Imagine this: New York state mandates that
milk must be enriched with Vitamin A. Next door, Pennsylvania
mandates milk contain no extra Vitamin A, but extra Vitamin D.
Nearby Vermont mandates extra Vitamin A, no extra Vitamin D and
extra Vitamin B. What would happen to the price of milk in these
three states?
It'd go through the roof.
Companies that produce commodities count on being able to sell the
same product anywhere. Demand that they produce their product in
different ways for different places, and the price -- for the
producer and thus for the consumer -- goes up.
Now, in real life we'd never demand different formulations of milk
from state to state. Yet that's exactly what we do with gasoline,
and it's one reason the price of fuel is so
high.
When the 1990s began, gasoline was a national commodity, sold the
same way no matter which state it was purchased in. The major price
variable was how much each state chose to tax it. But the Clean Air
Act Amendments in 1990 changed that. Specialized blends -- namely,
reformulated gasoline and oxygenated gasoline -- were mandated for
certain areas of the country. Today the market is balkanized, with
as many as 12 distinct types of motor fuels in use at any given
time.
In 1999, the Energy Information Administration noted the growing
fuel problem this created. It concluded that, "the proliferation of
clean fuel requirements over the last decade has complicated
petroleum logistics" and predicted "additional clean fuels programs
could make the system more vulnerable to local outages and price
spikes."
And the problem isn't simply shipping different types of gasoline
to different markets. Several of these specialized blends are
more expensive to produce than conventional gasoline. In addition,
the logistical burden of separately refining, storing and
shipping so many "boutique fuels" adds to costs and raises the
likelihood of temporary shortages in different places. When there's
a shortage, prices rise quickly.
Unfortunately, the hodgepodge of gasoline regulations has been
especially problematic in the late spring and summer, when gasoline
demand increases and more stringent summer-grade requirements take
effect.
These regulations also have exacerbated the growing problem of
tight refinery capacity. Even without the new requirements,
America's refineries would be hard-pressed to keep up with the
growing demand for gasoline, but these rules make it an even
greater challenge to produce sufficient fuel.
For example, some components of gasoline now must be removed to
meet the federal specifications, adding to production costs
and decreasing output. The new regulatory requirements have
added tens of billions of dollars to refining costs without
increasing output. This leaves the refining sector with
considerably less in resources to invest in expanding capacity and
makes those expansions more expensive.
Unfortunately, specialized fuels aren't merely expensive; they're
also ineffective. They were designed to clean the air, but the
experiment in federally micromanaged gasoline blends has
accomplished little to justify the costs.
Motor vehicles have become much cleaner, and overall air pollution
has declined dramatically over the past three decades. However,
those gains are attributable mostly to improvements in the vehicles
themselves rather than to the proliferation of specialized
fuels.
Indeed, the rate of decline in auto pollution shows little change
after these blends were introduced. And new vehicle emissions
standards now being phased in will ensure continued declines
in exhaust emissions, regardless of whether conventional or
specialized blends are used.
In fact, some provisions of the 1990 law actually have proven to be
environmentally counterproductive. In particular, the requirement
that some gasoline contain 2 percent oxygen led to the widespread
use of methyl tertiary butyl ether (MTBE). Not only has MTBE done
little to help clean the air, it has contaminated many water
supplies.
We can have more gasoline at lower prices if Congress is willing to
streamline the regulations.
The Energy Policy Act of 2005 did make some changes in the fuel
requirements, but they were a wash, overall. The MTBE requirement
was repealed, and the law modestly streamlined gasoline
regulations. However, it also contained a requirement that
ethanol be added to the fuel supply, which likely will add to the
cost and complexity of providing motor fuels.
Washington should limit the number of different gasoline types it
demands and provide more flexibility in implementing the
substantive requirements of the Clean Air Act so that fewer
areas will need to use specialized fuel blends.
Let's make gasoline, like milk, a commodity again, so it will no
longer be cheaper (or more expensive) in one part of the country
than in another.
Ben
Lieberman is a senior policy analyst at The Heritage Foundation
(heritage.org), a Washington-based public policy research
institute.
COMMENTARY Environment
Paying more at the pump -- needlessly
Apr 6, 2006 3 min read
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