No Evidence Midwest Gas Price Increases Caused by the Oil Industry

No Evidence Midwest Gas Price Increases Caused by the Oil Industry

Costly EPA Regulations Still Most Likely Culprit
July 31, 2000

Washington, DC, July 31, 2000 – A July 28th interim report of the  Federal Trade Commission (FTC) investigation into the causes of the recent rise in gasoline prices in the Midwest “contains zero evidence of oil industry collusion or price gouging,” says Ben Lieberman, policy analyst with the Competitive Enterprise Institute.

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Gas prices have since declined, but the early summer price spike remains a hot political issue, especially in light of recent warnings from the US Energy Information Administration that other price increases are possible before the summer is over. Though the FTC investigation has been underway for over a month, the interim report stated that  “no conclusions, however tentative, have been reached.”  FTC promises a final report in three or four months. 

“It looks like the FTC has no support for the allegations of illegal conduct, but doesn’t want to admit it,” adds Lieberman.  “This is not surprising, since these allegations were nothing more than an attempt by the Clinton Administration to deflect blame from the real culprit – onerous new EPA regulations.”

Strict new EPA requirements for reformulated gasoline (RFG) took effect this spring.  While RFG comprises nearly a third of the nation’s fuel supply, the kind used in the Midwest is unique in that it is blended with ethanol.  Initial difficulties producing and distributing sufficient supplies of this formula led to a localized shortage, with prices in Chicago and Milwaukee exceeding $2.00 per gallon throughout June and early July.   A June 28th Congressional Research Service report attributed 25-34 cents per gallon to the EPA’s onerous new fuel regulations. 

Rather than concede the high costs of the EPA’s gasoline requirements, the Clinton Administration chose to launch a high profile investigation to determine whether, in Vice President Gore’s words, “big oil is gouging American consumers.”   In fact, a June 5th memo from the US Energy Information Administration had already informed the President and Vice President that the primary cause of the price spike was “an RFG formulation specific to the area that is more difficult to produce.” 

“As soon as the red herring of industry price gouging out of the way, I hope the Administration takes a hard look at its unnecessarily expensive fuel regulations, especially since EPA is promulgating many new ones that may cause similar price spikes in the future” says Lieberman.

CEI, a non-profit, non-partisan public policy group founded in 1984, is dedicated to the principles of free enterprise and limited government. For more information, please contact Emily McGee, director of media relations, at 202-331-1010, ext. 209.