Why Chicagoans Are Paying More For Gas At The Pump

Why Chicagoans Are Paying More For Gas At The Pump

Lieberman Op-Ed in The Chicago Sun Times
February 16, 2003

Several factors affect the cost of gasoline and at any given time can drive up the price at the pumps. Unfortunately, Chicago motorists have been hit with nearly all of them over the last few years, and the future prospects for affordable and stable fuel prices are not much better.

Since Jan. 1, Chicago motorists have seen prices for regular rise to more than $1.70 a gallon from $1.40. The increase is caused by rising crude oil costs, the raw material for gasoline that accounts for about 40 percent of the retail price for gas.

The dollar price of a barrel of crude has recently jumped from the mid-$20s to the mid-$30s, and every dollar increase adds roughly 2.5 cents to the price per gallon of gas.

Political turmoil in oil-producing Venezuela is the main culprit behind the drop in supplies and rise in costs. The price also has been affected by the risk premium accompanying the uncertainty about Iraq. It is anyone's guess how these and other factors will play out, as the oil price impact of unfolding political events is notoriously hard to predict.

At least Chicagoans suffering the current price increases are no worse off than those in the rest of the country.

In contrast, the price spikes in the summer of 2000 and 2001 sent local gas prices to $2 per gallon and more, well above the national average.

Those increases had nothing to do with oil supplies and everything to do with environmental regulations. Tough Clean Air Act requirements for reformulated gasoline (RFG), and the proliferation of distinct fuel blends--Chicago style gas is as unique as its pizza--paved the way for short-term, localized jumps at the pumps. Summer is the time of both the highest motor fuel demand and of the imposition, in Chicago and several other metropolitan areas, of costly RFG requirements designed to fight smog.

Last summer was not nearly as bad as the previous two, as refiners gained experience meeting the new environmental standards, and no major pipeline or refinery mishaps affected the flow of fuel needed for Chicago's market. However, this summer could be a different story, especially if current low inventories of crude oil and refined products continue for the next few months.

Taxes only make matters worse. In addition to the 18.4 cents per gallon federal tax, higher-than-average state and local taxes more than double that amount. Though these taxes have held steady for several years, they become even more painful at times like this when the non-tax components make gas costly enough. And the burden is regressive, with those barely able to afford automobility being hardest hit when prices increase.

Despite the price volatility in recent years, there has been little if any headway on gasoline tax reform, either locally or nationally.

In Washington, proposed policy changes might influence future gas prices, but they probably won't help very much. The president and many Republicans in Congress hope to open parts of Alaska's Arctic National Wildlife Refuge and other U.S. sites to oil exploration and drilling. Domestic oil does have the benefit of flowing free of foreign tyrants and turmoil. But oil is a global commodity, and even if the refuge is brought online, the added supply would not be enough to dramatically increase supplies or lower prices.

Improvements in air quality, both in Chicago and in many other areas, mean that costly environmental regulations could be streamlined without any serious downside.

Further, studies by the Environmental Protection Agency and National Research Council have cast doubt on whether certain RFG requirements actually improve the environment. However, despite innumerable Congressional hearings in response to the price spikes of 2000 and 2001, Congress has yet to do anything constructive on federal gasoline regulations.

In his State of the Union address, President Bush also pledged more research dollars for alternative vehicles, specifically ones using hydrogen fuel cells. But fuel cell cars have many hurdles that won't be overcome for at least 10 years, if ever.

Many of the same bureaucrats and activists high on hydrogen fuel cells were just as enthusiastic about electric-battery cars a few years back.

Though technological leaps are always possible in the longer term, petroleum-based transportation will remain the best deal for drivers over the next decade or two.

The only good news is that each recent jump in gas prices was followed by a longer period where fuel was relatively cheap. We can only hope history repeats itself, and soon.