What Can the Government Do to Lower Gas Prices?

ByABC News

Aug. 23, 2005 — -- The price of gas and oil is largely a result of supply and demand in the global marketplace, but the government still has a lot of leverage. Here are several options the Bush administration could consider:

For years energy analysts have questioned why the gas at the pump in one city is so different from what's available in another.

It's because different states mandate different standards for the 17 types of gas sold in the United States.

"There is no question the 17 different types of gasoline merely complicate our delivery system and raises cost," said John Felmy, chief economist of the American Petroleum Institute.

Some analysts are convinced standardizing gas across the country could save money.

"We could save 5 cents, perhaps 8 cents a gallon," said energy security analysis Mark Routt.

With the average price of gas now at $2.61 a gallon, 50 cents of that goes to the government.

"Lowering taxes could likely help consumers if those changes are passed along, but at the same time it could increase demand," said Felmy.

The move would create a tax shortfall that would have to be made up someplace else.

The government could offer tax breaks to U.S. refineries and mandate they spend that savings to build new processing plants.

"We could save perhaps 2 or 3 cents a gallon because we wouldn't have to pay to transport it from another country," said Routt.

But even if construction began now, it's a savings that wouldn't be seen for up to a decade.

A more immediate option is dipping into the United States' Strategic Petroleum Reserve.

The federal government has stored nearly 700 million barrels of crude oil in case of emergency.

Analysts say dipping into it could drive down prices by a dollar or two a barrel -- in the short run. "But," said Severin Borenstein, director of the University of California's Energy Institute, "the problem is not a short-run problem. The oil market is telling us the prices are high not just this month or next month, but five or 10 years in the future."

Another option is drilling for oil in the Arctic National Wildlife Refuge. The controversial federal legislation is being considered in Washington.

"From Alaska alone," said Felmy, "we could produce about 1 million barrels a day which would reduce our import bill by 10 percent."

But it would hardly be a quick fix for consumers who are looking for relief now.

If the legislation passes, oil wouldn't start flowing for eight to 10 years.

ABC News' David Muir filed this report for "World News Tonight."

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