Subsidize heating costs for zero

Published 12:00 am Friday, October 28, 2005

President Bush had better initiate a program to subsidize home heating-oil costs before sticker shock turns the red states blue with cold this winter.

With heating-oil prices expected to increase by at least 50 percent because of the high global demand for petroleum and Hurricane Katrina-induced damage to American refineries. Prices for natural gas and electricity will also inflate, lagging not far behind.

And there’s a way Bush can subsidize those costs without further adding to the federal budget deficit. The U.S. strategic petroleum reserve contains about 700 million barrels of oil, approximately a one-month supply of oil for the nation (and a bit more than two months if we assume that only foreign oil were to be cut off).

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The oil in the reserve has been purchased at an average price of $27 per barrel over more than two decades to prepare for a genuine national emergency. What we face this winter is not a calamity of sufficient gravity to warrant selling off part of the reserve, but we can borrow it for a while.

Why doesn’t the president order that about 200 million barrels of the reserve be sold at current market prices? If the price runs about $60 per barrel at the time the sale is consummated, the sale would generate $12 billion. Since we purchased the oil at an average price of $27 per barrel, or about half as much as we are now going to make from the sale, we should put aside half of the proceeds – $6 billion – to use replenishing the reserve once prices have come down to more normal levels. Then we can feel free to use the remaining $6 billion to subsidize home heating-oil prices this winter at no cost to the treasury.

While oil prices are destined to rise in coming years because of increased demand, particularly from developing nations such as India and China, they aren’t likely to stay above $30 per barrel for more than the period of the current emergency. We should shortly be able to replenish all we have borrowed from the reserve, again without any additional drain on the treasury.

We certainly will not need the extra 200 million barrels during this interim period. We can replace it before we experience any ill effects from its absence. The oil is doing us no good sitting in the reserve. There is no reason why our government cannot cash in on the current escalation of fuel prices to mitigate some of the effects of this rapid increase on our people.

It would be great if Bush could, for once, anticipate the need for a program before he has to be beaten over the head to initiate one. The looming disaster of higher heating-oil prices clearly will require a federal subsidy. This proposal offers a way Washington can give help without spending more money.

Without the subsidy, one can well imagine low-income families in Northern climes having to choose between heating and eating, not a choice they should be forced to make. No means test should be necessary to trigger the federal subsidy, since the increase in costs should not cause otherwise self-sufficient citizens to feel as if they are receiving charity or welfare. Nobody can plan for a 50-percent increase in heating-oil costs, and few can absorb the higher bill without cutting out something else in their budget.

The sell-off of reserve oil would not require congressional approval. Bush has ample authority to order it under his current executive powers. Using that fund for heating-oil subsidies will require Senate and House consent, but legislators are particularly adept at voting for subsidies that do not cost anything. Passing the bill should not present much of a problem.

The administration should act promptly to take advantage of this win-win proposal.

Dick Morris was an adviser to Bill Clinton for 20 years. Look for Dick’s new book “Condi vs. Hillary” available now. Copyright 2005 Dick Morris, All Rights Reserved. Distributed by Cagle Cartoons, Inc. Call Cari Dawson Bartley at (800) 696 7561 or e-mail: email for Dick Morris is