Gas prices

On March 11, gas in Tennessee hit its highest average price ever — a little more than $4.11 for a gallon of regular, according to AAA. Nashville was no exception, running close to $4.15. 

Here’s some good news, though: Adjusted for inflation — at its highest level since 1980, when it sounded the Carter administration’s death knell — gas was about 30 cents more expensive in 2008.

Gas was already climbing before Russian President Vladimir Putin’s insidious invasion of Ukraine, feeling the pressure of the aforementioned inflation. So skyrocketing fuel costs are not simply a function of a supply squeeze caused by the economic sanctions levied by the United States.

Depending on which cable news station you watch, or which of the major political parties you are inclined to believe, this could all be solved if either the government would ease regulations on fossil fuel companies, or if those companies would simply drill on the 8,000 unused tapped leases they already hold. Even in a perfect world, the latter would do little to cut prices in the short term, and the former ignores the big bet American oil companies made 20 years ago to build refineries to process lower-quality oil imported from Canada, Venezuela and, yes, Russia. 

The higher-quality oil that comes out of American soil quite simply can’t be refined on the equipment, so while the U.S. is now a net exporter of oil generally, a big reason for that is American refiners can’t refine their own product.

Furthermore, people are going back to work, and fuel demand is approaching its pre-pandemic levels. But production isn’t yet back to where it was when production was at an all-time high in 2019. And it takes a lot longer to drill, refine and ship a tankful of gas than it does to use it up.

In other words, everything was already leading to higher prices before Putin unilaterally rejected the world order.

None of this is easing the concerns of people paying $45 to fill up when they could do it for $25 in the recent past, but facts are stubborn things.

A popular proposal is to temporarily suspend state and federal gas taxes. Sen. Mark Kelly, an Arizona Democrat, introduced a bill in early February to put a moratorium on the 18.4 cents per gallon collected by Uncle Sam. Closer to home, state Reps. John Ray Clemmons and Bo Mitchell, both Nashville Democrats, asked Republican Gov. Bill Lee to issue a 90-day moratorium on the state’s 27 cent gas tax. Unlike most initiatives championed by Tennessee Democrats, this one may not be a dead letter: A spokesperson for Lee said the governor looks forward to reading the proposal.

In that aforementioned perfect world, taken in tandem, prices would drop more than 45 cents a gallon instantly. That, of course, is dependent on service stations passing their newfound savings on to the consumer, which isn’t guaranteed.

It would also put a short-term crunch on infrastructure funding. The federal proposal calls for the U.S. Treasury to transfer the lost proceeds from the general fund into the transportation funds paid for by the federal tax. Since the federal government can and does run budget deficits, this is no problem. State governments don’t have that luxury, and Clemmons and Mitchell acknowledge that lost road funding would have to come from the state’s surplus, which governors have heretofore been loath to touch.

In any event, studies show that changes in gas taxes — in either direction — very rarely have much impact on the retail price. After all, the fuel companies are the ones paying the tax when they purchase gas from the wholesaler. 

A 2020 study for the American Road and Transportation Builders Association looked at 113 state-level gas tax changes between 2013 and 2018 and the effect on end-user prices. Across the country, there were 75 gas tax increases in that period, averaging 3 cents per gallon, but consumers only paid an average of 1 cent more — suggesting stations are willing to eat a few cents to stay price-competitive. There were 38 gas tax cuts in the same period, averaging 1.4 cents per gallon. Consumers only paid a half-cent less on average afterward. 

Granted, that study was done for the benefit of the road builders, who ultimately have the most to gain from steady gas tax collections. But it certainly shows that even if the proposals go through — or if the Biden administration simply orders a moratorium on its own without legislative action — gas stations aren’t necessarily going to be racing to drop their prices. And economists say that lowering the price of gas could increase already high demand, further straining supply. So even if the stations temporarily lower their prices, as people get back on the road — and with spring break here and summer vacation looming, that’s not just people commuting back to work — the prices will rebound quickly.

Before Putin crossed into the Donbas, experts said prices were likely to average more than $3 for the rest of the year. Now? It may be a while before we get back below $4, and there’s no guaranteed way out of it.

The pain at the pump will be with us for the foreseeable future, and even the solutions have their own sets of problems.

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