE), dropped from P.L.
109-58 in conference, have not been mentioned for possible review. The proposal to open
part of the Arctic National Wildlife Refuge (ANWR) to oil and gas development is expected
to be taken up as part of the budget reconciliation process.
ANWR. Oil and gas exploration and development of part of the Arctic National
Wildlife Refuge have been controversial for many years. This was part of the early proposals
for legislation that eventually became the Energy Policy Act of 1992, but was dropped in the
face of strong opposition in both houses. Support for action grew gradually through the
decade, along with technological developments that advocates claimed would reduce the
environmental impact of development, and the House included a development measure in
its version of an omnibus energy bill in August 2001. A similar measure was part of the
House-passed legislation in the 108th Congress. Opposition in the Senate kept the measure
from the floor, however, and it was dropped in conference.
In the 109th Congress, Senate supporters of ANWR development moved the issue to the
budget process, where it can be approved by a simple majority vote. On March 9, 2005, the
Senate Budget Committee issued a FY2006 budget resolution that assumes $2.4 billion of
revenue over five years from leases in ANWR. On March 16 the Senate rejected an
amendment by Senator Cantwell to strike the ANWR provisions, by a vote of 49-51. The
next day the Senate passed the budget resolution (S.Con.Res. 18). Supporters of the measure
expect to include it in the budget reconciliation bill, to be taken up by the Congress in
October, although it was included in the bill approved by the House Resources Committee
September 28.
CAFE. Fuel economy standards also have a long history of controversy, going back to
their establishment in the 1970s. Proposals to mandate new standards were also considered,
but dropped, early in the development of the 1992 Energy Policy Act. In the mid-1990s the
National Highway Traffic Safety Administration (NHTSA) was considering a rulemaking
that would result in increased standards for light duty trucks (including sport utility vehicles),
but for several years the Congress included in its annual appropriation for NHTSA a measure
prohibiting NHTSA from analyzing or undertaking such a ruling. That prohibition was
dropped in the FY2004 NHTSA appropriations, and a final rule issued by NHTSA in April
2003 requires a boost in light truck fuel economy to 22.2 miles per gallon by Model Year
2007.
CRS-8

---

IB10134
10-05-05
Omnibus energy legislation proposed before NHTSA acted would have mandated
specific increases in light truck fuel economy, but P.L. 109-58 merely amends slightly the
criteria NHTSA must follow in its rulemaking and authorizes appropriations of $2 million
annually through FY2008 for that purpose. After passage of the act, but before the Katrina
disaster, the Bush administration proposed new fuel economy standards for light trucks, to
take effect in the 2008 model year.
During House floor debate on P.L. 109-58, an amendment to increase fuel economy
standards to 33 miles per gallon over 10 years was defeated by a vote of 177-254. A more
general amendment to the House bill, requiring the Administration to take “voluntary,
regulatory, and other actions” to reduce oil demand in the United States by 1 million barrels
per day from projected levels by 2013 was defeated 166-262. The measure was included in
the bill passed by the Senate, but was dropped in conference.
OCS Leasing. The moratorium on oil and gas leasing in the Outer Continental Shelf
(OCS), except in the central and western Gulf of Mexico and some parts of Alaska, was
subject to much controversy during consideration of P.L. 109-58. A proposal to allow states
to voluntarily opt out of the moratorium was dropped under threat of filibuster, and even a
measure to order the Department of the Interior to perform an inventory of OCS resources
barely survived the debate.
Following the disruption of production by Katrina, momentum to lift the moratorium
increased, and some supporters suggested it might be included in the budget reconciliation
process. The House Resources Committee on September 28 marked up a bill that would
have given states the option of allowing drilling for petroleum and natural gas. In approving
the bill, the committee adopted an amendment that would lift the moratoriums on drilling the
OCS for natural gas completely. In the face of opposition to the natural gas provision,
Representative Pombo, Chairman of the Resources Committee, decided not to bring the bill
to the floor as planned.
Refinery Revitalization. P.L. 109-58 contains some provisions to encourage
construction of new oil refineries, but the destruction to refining facilities caused by Katrina
in the Gulf of Mexico area has led to calls for further measures. On September 28, the House
Energy and Commerce Committee reported out H.R. 3893, the Gasoline for America’s
Security Act of 2005, which among other measures would provide for presidential
designation of potential refinery sites on federal lands and military bases that are closing.
The bill would set up a process for coordinating authorization and related environmental
reviews for construction of new refineries, to be led by the Department of Energy, and
centralize judicial review of the process in the U.S. Court of Appeals for the District of
Columbia. The bill would also amend the Clean Air Act regarding provisions for New
Source Review for refineries and other facilities. (For details, see CRS Report RS21608,
Clean Air and New Source Review: Defining Routine Maintenance, by Larry Parker.) It
would also require EPA to develop a Federal Fuels List and limit local gasoline blends to
those on the list. The provision is aimed at reducing “boutique fuels” requirements that make
the national gasoline market less flexible. (For details see CRS Report RL31361, ‘Boutique
Fuels’ and Reformulated Gasoline: Harmonization of Fuel Standards, by Brent D.
Yacobucci.) The bill was expected to come to the House floor by Friday, October 7.
CRS-9

---

IB10134
10-05-05
Price Gouging. The rapid increase in gasoline prices following the Katrina disaster
led to allegations of price gouging. P.L. 109-58 included a provision requiring the Federal
Trade Commission (FTC) to conduct an investigation into price gouging in the recent
increases in gasoline prices. On September 14 the Senate, in considering the FY2006
Appropriations bill for Commerce, Justice, Science programs (H.R. 2862), passed an
amendment by unanimous consent requiring an expedited study by FTC into price-gouging
following Katrina. H.R. 3893, as approved by the House Energy and Commerce Committee
on September 28, includes provisions requiring FTC to define price gouging and penalize
violators.
LEGISLATION
109th Congress
P.L. 109-58, H.R. 6
Energy Policy Act of 2005. Introduced April 18, 2005. Passed by the House April 21,
2005 (249-183). Passed the Senate June 28. Reported out of conference July 26 and passed
by both houses July 28 and July 29. Signed into law August 8, 2005.
H.R. 3893 (Barton)
The Gasoline for America’s Security Act of 2005. Introduced September 26, 2005.
Reported out by the House Energy and Commerce Committee September 28.
S. 10 (Domenici)
The Energy Policy Act of 2005. Introduced June 9, 2005. Approved by the Committee
on Energy and Natural Resources May 26 (21-1). Adopted as an amendment in the nature
of a substitute to H.R. 6, June 16.

S. 555 (DeWine)
The No Oil Producing and Exporting Cartel (NOPEC) Act of 2005. Introduced March
8, 2005. Adopted by voice vote as an amendment to H.R. 6 in the Senate, June 21. Not
included in the final version of H.R. 6.
S.Con.Res. 18 (Gregg)
An original concurrent resolution setting forth the congressional budget for the U.S.
government for FY2006 and including the appropriate budgetary levels for FY2005 and
FY2007 through FY2010. Contains instructions to the Committee on Energy and Natural
Resources that assume revenues from the sale of ANWR leases. Passed Senate March 17,
2005.
CRS-10

---

IB10134
10-05-05
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Issue Brief IB10136. Arctic National Wildlife Refuge (ANWR): Controversies for the
109th Congress, by M. Lynne Corn, Bernard A. Gelb, and Pamela Baldwin.
CRS Issue Brief IB10143. Energy Policy: Comprehensive Energy Legislation (H.R. 6) in the
109th Congress, by Robert L. Bamberger and Carl Behrens.
CRS Issue Brief IB10054. Energy Tax Policy, by Salvatore Lazzari.
CRS Reports
CRS Report RL31361. ‘Boutique Fuels’ and Reformulated Gasoline: Harmonization of Fuel
Standards, by Brent D. Yacobucci.
CRS Report RS21606. Clean Air and New Source Reviews: Defining Routine Maintenance,
by Larry Parker.
CRS Report RS22233, Oil and Gas: Supply Issues After Katrina, by Robert L. Bamberger
and Lawrence Kumins.
CRS Report RL33021. Oil Industry Profits: Analysis of Recent Performance, by Robert
Pirog.
CRS Report RL32248. Petroleum Refining: Economic Performance and Challenges for the
Future, by Robert L. Pirog.
CRS Report RS22236. Price Increases in the Aftermath of Hurricane Katrina: Authority to
Limit Price Gouging, by Angie A. Welborn and Aaron M. Flynn.
CRS-11

---