Gouging is good

According to a recent report by the Santa Monica-based Foundation for Taxpayer and Consumer Rights (FTCR), big oil and California’s state government are at it again, each promoting $3-a-gallon gasoline for its own financial gain. Long a champion of progressive causes, the foundation charges the petroleum industry with raising prices in California above and beyond the already dramatic worldwide increase in oil’s price per barrel, which has nearly doubled since the beginning of the year. The state has done nothing to stop this gouging, since sales taxes on gasoline have increased by nearly $1 billion with the rise in gasoline prices.

Determining the exact extent of the gouging is difficult using the data provided in the FTCR report, but the foundation’s proposed “Windfall Profits Rebate” to consumers provides what might be a reasonable estimate. At current prices, California’s consumers are entitled to a rebate of 20 cents per gallon, or $3.7 billion annually, the report finds. In other words, the gouging amounts to at least 20 cents per gallon.

While we are inclined to agree with FTCR that this gouging is a bad thing, we also see a silver lining. It’s no secret within the petroleum industry that we are quickly approaching what experts call “peak oil,” the point at which half of the oil that ever existed has been used up and global demand begins exceeding the available supply. Whether this peak occurs in two decades or tomorrow matters little. As oil becomes more scarce, the law of supply and demand dictates that prices will move higher. Now, thanks to petroleum-industry gouging, consumers appear to be awakening to this fact.

Consider a story by CNN/Money last year, after it had become apparent that fuel prices were on the rise. “It takes more than $2-a-gallon gas to kill Americans’ love affair with big SUVs,” said the report. Art Spinella of Oregon-based CNW Marketing Research Inc., a consulting firm that tracks auto-industry trends, told CNN/Money that rising gasoline prices seemed to be having little effect on consumers. “It’s still more important to have the right number of cup holders than high fuel economy,” he said.

Well, what a difference a year—and an added $1-a-gallon—makes. As gasoline pushed past $3 per gallon in the wake of hurricanes Katrina and Rita and oil-industry gouging, the market for SUVs suddenly cratered. Both GM and Ford, which depend on SUVs for more than half of their fleets, reported double-digit drops in sales, according to The Washington Post. Standard & Poor’s is threatening to reduce the credit rating of both manufacturers.

In short, $3-a-gallon appears to be the threshold of awareness for American consumers, perhaps even more so in California, where the car has been king for decades. That reign may be on the wane as a new energy crisis appears to be upon us. With that in mind, it would be prudent for legislators to prohibit petroleum-industry gouging, perhaps by directing any excess profits into the development of alternative energy sources. Nevertheless, if it took gouging to make us wake up and smell the fumes, maybe that’s a good thing.