Skyrocketing Ga$: What the Feds Can Do -- Lieberman in NY Post

Skyrocketing Ga$: What the Feds Can Do -- Lieberman in NY Post

May 09, 2001

Published in The New York Post

Published in The New York Post

April 23, 2001


Average gasoline prices jumped more than 20 cents last month, to $1.70 per gallon, and the summer surge in demand looms. Chevron is getting ready for what's now an outside possibility: It's looking to buy new signs for its gas stations that can display prices of $3.00 or more per gallon.


The cause of this price spike? Not OPEC, or even taxes. Both boost the cost of gas, but neither crude-oil prices nor gas taxes have changed much lately. The new factor is a growing regulatory burden.


Gas can now cost much more in some cities than in others. Last summer, Chicago and Milwaukee led the nation, with prices spiking above $2 a gallon, 40 cents higher than the US average. Now San Francisco holds the lead, with regular gas at $2.09 a gallon. The cause? Environmental regulations that dictate different types of gasoline for different locations at different times of the year.


These rules have hit New York harder than most of the country, if not as hard as the upper Midwest or California. As a result, New York's gas prices - now $1.82 a gallon for regular in the city - are well above the US average. And they will likely stay relatively high throughout the summer, as New York City is subject to costly federal rules that mandate the use of reformulated gasoline (RFG).


The price spike comes from more than just the higher individual cost of making these specialized fuel blends. The cost of having to separately refine, transport and store all of them is emerging as a real problem. This breakup of our once-national gasoline market worsens another problem - the lack of refining capacity.


No new refinery has been built in America in 20 years, thanks in part to strict Environmental Protection Agency rules on refinery construction. So some of these mandated RFG blends are made by just a few refineries. The result: An unexpected production problem at even one plant can goose prices.


Refining bottlenecks, especially as producers begin switching to gasoline recipes meeting EPA's summer requirements, are the driving force behind the recent price rise.


Barring change at EPA, the regulatory burden will only worsen. In his last weeks in office, President Clinton signed yet more new fuel regulations, set to take effect in the years ahead. And the EPA, rather than cooperating with the beleaguered refining sector, is engaged in an enforcement crackdown on the dwindling number of refineries.


The Bush administration needs to reverse this trend of federal micromanaging and Balkanizing of the nation's fuel supply. It must also let refining capacity keep up with demand.


Otherwise, Chevron and others may need those $3 signs in the near future.


Ben Lieberman is a senior policy analyst with the Competitive Enterprise Institute.


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