Order Code IB10134
CRS Issue Brief for Congress
Received through the CRS Web
Gasoline Prices: New Legislation and Proposals
Updated March 3, 2006
Carl E. Behrens and Carol Glover
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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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
Presidential Proposals: The Advanced Energy Initiative
LEGISLATION
FOR ADDITIONAL READING
CRS Issue Briefs
CRS Reports

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03-03-06
Gasoline Prices: New Legislation and Proposals
SUMMARY
The high price of gasoline was an impor-
development and the lifting of the moratorium
tant consideration during the debate on major
on oil and gas leasing on much of the Outer
energy legislation, which ended August 8 as
Continental Shelf (OCS). Both the Senate
the President signed the Energy Policy Act of
Energy and Natural Resources Committee and
2005, H.R. 6 (P.L. 109-58). However, prices
the House Resources Committee included
continued to surge, spiking at the end of
leasing ANWR in their reconciliation bill
August when Hurricane Katrina shut down
sections. The House Resources Committee
refining operations in the Gulf of Mexico.
included provisions regarding OCS leasing,
The continuing crisis renewed attention to
but the Senate Energy Committee did not.
some issues that were dropped or compro-
ANWR leasing was included in the Senate bill
mised in the debate over P.L. 109-58.
that passed on November 3 (S. 1932), but the
House leadership dropped both ANWR and
A large number of factors combined to
OCS provisions before its reconciliation bill,
put pressure on gasoline prices, including
H.R. 4241, was passed on November 18 by a
increased world demand for crude oil and U.S.
vote of 217-215. The conference report on the
refinery capacity inadequate to supply gaso-
bill, approved by the House but amended in
line to a recovering national economy. The
the Senate, does not contain either measure.
war and continued violence in Iraq added
uncertainty and a threat of supply disruption
The gasoline price surge influenced the
that added pressure particularly to the com-
debate over P.L. 109-58, but the urgency of
modity futures markets.
previous energy crises was lacking. In part,
this may be due to the fact that there has been
Among the issues that received new
no physical shortage of gasoline or lines at the
attention were vehicle fuel economy stan-
pump. In addition, the expectation of former
dards, leasing on the Outer Continental Shelf,
crises — that prices were destined to grow
and refinery “revitalization” provisions. The
ever higher — has not been prevalent.
Gasoline for America’s Security Act of 2005,
H.R. 3893, was passed by the House on Octo-
However, the persistence of high gaso-
ber 7 by a vote of 212-210. A similar bill, S.
line and oil prices into a second summer has
1772, was defeated in the Environment and
raised alarms over the economic consequences
Public Works Committee on October 26 by a
of the situation, heightened following the
tie vote of 9-9.
disastrous effects of Hurricane Katrina.
The budget reconciliation process was
Another post-Katrina issue is the wide-
the vehicle for two major energy initiatives:
spread suggestion that price gouging occurred
the opening of part of the Arctic National
in the surge in gasoline prices following the
Wildlife Refuge (ANWR) to oil and gas
disaster.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
As gasoline prices retreated from the post-Katrina peak of over $3.00 a gallon but
remained well over $2.00 in the new year, President Bush targeted “oil addiction” in his State
of the Union message to Congress January 31 and announced an Advanced Energy Initiative,
with a goal to “replace more than 75 percent of our oil imports from the Middle East by
2025.” Substantial increases in research on alternative fuels and vehicles, particularly
ethanol, were among the proposals mentioned by the President. Funding for the research was
included in the Department of Energy FY2007 budget request, submitted February 6.
The Administration’s budget request for the Department of the Interior assumes that $8
billion can be raised in 2008 through leasing of oil and gas resources in the Arctic National
Wildlife Refuge (ANWR), despite failure in the last session of the 109th Congress of the
measure to allow such leasing.
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:
! 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.
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Figure 1. Average Daily Nationwide Price of Unleaded Gasoline, January
2002 - March 2006
3.20
3.00
2.80
2.60
llon
2.40
a
2.20
per G
2.00
rs
lla
o
1.80
D
1.60
1.40
1.20
1.00
pr
t
r
Jul
ct
pr
Jul
ct
pr
Jul
ct
pr
Jul
n '02
A
O
n '03
A
O
'04
A
O
'05
A
Oc
n '06 Ma
Ja
Ja
Jan
Jan
Ja
Note: Prices include federal, state and local taxes. Last date above is March 2, 2006.
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.
! 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
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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
keep the price of crude above $50 per barrel through 2006.2 In fact, in August the price
surged close to $70.
1 Guy Caruso, statement before the Senate Committee on Energy and Natural Resources, June 15,
2004.
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.
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Figure 2. Consumption of Motor Gasoline, 2000 - February 2006
10
9.5
ay
9
r D
e
ls p
e
rr 8.5
a
B
on
li
8
il
M
7.5
7
Jan
Jul
Jan
Jul
Jan
Jul
Jan
Jul
Jan
Jul
Jan
Jul
Feb
'00
'01
'02
'03
'04
'05
'06
Monthly Averages
Annual Averages
Source: EIA, Monthly Energy Review, February 2006, Table 3.4 and Weekly Petroleum Status Report, March
1, 2006, 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. The drop was
typical of the post-Labor Day decline but more steep than in previous years.
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. Data are not yet available to
indicate what effect the price run-up starting in 2004 has had on this measure. 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 price increase 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
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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.
Figure 4. Consumer Spending on Oil as % of GDP, 1970 - 2001
10
8
6
4
2
0
1970
1975
1980
1985
1990
1995
2000
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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, gasoline price increases have far outpaced the
general CPI increase.
Figure 5. Percent Change in Gasoline Prices Compared to the
Consumer Price Index, 1973-2004
30
20
10
0
-10
-20
-30
2004
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Source: EIA, Annual Energy Review 2004, 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
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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,
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 was taken
up as part of the budget reconciliation process, but the effort failed in the first session of the
109th Congress.
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). The measure was included
in the package of provisions for the budget reconciliation bill approved by both the Senate
Energy Committee and the House Resources Committee. However, the House leadership
removed the ANWR provisions from its reconciliation bill (H.R. 4241) before it was passed
on November 18 by a vote of 217-215.
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Despite the failure of the ANWR provision, the Administration’s FY2007 budget
request for the Department of the Interior, submitted February 6, assumes that $8 billion can
be raised in 2008 through leasing of oil and gas resources in ANWR.
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.
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.
On October 26, the Resources Committee, as part of its package of measures for the
budget reconciliation bill, included provisions that would make statutory the current
presidential moratorium on OCS leasing until 2012 but would allow individual states to opt
out of the moratorium and would allow states close to 50% of the royalties from oil and gas
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production that resulted. It would also give states the option to extend the moratorium after
2012. However, the provision was removed from the bill (H.R. 4241) before it was passed
on November 18 by a vote of 217-215.
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, and the House passed the bill October 7 by a vote of 212-210. Among
other measures, the bill would provide for presidential designation of potential refinery sites
on federal lands and military bases that are closing, and set up a process for coordinating
authorization and related environmental reviews for construction of new refineries, to be led
by the Department of Energy. It would centralize judicial review of the process in the U.S.
Court of Appeals for the District of Columbia. The bill as reported would also have
amended the Clean Air Act regarding provisions for New Source Review for refineries and
other facilities, but the measure was dropped before being brought to the House floor. (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.)
A similar bill, but without the price gouging provisions, was introduced in the Senate
September 26, as the Gas Petroleum Refiner Improvement and Community Empowerment
Act, S. 1772, but the bill was rejected October 26 by the Environment and Public Works
Committee by a vote of 9-9.
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. H.R. 3893, as passed the House October 7, includes provisions
requiring FTC to define price gouging and penalize violators.
Presidential Proposals: The Advanced Energy Initiative. In his January 31
State of the Union message, President Bush set the goal of breaking the U.S. “addiction to
foreign oil” and of “replacing” more than 75% of oil imports from the Middle East by 2025.
In specifying the Middle East as the source, the proposal differed from provisions considered
in the previous year to set a goal of reducing total imports.
The main thrust of the presidential initiative is to increase funding for research in
producing ethanol from plant fiber biomass (rather than from corn), for improved batteries
for hybrid automobiles, and for hydrogen fuels. At the same time, the budget request for
FY2007 for DOE, which includes these increases, would eliminate programs for oil and gas
research.
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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. Passed by the
House October 7 by a vote of 212-210.
H.R. 4241 (Nussle)
The Deficit Reduction Act of 2005. Introduced November 7, 2005. Passed by the
House November 18 by 217 - 215. H.R. 4241, as passed House, was inserted in lieu of the
text in S. 1932, and the amended S. 1932 was passed by the House. (See S. 1932.)
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. 1772 (Inhofe)
The Gas Petroleum Refiner Improvement and Community Empowerment Act.
Introduced September 26, 2005. Rejected by the Senate Environment and Public Works
Committee October 26 by a vote of 9-9.
S. 1932 (Gregg)
The Deficit Reduction Act of 2005. Introduced October 27, 2005. Passed Senate
November 3 by 52 - 47.
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.
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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 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 RS21608, 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.
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