A Little Sunlight Can Help Lower the Price of Gasoline

August 28th, 2012

Cross-posted with permission from Calvert Investments. This post was originally written on March 7, 2012.

flickr / colonos

United States oil production is at an eight-year high and in December 2011 the country was a net exporter of gasoline for the first time since 1961? Then why are gasoline prices so high? The answer has more to do with sustainability than you may think.

Stability and the Price at the Pump

About three quarters of how much you pay at the pump is determined by the price of oil. (The other significant factors are taxes, refining, transport, and marketing.) About half of the oil used to make gasoline and many of the other products Americans depend on comes from outside the U.S. Increasingly, more of that imported oil comes from relatively stable sources such as Canada and Mexico and less from countries in the Middle East and Africa.

However, even a relatively stable supply of oil and a significant decline in gasoline consumption isn’t protecting U.S. drivers from price spikes at the pump. Oil is such an important and finite commodity that its price is often influenced by expected changes in its availability around the world.

So, when conflict in oil producing countries such as Nigeria or Iran threatens production it can boost prices everywhere.

Transparency Can Help Moderate Oil Prices

A useful way to lessen the volatility in the price of oil is to address the root causes of the conflict and other political risks that can threaten production. Too often conflicts in resource rich countries are ignited by the corruption and inequality that can follow windfalls from natural resource development. Greater transparency in oil producing countries can help create the accountability necessary to reduce corruption, lower political risks, and moderate the price of oil in the long term. This is one of the reasons why Calvert is a strong supporter of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which requires oil, gas and mining companies to disclose the payments they make to the countries where they operate.

Calvert outlined the investor case for the disclosures required by the legislation that preceded Section 1504 in a paper released in April 2010. Since then we have been strong supporters of final implementation of the law that has no loopholes that would lessen its potential to create stability and enhance investor confidence. You can read Calvert’s comments to the Securities and Exchange Commission regarding the implementation of Section 1504 here.

AttributionNoncommercialShare Alike Some rights reserved by colonos

Written by Paul Bugala

Follow @FinTrCo