Bush Takes Steps to Ease Increase in Energy Prices

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ByDAVID E. SANGER
Published: April 26, 2006
WASHINGTON, April 25 — President Bush announced a series of short-term steps on Tuesday intended to ease the rise in energy prices, including a suspension of government purchases to refill the Strategic Petroleum Reserve, a relaxation of environmental rules for the formulation of gasoline and investigations into possible price gouging and price fixing.
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President Bush called for the reversal of tax breaks for oil companies engaging in some types of exploration.
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In addressing energy prices in a speech here, Mr. Bush joined a chorus of lawmakers who have been advocating populist-sounding initiatives to respond to surges in gasoline and crude oil prices and the threat they pose to Republicans in this fall‘s Congressional elections.
Mr. Bush did not go as far as some members of his party, who are floating the possibility of a "windfall profits" tax on oil companies. But, speaking as the major oil companies prepared to report their quarterly earnings this week, he said he was directing the Justice Department to join with an existing Federal Trade Commission inquiry into possible price manipulation.
Mr. Bush urged oil companies to reinvest their profits in expanding refining capacity and in developing alternative energy sources. And he called for the reversal of relatively small tax breaks and incentives for oil companies engaging in specific types of exploration. Those perks were in an energy bill Mr. Bush signed into law last year.
He also called for an expansion of the tax break consumers get for buying hybrid cars, which combine gasoline and battery power, a move that could benefit two major Japanese-owned manufacturers, Toyota and Honda, which have led the market.
The rise in energy prices has undermined the administration‘s effort to build a case that its policies have led to economic prosperity and has given Democrats an opening to portray the White House and Congressional Republicans as allies of the oil industry. With Mr. Bush‘s poll numbers sagging and his party on the defensive over the Iraq war, Republicans have been scrambling to show they are trying to help consumers.
Republican strategists said the anticorporate undertone of the Republican response carried the risk of a backlash from business leaders and free-market conservatives who deplore government intervention. But they said the risk was relatively small at a time when both parties want to promise voters relief.
"I think there are a lot of people in the business community who are saying that to some degree, the oil industry brought some of this criticism on itself," said David Winston, a Republican pollster, noting recent headlines about the $400 million in compensation that Lee R. Raymond received in his last year as chairman of Exxon Mobil.
Oil prices are hovering around $73 dollars a barrel, and consumers are paying more than $3 a gallon for gasoline in places. The sharp price increase in recent weeks has been driven by several factors, including concern about a confrontation with Iran, one of the world‘s largest oil suppliers.
At various points, Iran has threatened — and withdrawn the threat — to slow production if theUnited Nations Security Council imposes sanctions against it for its nuclear enrichment program, which the United States says is part of a secret weapons program. Mr. Bush alluded to the issue in his speech, saying for the first time that some countries were playing on what he termed America‘s "addiction" to oil, adding, "that reduces our influence" in the world.
Mr. Bush said the decision by the Clinton administration not to permit oil production in the Arctic National Wildlife Refuge was costing the United States more than one million barrels a day of lost production.
The investigation into possible price manipulation that Mr. Bush said the Federal Trade Commission was conducting began in August 2005, around the time Hurricane Katrina struck. The trade commission said Tuesday that the results of that initial investigation would be announced in May, and that for the past four years it had been reviewing prices in several markets.
Mr. Bush also said he had ordered some short-term steps, mostly involving the Strategic Petroleum Reserve. He gave American oil companies more time to pay back emergency loans taken from the reserve after the production disruptions of the last hurricane season. The Energy Department says the reserve has 688 million barrels in hand; it has room for 727 million barrels. The oil company paybacks would amount to a little over two million barrels.
"Our strategic reserve is sufficiently large enough to guard against any major supply disruption over the next few months," Mr. Bush said. "So by deferring deposits until the fall, we‘ll leave a little more oil on the market."
Oil experts, though, said that these steps were small ones, and that Mr. Bush‘s ability to affect gasoline prices was limited.
For the longer term, Mr. Bush said he was asking Congress to repeal $2 billion in tax breaks and incentives in last year‘s energy bill. White House officials said he had never advocated the incentives for the oil industry.
Mr. Bush suggested expanding the tax break for buying hybrids, which are more expensive than gasoline-powered cars, but which look more attractive to consumers today than they did a year ago. The break diminishes as soon as more than 60,000 units of any individual hybrid model are sold, but on Tuesday, Mr. Bush pressed to eliminate that ceiling.
On Capitol Hill, Republicans accused the Democrats of blocking legislation to increase energy supplies by increasing domestic nuclear power and oil drilling. Democrats said Mr. Bush and Republicans in Congress had failed to address the short-term cost of gas in the energy bill passed last year, and they dismissed the president‘s call for an investigation by the Federal Trade Commission as a toothless ploy.
SenatorHarry Reid of Nevada, the Democratic leader, said the party planned to introduce amendments about gasoline prices in the pending bill for spending for Iraq. The party‘s priority, Democrats said, is an amendment proposed by SenatorRobert Menendez, Democrat of New Jersey, to suspend the federal sales tax on gasoline for 60 days and pay for the shortfall by changing rules to increase the taxes on oil companies.
Many parts of the country have been experiencing high gasoline prices as refiners are scrambling to switch to an ethanol-blended gasoline instead of using MTBE. Refiners have decided to drop MTBE, a popular oxygen additive but one that has been blamed for water pollution.
The rapid shift has created vast logistical challenges, mainly because of ethanol shortages and the difficulties linked to transporting it.
David D. Kirkpatrick contributed reporting from Washington for this article, and Jad Mouawad from New York.
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