Senator Kay Bailey Hutchison has written a great op-ed on why the ethanol mandates passed by Congress were a mistake and why the United States should accelerate all forms of domestic energy production – including the drilling for crude oil.

In her article, the Senator explains how ethanol mandates are leading to higher costs of food at home and the food riots that have been breaking out abroad. Something I didn’t know, she also claims the demand for biofuels is leading to global deforestation as parts of the Amazon basin are being cleared to make room for biofuel production.

The key, Ms. Hutchison says, is increasing energy supply. She is exactly right. What she doesn’t say, but something that is every bit as important, is that a Democratically-controlled Congress will not pass the legislation needed to correct our energy woes unless they hear overwhelmingly from the American people.

If you are an American, this is your problem, too. Write your congressman and insist on a solution, especially if your representative is a Democrat.  

Earlier this week, the House Select Committee on Energy Independence and Global Warming called executives from the major oil companies to testify regarding the rise in fuel prices. Representative Edward Markey, a Massachusetts Democrat, said at the hearing, “On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil.” I disagree, and the information below should help put the issue of rising fuel prices in perspective.

In 2007, the oil companies only made 8.3 cents profit on every dollar of gasoline sold in the United States. The federal government takes 18.4 cents for every gallon sold.  Most states take several cents per gallon on top of that.

High gas prices are the result of restrictions placed on oil companies by the federal government which force reliance on an already crowded global market.

Investor’s Business Daily (3/25/08): Developing nations China and India, where the populations — already a third of the world population — and economies are growing, account for more than two-thirds of the increased (oil) consumption. Their use is expected to double in the next 20 years...We watch helplessly while prices at the pump reach $4 point in the priciest U.S. markets and as much as 131 billion barrels of oil remain off-limits beneath our soil and our waters.

To put this in perspective, the United States currently consumes around 20 million barrels of oil a day. 

On the research and development end, the government controls where each company can and cannot explore for new sources of oil as well as where they can and cannot drill in existing sources.

Investor’s Business Daily (3/31/08): The irony is that countries with fast-growing economies such as those in China, Brazil and India are accelerating energy resource development, while resource-rich North America is becoming captive to environmental extremism and continues to restrict access to oil supplies.

Investor’s Business Daily (3/4/08): Passing 236-182 last week, [HR 5351] scrapped the tax deduction routinely given to the major integrated oil companies — Exxon, Chevron, BP, Shell and ConocoPhillips — that helps them explore, extract, refine and market the energy that drives our economy. This will make it $18 billion more costly for those companies to produce oil…Under this bill, [Hugo Chavez's] oil subsidiary keeps its 6% deduction for U.S. domestic manufacturing — the one the American oil companies lose — because Citgo, technically, buys from Chavez.

Can you believe that?!?!  It's true.

On the production side, the governmental laws and regulations are so tight that it is not profitable to build new refineries.

Investor’s Business Daily (3/14/08): In 1982, the U.S. economy was served by 301 refineries. By 2007, the number had dwindled to 149. Productivity has kept output steady over the years at 17 million barrels a day. But the U.S. economy has grown by 125%. "Valero believes there will never be another refinery built in the U.S.," spokesman Bill Day told IBD. He cited costs, environmental regulations, neighborhood activism and lawsuits. "For a new refinery, it would take five years for a permit and five years for construction, and it's very expensive. A company would have to know it would pay off." Congress has been of no help whatsoever. Mandates requiring certain ethanol percentages in gasoline composition are chopping down refiners' market share at the pump. Refiners are undercut by the subsidies ethanol producers get that refiners don't. Ethanol producers are also protected by high tariffs on overseas ethanol, while imported gasoline comes in duty-free. This brings in a lot of competition for refiners.

Don’t forget that the 8.3 percent profit an oil company turns is subject to a 45% corporate income tax. Not only do the federal and state governments make more money from the sale of gasoline than do the oil companies, but it is the policies set forth by the government that are the fundamental reason Americans are paying so much at the pump these days.