There are three reasons why gas prices are so much higher than they were a year ago. First, the strong and unexpectedly rapid recovery has boosted demand. Second, the Ukraine war has impacted supply. Finally, supply has also been reduced by a lack of investment in refinery capacity and new drilling, which in turn has been caused by perfectly reasonable doubt that putting money into a product that is supposed to be phased out ASAP makes economic sense.
Biden obviously has no regrets about the speed and magnitude of the recovery, which may now be faltering, in any event. He can’t do anything about the war unless he’s willing to sell out the Ukrainians, which he isn’t. That leaves the investment problem. Can the government help with that?
Yes, if the will exists. Gasoline is a transitional fuel. We’re going to need it for the next several years. Since the private sector has little incentive to invest in additional capacity for use for such a limited period of time, the government can either provide guarantees and subsidies to the private sector to increase capacity and keep prices low on an interim basis, or stand back and tolerate high prices until the transition is complete.
Both approaches would work, in different ways. It will come down to politics, as usual.