October 25, 2005

October 25, 2005 | WebMemo on Energy and Environment

The Gas PRICE Act: A Modest Step Forward in the Post-Katrina Energy Debate

According to its opponents, Sen. James Inhofe's (R-OK) new energy bill goes too far in rolling back environmental protections in a dubious attempt to bring down the price at the pump. But if anything, the Gas Petroleum Refiner Improvement and Community Empowerment Act (Gas PRICE Act, S. 1772) does not do enough to streamline the many regulations that unnecessarily raise the cost of refining oil into gasoline. Though the bill could go farther, it nonetheless is a tangible step in the right direction.


Several Useful Provisions

The bill contains several sections that could help reduce motor fuel prices over the long term. One would allow states to streamline refinery permitting, transforming a process that now drags on for years into one that must be completed in months. This should encourage expansions of existing refineries. By reducing some of the costs and uncertainties involved in undertaking such projects, these provisions would facilitate bringing badly-needed additional capacity online.


The bill also would reduce the number of distinct fuel blends currently in use. Presently, the motor fuels industry has to separately refine, transport, and store as many as 18 different so-called boutique fuels for different markets. Some of these blends are more expensive to make, and the logistical burden of having to simultaneously provide all of them adds to costs and causes localized shortages and price spikes. The Gas PRICE Act would gradually move America away from this balkanized and fractured system toward a more efficient one in which gasoline supplies are fungible between regions.


The Gas PRICE Act also would clarify the Clean Air Act's emergency fuel waiver provisions. EPA's rapid response in temporarily waiving certain fuel requirements helped stem supply shortages in the immediate aftermath of Hurricane Katrina. The bill's waiver provision would ensure that states could use emergency waivers in future fuel emergencies without the fear of legal repercussions.


But these provisions are very modest, and the bill probably should have gone further. For example, the permit streamlining measures do not take on EPA's cumbersome New Source Review program, which has discouraged many refinery upgrades. And the boutique fuels provisions would reduce the number of blends in a one-at-a-time procedure that would take many years to have an impact. Overall, the bill would not change the bulk of motor fuel-related regulations already in place nor the 14 new ones currently being implemented. Sen. Inhofe has stated that he kept more aggressive red-tape cutting out of the bill to garner bipartisan support.


The bill contains other provisions that are not as useful. A section designed to assist states and localities with converting closed military bases into new refinery sites may or may not actually result in any new facilities being built. And provisions throwing more money at energy research are unlikely to yield benefits. But these problematic measures do not overwhelm the good ones.


Energy Bill Déjà Vu

The Gas PRICE Act, like other post-Katrina bills, brings back several ideas that were considered during the debate over the Energy Policy Act of 2005 but ultimately left out of the final version that passed last August. Many of these earlier provisions, including ones to expand refinery capacity and simplify the boutique fuel requirements, had been attacked as anti-environmental.


These criticisms were largely baseless, as there is ample room to cut back on such inefficient and obsolete regulations that raise fuel costs but do little to improve environmental quality. For example, regulations currently being phased in require new motor vehicles to emit very few pollutants regardless of the fuel used, and so the benefit of boutique blends over conventional gas has been minimized. Nonetheless, the mere assertion that a provision in the energy bill would increase pollution was usually enough to get it removed from the 1,700 page law.


Just weeks after passage of the Energy Policy Act of 2005, Hurricanes Katrina and Rita sent already-high energy prices even higher and reignited the debate over many of these same measures. In particular, the long-recognized need for more refinery capacity was further underscored when the hurricanes knocked out several Gulf area refineries and caused pump prices to spike. Has the politics of energy changed enough so that ideas that did not make the cut a few months ago are viable now?


Apparently not. In recent hearings before the Senate Environment and Public Works Committee, opponents attacked the Gas PRICE Act, much as they attacked similar provisions months earlier, as "environmental rollbacks." Even Sen. Inhofe, who chairs the Committee, felt the need to emphasize that his bill changes no substantive environmental laws- as if such changes would be wrong. He also took pains to distance his bill from a more aggressive House bill, the Gasoline for America's Security Act of 2005 (H.R. 3893), which was also strongly attacked and narrowly passed the House by a 212-210 margin.



The Gas PRICE Act makes only a dent in the many refining and motor fuel regulations that have done more economic harm than environmental good. Nonetheless, it contains enough useful provisions to be considered a step towards more affordable gasoline.


Ben Lieberman is Senior Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Ben Lieberman Senior Policy Analyst, Energy and Environment
Thomas A. Roe Institute for Economic Policy Studies