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Published in the Chicago Sun-Times
Published in the Chicago Sun-Times
April 12, 2001
With summer two months away, the Environmental Protection Agency recently announced some good news for Chicago motorists: The agency is going to relax parts of the regulation on reformulated gasoline (RFG, a special blend required during the summer months) that was responsible for much of last summer's price increase.
Unfortunately, the threat of another gas price spike is very real, thanks to other EPA rules still in force.
EPA's candid admission that it contributed to last summer's disaster at the pumps and its willingness to do something about it represents a refreshing change. As many Chicagoans painfully remember, gas prices rose above $ 2 a gallon last June and stayed high into July.
At the time, Clinton-appointed EPA officials vehemently denied any responsibility, instead accusing the oil industry of a massive price fixing conspiracy.
But others implicated EPA's tough new RFG standards, which took effect on June 1. These new requirements proved particularly difficult to meet with the ethanol-containing blends used in Chicago and Milwaukee.
A Congressional Research Service study on the price rise concluded that "as much as 25 to 34 cents, roughly estimated, could have been due to the unique RFG situation in Chicago/Milwaukee."
Similarly, the US Energy Information Administration, which presciently predicted in 1999 that "additional clean fuels programs could make the system more vulnerable to local outages and price spikes," confirmed that the EPA contributed to the price climb.
In a July 13 Senate hearing, John Cook, director of the EIA's Petroleum Division, noted that the post-June 1 increases in the Midwest were "similar to the price surges often seen in California since the start of their RFG program."
Regarding the allegations of oil industry wrongdoing, an exhaustive Federal Trade Commission investigation into the matter came up empty-handed. In its March 29 report, the FTC concluded that it "uncovered no evidence tending to demonstrate the existence of collusive behavior, and considerable evidence suggesting that collusion was unlikely."
The report did identify the new RFG requirements as one of the primary factors in last summer's price rise.
The EPA, now headed by former New Jersey Gov. Christine Todd Whitman, essentially admitted its culpability by reworking the regulations to make it easier to use ethanol in RFG. This flexible, consumer-friendlier approach is to be applauded.
Unfortunately, Chicago is still vulnerable to gas price spikes.
The federal regulation that sparked last summer's problems is but one of many that have complicated the petroleum market in the Upper Midwest, a particularly vulnerable one because of its unique and demanding fuel requirements and relative shortage of refining and distribution capacity.
This includes some new regulations cranked out by previous EPA Administrator Carol Browner in the final days of the Clinton administration. For example, EPA issued a Jan. 18 rule requiring a 97 percent reduction in the allowable levels of sulfur in diesel fuel, complementing a strict new standard for gasoline enacted a year earlier.
Though the desulfurization of motor fuels won't take effect for several years, the impact has been immediate.
Premcor Inc. recently closed its Blue Island refinery, citing the prohibitive costs of upgrading the facility to comply with the new sulfur standards. This makes an already-tight local refining situation even tighter.
In a March 19 report titled "Petroleum Outlook: More Volatility?" EIA's Cook warned, "Midwest inventories are especially low, and with the loss of the Blue Island refinery, create extra regional pressures."
And in its recently released Summer 2001 Motor Gasoline Outlook, EIA predicted that "while another Midwest price shock is not inevitable, it is certainly not a long shot either, as Midwestern gasoline stocks are lower than last year."
By backing away from the costly RFG requirements, the Bush EPA has demonstrated a promising pro-consumer attitude. But more needs to be done to untangle the other regulations, which could cause a repeat of the great gas crunch of 2000.
Ben Lieberman is a senior policy analyst with the Competitive Enterprise Institute in Washington, DC. He can be reached at email@example.com 
Copyright © 2001 Chicago Sun-Times, Inc.