2005-08-23 23:41:39 UTC
- Brian P. Simpson
Thursday, April 14, 2005
Gasoline prices are at record highs again. Many think oil companies are to
blame. A Field Poll from May 2004 showed that 77 percent of Californians
believed this to be true. But this just shows that people are misinformed
about who's causing high gas prices. Investigating a few clues can help find
out who's responsible.
One thing is certain: Oil companies are not the culprits. In California,
where gas prices are among the nation's highest, the oil industry has been
repeatedly investigated yet no evidence of "price manipulation" has ever
Though other factors cause high gas prices, such as high taxes and
increasing world demand, environmental regulation is among the primary
reasons. For example, environmental regulation has significantly restricted
drilling for oil in Alaska and on the continental shelf. More drilling will
increase the supply and thus lower prices.
Furthermore, 18 different gasoline formulations are in use across the United
States, making it much more costly to produce and distribute gasoline. These
blends aren't needed due to requirements of automobile engines, nor are they
required by oil companies. The blends, including different ones used at
different times of the year and in different geographic areas, are imposed
by environmental regulations. Among other things, the regulations force
refiners to incur greater costs in switching from the production of one
blend to another. They also force refiners to produce a more costly "summer
blend," which is partially responsible for the rise in price.
The situation is worse in California, where environmental regulations are
strictest. For example, California was one of three states to require the
removal of the octane booster MTBE in January 2004. This reduced the
gasoline supply by almost 10 percent, because MTBE accounted for about 10
percent of the volume in the old gasoline formula. Using corn-based ethanol
as a replacement doesn't help much, because California's strict emissions
regulations require the removal of almost the equivalent in other gasoline
components to accommodate ethanol. Ethanol must also be shipped from the
Midwest in trucks, because it cannot be produced in refineries and doesn't
travel well through pipelines.
As a result, gas prices were predicted to increase by 35 to 40 cents per
gallon. Given that the average price in 2004 was almost 30 cents higher than
in 2003, these predictions weren't too far off.
Additionally, California required gasoline stations to install double-
walled underground tanks, which forced many stations to rip perfectly good
single-walled tanks out of the ground. California also imposes the harshest
emissions requirements in the country, necessitating the use of a more
costly, special blend of gasoline not produced anywhere else. It's no
accident that gas in California is generally 30 to 40 cents above the
From drilling to refining to distribution, environmentalists have done
everything they can to raise gas prices.
The above raises a question: Why do environmental regulations exist?
One might think they exist to protect consumers, but the evidence doesn't
show this. For instance, MTBE was banned based on claims that it causes
cancer. However, it has never been shown to be a danger to humans in the
amounts to which they are typically exposed, according to a study by the
federal Environmental Protection Agency. Claims that it "causes cancer" are
based on experiments in which mice were fed doses almost 70,000 times larger
than to what humans are typically exposed. No scientist worthy of the title
would make claims based on that extrapolation.
Environmentalists are not actually concerned with the well-being of man.
Their real motive is to sacrifice man to nature by stopping industrial
activity. For instance, Adam Kolton of the Alaska Wilderness League states,
"Drilling the wildest place in America is objectionable no matter how it's
packaged." David M. Graber, a research biologist with the National Park
Service, states, "We are not interested in the utility of a particular
species, or free-flowing river, or ecosystem, to mankind. They have ... more
value -- to me -- than another human body, or a billion of them."
Oil companies deserve praise for producing an abundance of gasoline despite
the massive burden of environmental regulations foisted upon them. To
increase the gasoline supply, we need to start by eliminating needless
environmental regulations, including drilling bans and prohibiting certain
octane boosters. If the government makes the choice to protect people's
freedom, gasoline prices below a dollar-per-gallon won't be just a relic of
Brian P. Simpson is an assistant professor of economics at National
University in San Diego and author of the upcoming "Markets Don't Fail!"