PROBLEMS AT THE PUMP (with a DBQ)

July 23, 2011

A student reading explores why gas prices are rising. A Document-Based Question has students consider competing views on what to do about it.

To the Teacher:

Americans are becoming increasingly aware of problems associated with fossil fuels. More and more people understand that fossil fuels contribute to global warming, a phrase now widely understood to carry potentially ominous implications. And they understand that oil, more than any other fossil fuel, literally drives economies worldwide.

"Problems at the Pump" is the fourth in a series of materials on this website encouraging students to examine major energy issues and problems confronting the U.S. and the world:

  • "The Controversial Bush Energy Program" discusses the elements of the president's program, whose major focus is, through subsidies and tax breaks, to encourage the discovery and extraction of oil, natural gas, and coal deposits; the role played by energy industry executives, trade association leaders, and lobbyists in the development of the program; the pros and cons of the Bush plan, which also includes some funding for the development of alternative energy sources; and the effects of energy use on the global climate.
  • "Oil and the Bell-Shaped Curve" provides a short historical review of oil and the U.S. as well as additional examination of the Bush energy plan.
  • "The Unpleasant News about Global Warming" presents facts about the state of the planet and a discussion of the greenhouse gas issue and what is and isn't being done about it.
  • This activity, "Problems at the Pump," offers some basic information about oil, gas, and the United States; competing views on why gas prices have risen; and a Document-Based Question (DBQ) offering competing points of view about what, if anything, should be done to make American vehicles more energy efficient.

Each of the four sets of materials provides classroom activities, including some to foster citizenship .

 


Student Reading

Rising gas prices: Facts and explanations

 

Introduction

  • Rosie Kerr works in Yreka, California, a small town in Siskiyou County north of Sacramento where there are many low income people. Her husband is unemployed. She spends $40-$50 a week on gas for their car. And that has meant falling in debt to her mother.
     
  • Christine Gannon and her husband live in a mountainside house in the same county. They both work, but now spend $300 a month gassing up their vehicles. They're trying to figure out where to cut back to make up for this rising expense.
     
  • Lyle Sauget, a Yreka print shop owner, said, "Fuel is affecting everything. Food. Clothing. Everything's gone up.  It takes an already depressed area and takes it down."

    (Sasha Abramsky, "Running on Fumes," The Nation, www.alternet.org, 10/18/05)

Hurricanes Katrina and Rita struck hard, killing people, damaging and destroying homes, businesses, and oil drilling facilities in the Gulf of Mexico, the major source of America's domestic supply of oil. Almost immediately, prices at the gas pump jumped to over $3 a gallon in many places around the country.

In the weeks since, prices at the pump have moderated, falling under $3, but still high by American standards. And, as Lyle Sauget said, "affecting everything." Oil is the source not only of gas for cars but also jet fuel, home heating oil, and many other products?and when the price of oil goes up, these prices rise too. The price of oil affects everything from college tuition costs to consumer shopping habits. Low income Americans aren't the only ones who feel the effects in their wallets.

 


Part One: Some facts about oil and gas

1. Oil provides 97% of all fuel for American cars, trucks, buses, planes, trains, and ships.

2. The U.S. has 3% of the world's population but consumes 25% of the world's oil supply. That's 20 million barrels daily (one barrel=42 gallons), of which 44% is refined into gasoline for motor vehicles. (Michael Klare, www.thenation.com, 9/6/05)

3. If the U.S. had to rely completely on its own resources, the country would run out of oil in a little more than four years.

4. Ten years ago the U.S. got 44.5% of its oil from foreign sources. It now gets 58%. For Persian Gulf oil suppliers alone, this translates into $25 billion in sales. (Natural Resources Defense Council, www.nrdc.org)

5. From 1992-2003, commuters in Los Angeles spent a yearly average of 93 hours in traffic delays. Overall, drivers in 85 urban areas wasted 2.3 billion gallons of gas sitting in traffic. (PBS Teacher Source, www.pbs.org)

6. The average American family of four will spend $2,873 on gas this year. (Sierra Club, 10/6/05)

7. In 2004 profits for the three largest oil companies were: Exxon-Mobil?$25.33 billion; Royal Dutch Shell?$18.54 billion; BP?$15.73 billion. (Washington Post, 2/13/05) The Exxon-Mobil profits represent a 218% increase over the preceding year. (Sierra Club, 10/6/05)

8. Ten years ago the top 10 U.S. oil refining companies controlled 56% of refining capacity. Today, as a result of mergers, the top five U.S. refining companies control 56% of domestic refining capacity. (www.consumeraffairs.com, 9/21/05)

9. "When the average price of a gallon of regular gasoline peaked at $3.07 recently, it was partly because the nation's refineries were getting an estimated 99 cents on each gallon sold. That was more than three times the amount they earned a year ago when regular unleaded was selling for $1.87. The companies that pump oil from the ground swept in an additional 47 cents on each gallon, a 46 percent jump over the same period.  For a company like Exxon, producing a barrel of oil from an existing well costs about $20, according to analysts. When the selling price rises above that, the increase is almost all profit, they said. After Katrina bore down on the Gulf Coast, the price of oil set a new high, approaching $70." (Washington Post, 9/25/05)

10. American oil companies made $450 million in political contributions in the past six years. (American Progress Action Fund, www.americanprogress.org,10/7/05)

 

For written answers and/or discussion

What factual conclusions can you reach based on the above facts about oil and gas?

1. What fuel do Americans depend on the most for transportation?

2. Where does most of this fuel come from?

3. What effects do urban traffic jams have on gas supplies?

4. What effects do American driving habits have for American oil companies? Foreign oil companies?

5. What change has there between 1995 and 2005 in ownership of the largest oil refining companies?

6. What judgmental inference would you draw from the factual statement in item 10?

7. What questions do students have and how might they be answered?

 


Part Two: Rising gas prices

Why have gas prices been rising?

According to a July 2005 report from the U.S. Federal Trade Commission:

"First, in general, the price of gasoline reflects producers' costs and consumers' willingness to pay. Gasoline prices rise if it costs more to produce and supply gasoline, or if people wish to buy more gasoline at the current price. Gasoline prices fall if it costs less to produce and supply gasoline, or if people wish to buy less gasoline at the current price.

Second, how consumers respond to price changes will affect how high prices rise and how far they fall.  Consumers can change their driving habits, walk, ride a bike, take the bus or the subway, or eventually buy more efficient vehicles, but these are difficult choices.

"Third, how producers respond to price changes will affect how much prices rise or fall. In general, when there is not enough product to meet consumers' demands at current prices, higher prices will signal a potential profit opportunity and may bring additional supply into the market."

?U.S. Federal Trade Commission, 7/5/05

According to a 10/13/05 full-page advertisement in the New York Times by America's Oil & Natural Gas Industry:

"World demand for oil is at an all-time highóand growing. As a result, crude oil prices have risen by 30 percent since May. What's that got to do with the price of gasoline at the pump? A lot.

"A June 2005 Federal Trade Commission report said: 'The world price of crude oil is the most important factor in the price of gasoline.' Crude oil counts for more than half the cost of a gallon of gas.

"The recent hurricanes' damage to oil and gas facilities in the Gulf Coast region have constrained domestic crude oil and gasoline production. Where do we go from here?

"Our first priorities are to get electricity restored and to repair the damage recently inflicted on our facilities.  Second, we all can do our part by using energy more efficiently. You can find helpful ideas at www.api.org. Third, it's time policymakers stop debating and help ensure reliable energy supplies. Part of the answer must be greater domestic onshore and offshore production and improved energy infrastructure. With added supplies from home and abroad, gasoline availability will be less volatile due to natural disasters such as hurricanes or other supply threats.

"Consumers, government and the oil and gas industry all share an interest in ensuring reliable energy supplies. Working together, it's a goal we can achieve."

According to a 9/21/05 statement by a spokesperson for the consumer organization Public Citizen before the Senate Committee on Commerce, Science and Transportation:

"Despite Hurricane Katrina's reported impact on gasoline prices, gasoline and oil prices have been creeping up for two years, in large part because of a wave of mergers in the oil industry. This consolidation makes it easier for oil companies to gouge consumers at the pumps. The five largest oil refiners?ConocoPhillips, Valero, ExxonMobil, Shell and BP?have seen profits of $228 billion since President Bush took office in 2001.

"Despite government reports issued in 2001 and 2004 that directly link corporate mergers to high gasoline prices, no action has been taken to aid consumers who are suffering from a volatile market where prices spike day by day.  Meanwhile, oil industry profits are at record highs, largely due to record refinery profit margins. While in 1999, U.S. oil refiners earned 22.8 cents for every gallon of gasoline they refined, that profit margin increased 80 percent by 2004, to 40.8 cents per gallon." (www.consumeraffairs.com)

For written answers and/or discussion

1. In your own words state three reasons why gas prices have been rising, according to the Federal Trade Commission.

2. What does the American Oil & Gas Industry emphasize as the main reason why gas prices have been rising?

3. What two reasons does Public Citizen give why gas prices have been rising?

4. What are your conclusions about the reasons for rising gas prices? How and why did you reach these conclusions?

5. What questions do students have and how might they be answered?

 


DBQ: Perspectives on Gas Prices

 

This document-based question includes items A-E. Item F, alternatively, suggests using the DBQ for class discussion.

A.

What, if anything, should the government do about the sustained increase in gasoline prices? Not a thing. First, motorists will turn to conservation with a vengeance if fuel prices stay high over a long period of time. Second, consumers have a right to make their own decisions between higher gasoline prices and conservation without the government whacking them over the head with higher taxes, constrained choices in the vehicle market or extracting their earnings for the benefit of corporations engaged in making cars or fuels that consumers presently don't want to buy. Simply put, individuals know better how to order their personal affairs than do politicians or bureaucrats no matter how well meaning they might be.

At the end of the day, the best remedy for higher gasoline prices is high gasoline prices, which provide all the incentives necessary for motorists to conserve, for oil companies to put more product in the marketplace, and for investors to look into alternative fuel technologies. Government has never demonstrated an ability to do better.

?Jerry Taylor and Peter Van Doren, The Cato Institute (www.cato.org), 10/22/05

Question: What are two reasons why Taylor and Van Doren think the U.S. government should not do anything about high gasoline prices?

B.

Already, sales of SUVs have plummeted. This makes sense?gasoline is now expensive and looks to be so for at least the near future. The price of owning an SUV went up, and so fewer people are purchasing them.  The price of driving went up, and so people are driving less, curtailing unnecessary trips or accepting a bit of inconvenience (subways, carpools, buses) in exchange for the great savings of not driving.

This is not conservation as public policy; rather, it is individual actors making voluntary choices in the marketplace based on price. Consumers are doing all this on their own.  The power of the price mechanism?that is, ordinary people responding to market prices and market prices responding, in turn, to their demand?is that limited resources like gasoline get put to their highest uses. It may be worthwhile, for example, for most highway drivers to slow to 55 mph to save gas. But what if you're driving to an important meeting or to your family whom you've not seen in a few days? A bit more speed may be worth the extra bucks, but only the consumer?not the regulator?can make that decision.

óThe Heritage Foundation (www.heritage.org), 10/4/05

Question: What are two examples supporting the idea that ordinary people, and not government regulators should make the decisions about how to respond to high gas prices?

C.

The best way to cut America's oil dependence and shield consumers from spikes at the pump is to make cars and light trucks go farther on a gallon of gasoline. Congress and the Bush administration should increase the fuel economy of the country's fleet of cars and light trucks to 40 miles per gallon and eliminate perverse financial incentives that encourage manufacturers to produce and consumers to choose gas guzzlers over more efficient cars.

We must [also] redirect some of the record oil company profits into measures that will dramatically reduce our oil consumption.  Congress should immediately repeal all existing tax breaks for the oil and gas industry and shift these incentives toward conservation solutions that will help consumers.  Congress could double the tax credit available to consumers purchasing more fuel efficient cars Congress could increase funding for public transport, such as light rail.

?U.S. Public Interest Research Group (www.uspirg.org), 9/8/05

Question: What is the most important action the U.S. could take to reduce gas consumption, in the view of USPIRG ?

D.

U.S. automakers have] been lobbying hard and successfully against raising fuel efficiency. Their business-as-usual stance costs us dearly, both financially and security-wise.  If fuel economy doesn't improve, fuel use for passenger vehicles will increase more than 50 percent by 2020.  And the amount of oil we import will rise as well, from half to nearly two-thirds.

We can't afford to let that happen. So we need to use our consumer power to persuade the Big Three automakers to start using their know-how to make better, more efficient, safer, cleaner and less gas-guzzling vehicles and more than that we have to use our political power to get our elected leaders to press Detroit for change."

?National Resources Defense Council (www.nrdc.org)

Question: According to NRDC, what should consumers do to get U.S. automakers to produce more fuel efficient cars?

E.

Viewpoints on what, if anything, to do about gas prices differ. Using information from the documents, the reading and your knowledge from other sources, write a well-organized essay that includes an introduction, several paragraphs, and a conclusion in which you:

  • compare and contrast opinions on how Americans should respond to high gas prices
  • discuss your own point of view and the reasons for it.

F. For discussion

Have students read the DBQ and answer in writing items A-D. Then divide them into groups of four to six to 1) discuss their answers and 2) respond to the first item in E, which calls for comparing and contrasting viewpoints. The class might then consider the major points of comparison and contrast in reports from each group.

The discussion might conclude with a general discussion of student viewpoints and the reasons for them.

 


Additional classroom activities

For inquiry

Oil is a subject offering many opportunities for inquiry such as:

  • Investigate one foreign source of U.S. oil. What is one significant issue or problem in the relationship between the U.S. and this nation? Why?
     
  • How much does your family spend on oil? Consider as many sources of spending as possible, e.g., cars, home heating, electricity.
     
  • Investigate one or more alternative and renewable sources of energy?solar, wind, wave and tidal power, geothermal, biomass and biofuels, hydrogen cells, ethanol. What and how much is the U.S. government doing to develop these power sources?
     
  • Inquire into the exploration and drilling for oil on public lands. Consider, for example, the debate over Alaska's Arctic Natural Wildlife Reserve (ANWR). What are the pros and cons over opening this public wildlife area to exploitation?

For citizenship

Get in touch with your senator and representative. How active are they on any issues of importance to students? What are their positions on such issues as ANWR and legislation calling for better automobile fuel efficiency? Why? Make those senators and representatives aware of student views and why they hold them.

Organize a campaign to improve home energy efficiency. Environmental and civic organizations such as the Natural Resources Defense Council (www.nrdc.org) and Public Citizen (www.citizen.org) offer suggestions.

See additional ideas for inquiries and citizenship activities included in the other energy materials cited earlier.

 

This lesson was written for TeachableMoment.Org, a project of Morningside Center for Teaching Social Responsibility. We welcome your comments. Please email them to: lmcclure@morningsidecenter.org