SCENARIOS-Obama mulls tough options for gasoline price cut

WASHINGTON, April 21 Thu Apr 21, 2011 3:33pm BST

WASHINGTON, April 21 (Reuters) - President Barack Obama has a suite of regulatory options for trying to reduce gasoline costs this summer, a time when American angst over $4-plus pump prices is likely to hit fever pitch.

Releasing oil from the Strategic Petroleum Reserve is probably the easiest to do, but Obama said the stockpile should be used for supply disruptions and not to set prices.

The other options at Obama's disposal would cost the government money, pollute the air or be unpopular with voters, which means they are unlikely to be implemented.

CUT FEDERAL FUEL TAX

The federal government imposes an 18.4-cent tax on each gallon of gasoline sold. Temporarily cutting the tax this summer would save drivers money at the pump.

The U.S. tax on gasoline is among the lowest in the world and accounts for around 6 percent of the fuel price. Taxes are much higher in other industrialized countries. For example, taxes make up 56 percent of the gasoline price in the United Kingdom, 57 percent in France and 56 percent in Germany.

The Obama administration would have to convince Congress to pass legislation to lower the U.S. tax.

Congress has adjusted the tax almost 20 times since it was created in 1932. However, it would be difficult to cut the tax when Congress needs revenue to reduce the government's budget deficit.

"We don't have any money in the kitty," said one analyst.

Cutting taxes may also backfire, because cheaper gas will encourage driving, increasing fuel use and raise pump prices.

Likelihood: low

WAIVING SUMMER BLENDING RULES

The Environmental Protection Agency requires U.S. refiners to make more expensive cleaner-burning gasoline in the summer that helps fight air pollution. Waiving that requirement would lower production costs for refiners, because they could process cheaper "sour" crude into gasoline instead of using expensive "sweet" crude with less sulfur to make cleaner gasoline.

It could also make gasoline cheaper because supplies could be used more widely and shared among states that normally have specific blending formulas.

Environmental groups, a key part of Obama's political base, would oppose selling more polluting winter-blend gasoline in the summer when greenhouse emissions are at their worst.

Energy analysts also said U.S. refiners might not use the cheaper oil, because most have converted their facilities to make summer gasoline and it would be expensive to switch back.

Likelihood: low

SUSPEND OIL ROYALTY FEES

The administration could suspend the royalty fees energy companies pay on the oil they drill on federal lands. The federal royalty rate ranges from 12.5 percent of the value of oil produced onshore to 18.75 percent for offshore crude.

Without the royalties tacked on, the price of U.S. oil sold to refiners should be less, lowering the cost to make gas.

Not having to pay royalties may also encourage companies to drill for oil, putting more supply on the market that could lower the price of U.S. crude that is refined into gasoline.

"You stimulate more production if you reduce the cost for looking for oil," said one analyst.

But such a move will cost the government needed revenue, and probably be viewed by the public as more of a benefit for oil companies than for consumers.

Likelihood: low

GOVERNMENT HELP TO PAY FOR GASOLINE

The federal government's Low Income Home Energy Assistance Program, known at LIHEAP, helps the poor and elderly pay heating and cooling bills. The administration could push Congress to expand the program to cover some household gasoline expenses.

This is unlikely because it would add billions of dollars to the federal budget, which lawmakers are trying to cut.

Likelihood: low

LOWER SPEED LIMIT

Lowering the national speed limit to 55 miles per hour would save gasoline, reducing fuel demand and causing downward price pressure at the pump.

The administration can ask Congress to bring back the 55 mph limit and deny road funds to states that do not adopt it.

One energy efficiency group is urging consumers to drive slower, but some states wants to raise their speed limits.

Lowering the speed limit would be unpopular with voters, scaring away lawmakers from supporting such a bill and creating opposition to Obama in his presidential re-election bid.

"I definitely would keep that far away from the 2012 election as much as possible," said one analyst.

Likelihood: low (Reporting by Tom Doggett; editing by Jim Marshall)

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