From the Pumps to the Polls


will this summer’s High Gas Prices help shape the November elections


High summer gasoline prices are an issue unlikely to be forgotten before the November elections. This is particularly true in Chicago and Milwaukee, where the cost at the pumps led the nation in June and early July. Difficulties meeting new Environmental Protection Agency requirements for reformulated gasoline (RFG) in those cities added 25-34 cents to the per gallon price, according to a recent Congressional Research Service report. Other problems, including some pipeline outages, exacerbated an already bad situation, subjecting millions of angry Midwesterners to prices exceeding $2.00 per gallon.


The shortage has since subsided, and prices in Chicago and Milwaukee have fallen to the national average of $1.50. However, the Department of Energy’s Energy Information Administration (EIA) recently informed a Senate committee that other price spikes are possible before the summer is over. John Cook, director of EIA’s Petroleum Division, specifically identified California and the East Coast as regions where “supply disruptions could trigger another price runup.” Further, refiners struggling to meet summer gasoline demand are falling behind in building inventories of heating oil for next winter. “We likely will enter the winter heating season with lower-than-normal stocks,” warned Cook.


It seems clear that the RFG program caused the Midwest price spike. Throughout June, RFG in metropolitan Chicago and Milwaukee cost as much as 40 cents per gallon more than the conventional gasoline available in the outer suburbs, where the RFG mandate does not apply. Nonetheless, EPA has steadfastly denied any culpability. “This is not about the RFG program,” says EPA Administrator Carol Browner. The Clinton Administration has tried to shift the blame towards the oil industry, launching a Federal Trade Commission (FTC) investigation to determine if, in Vice President Gore’s words, “big oil is gouging American consumers.” Gore campaign operatives have gone one step further, blaming George Bush and Dick Cheney personally because of their ties to the oil industry.


It is unlikely that the FTC report will turn up any real evidence of industry illegality. After all, if “big oil” could so easily jack up prices, why start now, after nearly 20 years of relatively low prices and modest profits? Further undercutting these corporate conspiracy theories is the fact that EIA essentially predicted the Midwestern price spike months ago. In its Summer 2000 Motor Gasoline Outlook, released last April, the agency warned that EPA’s onerous new round of RFG requirements would “raise the risk of localized shortages,” and identified the Midwest as one of the most vulnerable regions. And, in a June 5th memorandum, EIA confirmed that Midwestern gas prices were being affected by “an RFG formulation specific to the area that is more difficult to produce.”


Assuming the FTC report will exonerate the oil industry, attention will again focus on the real problem—the growing morass of federal fuel regulations and the Clinton Administration’s costs-be-dammed approach to environmental policy. This includes a slew of new fuel standards scheduled to take effect in the coming years. For example, EPA is in the process of setting very tough new sulfur content limits for gasoline and diesel fuel. Thus far, the agency has ignored warnings from refiners that these regulations will increase prices and possibly create supply problems. EPA-imposed barriers to the construction of new refineries (the last one was built in the 1970s) are also a growing concern, as the nation’s existing refining capacity is proving inadequate to the task of supplying motor fuels. Unless changes are made, fuel crunches like the one that hit Chicago and Milwaukee will become more common.


Notwithstanding substantial consumer anger in key Midwestern states, the Vice President has suggested that even $2.00 per gallon may be too low. In his recently re-released 1992 bestseller Earth in the Balance, Gore urges the use of higher gas taxes in order to radically curtail gasoline usage sufficiently to fight global warming.


When presented with direct quotes from his book, Gore and his defenders tout the Vice President’s new plan encouraging energy efficiency and alternatives to fossil fuels. According to Gore’s grand strategy, higher taxes would raise the cost of gasoline and other fossil fuels, but conservation and alternative energy programs would enable consumers to get by on less of them, making the entire exercise completely painless or even beneficial. Unfortunately for Gore, this kind of big government smoke and mirrors is no longer an easy sell with the public.


The Clinton Administration has created an energy problem, and, short of an overhaul of federal environmental laws and regulations, there won’t be any easy ways for the next administration to solve it.


Ben Lieberman, a policy analyst at CEI, can be contacted at (blieberman