Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Despite claims to the contrary, there is not much the federal government can do about high oil and gasoline prices in the short-term.
Indeed, given the lower-than-average gasoline inventories heading into the peak-demand summer months, we probably won't see relief at the pump before September. However, over the long-term, there are measures Washington could undertake to reduce both the likelihood and severity of future gas price spikes.
The price of oil is set by global supply and demand, and right now, demand is stronger than supply. Yet, while foreign production levels are not within our control, America could do more to utilize its domestic sources, including tapping the estimated 5.7-to-16-billion barrels of recoverable oil in a small portion of the Arctic National Wildlife Refuge (ANWR), which is currently off limits.
Granted, it would take at least seven years before ANWR oil becomes available, so it is not going to help us now. (Had President Clinton not vetoed an ANWR drilling proposal in 1995, we would have that oil today). But, once available, it would knock at least a little off the price per gallon for decades thereafter.
The nearly $10 per barrel rise in oil prices since the start of the year explains much of the nation's 2004 jump at the pump, from just over $1.50 to over $2 per gallon, but it does not explain all of it. That's because we can't put crude oil into our fuel tanks. First, it must be refined into gasoline and diesel.
And it is at this step that costly regulations have pushed gas prices higher than necessary.
Under the Clean Air Act, refiners must adhere to strict requirements affecting the composition of motor fuels, and at the same time comply with tough provisions restricting refinery pollution. Both types of regulations have become more stringent in recent years. And several state-specific requirements have also complicated matters.
America has at least 15 different gasoline blends in use, in order to meet the hodgepodge of regulations. The fuel specifications get even tougher during the summer months, when several smog-fighting provisions kick in.
One of the most difficult summer blends to produce is the one required in Chicago. According to AAA, a gallon of regular gasoline currently averages $2.18 in Chicago, and $2.05 nationally.
At the same time that refiners struggle to produce gasoline that meets these requirements, they must also comply with a long and growing list of facility emissions controls. Due in part to this multi-billion dollar regulatory burden, no new domestic refinery has been built since 1976, and expansions of existing refineries has barely kept pace with growing demand. The Department of Energy predicts that gasoline demand will set a record this summer, but notes that "refinery capacity has not expanded significantly since last summer."
Few are inclined to shed tears over the plight of "big oil," but oil companies' high production costs and capacity restraints are hurting all of us, boosting the retail price of gas above and beyond the impact of crude oil costs.
These provisions, most of which date to the massive 1990 rewrite of the Clean Air Act, were designed to satisfy the public's demand for cleaner air. In retrospect, some of these regulations have contributed to improved air quality, while others have not. But just about all of them have proven more expensive than necessary.
Even modest changes to these provisions could shave several cents off the per-gallon price. A more thorough review of the Clean Air Act could yield even greater savings.
Unfortunately, the only measure currently under consideration in Congress is the energy bill, which has been pending for several years. ANWR drilling was taken out of the final version, and the gasoline provisions are not likely to provide very much relief. The federal government should do considerably more to ease future pain at the pump.