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GUEST: Tyson Slocum, Research Director for Public Citizens Energy Program

Gas prices across the nation rose to record levels over the Memorial Day weekend and have stayed high for a record 20 straight days. What traditionally kicks off the summer travel season, was an unusually slow three day weekend with many Americans tightening their belts as gas prices hovered above $4 a gallon. The national average of $3.93 a gallon is up more than 20% since last year. The retail market is expected to be severely affected between high gas prices and a sluggish economy. Fewer Americans are buying gas-guzzling SUVs with Ford Motor Co. announcing a steep decline in truck sales. Effects are being felt in the skies too – air fares are also expected to rise as a result of increased fuel prices. Meanwhile, Exxon Mobil released its first-quarter results earlier this month – the oil giant made a record $8.8 billion, up $2.7 billion from a year earlier as the price of crude oil now tops a whopping $130 a barrel.

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Rough Transcript

Sonali Kolhatkar: First, aside from the crude oil prices being so high, what is your assessment of why oil prices have risen so high?

Tyson Slocum: Well, the world uses a lot of oil, and oil is a finite resource and so, you know, when you use a lot of something, it becomes more scarce and more valuable. But that said, there aren’t any shortages anywhere. We haven’t reached peak oil production, yet, so I am not sure that the record high prices that we have been paying are really accurately reflected in the supply/demand fundamentals. A lot of this is profit taking by big oil companies, by the financial firms, the hedge funds that run the energy markets, where prices that we all pay are set every day. And it would be one thing, if these record prices that we are all paying were being invested into clean energy and other things that are going to help break our addiction to oil and provide us with alternatives and solve the climate crisis, but that’s not what is happening. Instead, these record profits are going into the hands of big hedge funds, are going into the hands of big oil companies, and those oil companies are not reinvesting those record earnings back into clean energy, they are not reinvesting them into anything that is going to help consumers or the environment. So I think the government is going to have to take a lead here – financing some of these initiates by repealing tax breaks and other subsidies that oil companies currently receive.

Sonali Kolhatkar: One CNN analyst is saying that speculators have basically also helped drive the gas prices high. What do you think?

Tyson Slocum: Oh yeah, absolutely. There is no question that speculators are the driving force behind the recent price increases. We have seen prices decrease just a little bit, oil prices today, but overall, speculators are driving it. And the speculators are operating in markets totally unregulated thanks to Enron. You know, Enron may be bankrupt, their days of terrorizing California may be over, but the fact is that Enron’s legacy lives on in energy, and that’s because the company is primarily responsible for the lobbying that resulted in energy markets being totally deregulated. So as a result, all of these energy markets where prices of oil and gasoline and natural gas and everything else that we pay for here are set in markets that are totally free from government oversight. And as we saw in California, when you take government off the beat and put companies in charge, well, companies are going to do bad things. And I think that there are some companies doing a lot of bad things, so we have got to restore some transparency, restore some order and hold some of these price gougers accountable.

Sonali Kolhatkar: What about the fact that even though corporations are making record profits, their profit margins are around 10%, which is not as high compared to many other companies which usually can make up to 25% profit?

Tyson Slocum: Well, actually that is false. I mean the oil companies like to have it both ways. They claim to the public that look, oil companies are a terrible investment. We only earn 10 cents on every dollar of sales. But that is not what they tell Wall Street. If you read their annual report, or other things that communicate with their shareholders or with investors, they literally say you have to ignore profits as a share of sales, because that measurement is irrelevant in a capital intensive industry like oil. What you should be measuring is profits as a share of capital investment. And when you look at their profits that way, their profits are astronomical. Exxon Mobil, for example, its U.S. refining industry returned a 65% profit margin in 2007, and globally, the company returned a 33% profit margin. So it is clear that the industry is doing very, very well and this is part of a PR campaign to convince the public and lawmakers that oil is actually a terrible investment. Well, I don’t know if you have seen the stock value of these companies lately, but they are through the roof. It is clear that money continues to flow to the oil companies because people know that, absent some sort of effective regulatory oversight, they are going to continue making enormous profits.

Sonali Kolhatkar: Now, Tyson, on the one hand of course, the price gouging by oil corporations is certainly not something to condone, but on the other hand neither is dependence on oil and the effect of fewer people buying SUVs and more people thinking about fuel efficiency and fuel efficient cars, the spike in hybrid car sales, is that not a good thing?

Tyson Slocum: Oh no, it’s a very good thing. I think we have already seen gasoline demand decrease by 1% from a year ago. That’s pretty good. We haven’t seen that since the 1970’s, but it is creating some big economic hardship with working families, and I think that’s the point we want to make. Public Citizen is not advocating a return to cheap gas. That’s not what we want. What we want, though, is Americans to have access to fairly priced fuel, and we want to make sure that we are getting bang for our buck. And right now, these record high prices that we are paying aren’t being reinvested into things that are gonna cut back climate change or provide motorists and households with access to the alternatives that we desperately need. There are lots of folks out there that would like to buy a hybrid car. They can’t afford it. Hybrid cars are much more expensive than a regular car. Some people have never bought a new car in their life. I bet there is a lot of listeners out there that would love to install solar panels on the roof of their home, but they can’t afford it. Rather than giving billions of dollars a year in subsidies to big oil companies, why don’t we instead prioritize the needs of American families? Let’s put American families in charge of greening our energy future, but American families need our help, and we’ve gotta provide a massive investment campaign funded by oil company profits, I think. Much like health care costs in the 90’s were partially funded by new settlements against cigarette companies, because we recognized that there was a connection between cigarette smoking and adverse health effects, and we asked the cigarette companies to fund it. I think that the oil companies, they are rolling in a lot of money now, but there is huge economic and environmental cost to our addiction to oil, and the oil industry ought to play an essential role in helping us get off of it.

Sonali Kolhatkar: Now, what about taking the money right out of the hands of the oil companies and instead having high taxes on gas that would then be used to fund some of the measures that you were saying? Such as what is done in many European countries, where gas is much, much more expensive because of very high tax.

Tyson Slocum: Right. You raised an excellent point, you know. The average gas tax including state and local and federal taxes in America is about 40 cents a gallon. In England, it’s five dollars a gallon in taxes. Ok?

Sonali Kolhatkar: Just in taxes alone?

Tyson Slocum: Just in taxes. So it’s clear that other countries tax fuel at far higher rates than we do. But they have got certain advantages, one being that they are far more densely populated than the United States is.

Sonali Kolhatkar: So they don’t need cars as much as we do?

Tyson Slocum: Right. You’ve got the ability to lay down infrastructure. I mean, in Los Angeles, you’ve got a sprawling city that was designed to accommodate the needs of the automobile, and it is going to be a challenge to lay down an infrastructure to accommodate mass transit. It’s gonna take some time and it is gonna be expensive.

Sonali Kolhatkar: Certainly, European countries and cities have much better public transportation than we do here.

Tyson Slocum: Right.

Sonali Kolhatkar: Now, every time there is this spike in gas prices, Tyson, you see these e-mails floating around about how there should be a consumer boycott to teach these companies a lesson, the No Gas Fridays is one example. If everyone stops buying gas on Fridays, it will cause a dent in the profits, even if it is for a day. What do you think of these customer boycotts? Are they effective?

Tyson Slocum: No, they are not. They are not effective, because you are not addressing underlying consumption patterns.

Sonali Kolhatkar: Right, because if you don’t buy it on Friday, you just go buy it on Saturday.

Tyson Slocum: You buy it on Thursday. You buy it on Saturday. So you are not reducing your overall. The only thing that is effective is lifestyle changes, you know. Not driving. I’m lucky in Washington, D.C. I can take the subway to work. Ok? And the subway runs on electricity, I don’t drive. But not all Americans are as lucky as I am. Not all Americans live in a city where they have access to mass transit systems.

Sonali Kolhatkar: So, unless lifestyles are changed in order to reduce the overall consumption of gas, it doesn’t make sense to just not buy it on one day?

Tyson Slocum: Right. And, you know, I don’t want to see families being punished either under these high prices. I mean, we’re in a serious economic recession right now, and it’s being driven in part by sustained high energy prices. You know, people are not dumb. They are doing everything they can right now. People do not like wasting money and giving it to Saudi Arabia or Exxon Mobil. Ok? They are doing it because they don’t have a choice. And what I think our policies ought to do is start investing in giving people access to more choices. We’ve gotta fully fund mass transit initiatives. We’ve got to provide bigger financial incentives for folks to be able to afford to buy super fuel efficient vehicles. And we’ve gotta have a solar revolution in this country. It is an outrage that, in 2008, America is not generating more power from solar energy. The technology is there, the capacity is there, but the political will isn’t. We’ve gotta provide bigger incentives to American families to allow them to be able to afford to install solar panels, so we are generating more of our own power from totally clean energy sources. That is going to be the future of energy policy, and that is what is going to break our oil addiction and help protect American families that are struggling under the weight of these high energy prices.

Special Thanks to Claudia Greyeyes for transcribing this interview