Energy Costs and Infrastructure - Part 2

The previous Cogport post provided the background for a policy to manage fuel prices, provide funding for infrastructure, and create other benefits for the U.S.

This post provides details of a New Policy and potential benefits.

Implementation of the Policy requires a Double Move.

First Move: 

Open policies for drilling and exploration of oil and natural gas.

The increase in supply will reduce base costs for energy and gasoline. 

Prices will come down as the average cost of WTI crude oil at $ 80 per barrel over the last 3 Years is reduced.

The U.S. has abundant oil reserves to make this happen.

Second Move:

Over the last 3 Years, the price of gasoline has increased by 39%

Consider that the new level of prices at the pump is now embedded in the economy.

After the First Move to reduce the base cost of gasoline, the Second Move would be implemented in tandem:

Increase in Federal Fuel taxes that would maintain a price at the pump near the current level.  See Proposed Changes below.

Potential Outcome

Assume the cost of oil is reduced from $80 per barrel to $ 60 per barrel. 

This compares to an average price of $56 per barrel in the period 2017 – 2020 when drilling policy was friendly.  So, it is a reasonable assumption.

Oil at $60 per barrel means a reduction in base prices for gasoline .

Based on the historical relationship of oil prices to gasoline prices, the cost of gasoline would be reduced by 20%. The new base price would be $ 2.98/Gallon.

That is a 74 Cent per gallon reduction from the average of the last 3 Years.

Proposal:

Gasoline at the pump includes a Federal Tax of 18.4 cents per Gallon. 

That has not been changed since 1993, over 30 Years !

Diesel Fuel for Commercial Vehicles includes a Federal Tax of 24.4 cents per Gallon.

Proposed Changes in Federal Fuel Taxes:

Increase the tax on Gasoline from 18.4 cents per gallon to 50 cents per gallon.

Increase the tax on Diesel for Commercial Vehicles from 24.4 cents per gallon to 80 cents per gallon.

The higher tax increase for Diesel Fuel accounts for the effects of Heavy Commercial Vehicles on “wear and tear” and damage to highways and bridges.  It is estimated that Commercial Vehicles account for about 80% of such effects.

Therefore, the increase on Diesel Fuel allocates highway costs to the sources that create the greatest expense.  It is correct for heavy users to pay a larger share.  They have been subsidized by current policy.

Remember that Fuel Taxes are used to support the Highway Trust Fund which is used for Highway and Mass Transit Infrastructure.

Results After Policy Changes (Approx):

Source                Old Tax              New Tax            Old Price at Pump        New Price at Pump

Gasoline            $ 0.184                $ 0.50                      $ 3.72                             $ 3.60      

Diesel                $ 0.244                $ 0.80                      $ 4.25                             $ 4.25

New Funds Available For Infrastructure:

Current                                                     New

$175- 200 Billion                                  $280 – 303 Billion

That is a 50% increase of over $100 Billion dedicated to Infrastructure and Mass Transit. 

This is a big start to improving mobility, safety, and economic growth in the U.S.

NEXT REPORT:

Cogport will cover the additional benefits of increased employment in the Drilling and Construction Sector – high paying jobs.

Also, the economic benefits of exports, transition to EV’s, and effect on Climate Change.

David Hollaender                 September 21, 2024

Cogport.com