The editors of the Wall Street Journal are convinced that Democrats are intentionally forcing gas prices higher:
“Putin’s war is driving up gas prices—and Big Oil companies are raking in record profits,†Elizabeth Warren tweeted Thursday. To curb what she calls “Big Oil profiteering,†she and 11 other Senate Democrats have introduced legislation to impose the new tax.
“We need to hold large oil and gas companies accountable†and “urgently need to invest in America’s clean energy economy,†says Colorado Sen. Michael Bennet. Accountable for what? Making money in a legal business? Meeting obvious consumer demand?
The Senators’ plan would require companies that produce or import at least 300,000 barrels of oil per day (or did so in 2019) to pay a per-barrel tax equal to 50% of the difference between the current and average price between 2015 and 2019 (about $57 a barrel). They say smaller companies would be exempt so the giants can’t raise prices without losing market share.
But oil companies don’t set prices, as the Federal Trade Commission has found time and again. Supply, demand and market expectations do. Crude prices fell $20 a barrel on Thursday after the United Arab Emirates said it would encourage fellow OPEC members to increase production. Imagine how much oil prices might fall if President Biden announced a moratorium on climate regulation that punishes fossil fuels. Instead, Democrats are threatening to hurt producers for producing more.
and
The windfall-tax proposal shows that Democrats don’t want U.S. companies to produce more oil so gasoline prices fall. They want higher gas prices so reluctant consumers buy more electric vehicles. They can’t say this directly because it would be politically suicidal in an election year with the average gas price above $4 a gallon, so they do it indirectly via taxes and regulation.
I think it’s more complicated than that. I think that many Democrats, including Sens. Warren and Bennett, don’t believe in supply and demand. They believe that all prices are fiat prices which implies that if they didn’t set them somebody else, e.g. producers, would.
Furthermore, they believe that demand is completely inelastic, i.e. that it does not rise and full with the price. When you think about it that explains a wide number of policies supported by progressives, e.g. “Fight for 15”, support for windfall profits taxes, etc. Indeed, I think that’s the simplest explanation.
There are quite a few on the left that wants higher gas prices to promote electric vehicles. It probably isn’t a coincidence that most seem to be urbanites who don’t do much driving or are rich enough that gas prices do not matter.
One interesting idea I heard on Matt Yglesias’ substack is an adjustable tax that would keep gas prices stable. So if wholesale gas prices increased, the tax would automatically reduce, and if prices decreased, then the tax would increase.
While I think there is an advantage to price stability, I think such a system could be gamed by producers.
I think the switch to all electric all at once will not work. The transition away from fossil fuels should begin with hybrids, a means that everyone could adapt to quickly and easily.
https://afdc.energy.gov/vehicles/how-do-hybrid-electric-cars-work#:~:text=Hybrid%20electric%20vehicles%20are%20powered,by%20the%20internal%20combustion%20engine.
Hybrid electric vehicles are powered by an internal combustion engine and an electric motor, which uses energy stored in batteries. A hybrid electric vehicle cannot be plugged in to charge the battery. Instead, the battery is charged through regenerative braking and by the internal combustion engine.
That’s certainly a more practical strategy. For one thing it requires fewer batteries.