Why Government Should Not Be In The Gasoline Business

Gasoline itself has become less expensive because the marketplace has dictated that the industry become more efficient. The pump price is (relatively) higher because government has also become more efficient at picking the pockets of consumers.

In March, the Environmental Protection Agency suggested it would grant waivers exempting 2 states from clean-air rules requiring the use of reformulated gasoline (RFG). Gasoline futures immediately plummeted in the mercantile exchanges, illustrating the role played by federal regulations in jacking up gasoline prices.

Under the Clean Air Act of 1990, passed with the emphatic support of the Bush (41) administration, the EPA was given the power to mandate the use of RFG blends that include oxygenates such as ethanol and methyl tertiary butyl ether (MTBE). The assumption is that the use of such blends, which would reduce gasoline evaporation and help gasoline burn more thoroughly, would reduce smog in certain cities. However, a 1999 study by the National Academy of Sciences concluded that "commonly available ethanol and MTBE blends do little to reduce smog." In fact, MTBE has infiltrated the groundwater of many communities, causing health hazards and imposing hugely expensive clean-up and recovery efforts. Of course, the media pundits and pencil-pushing bureaucrats will blame the market system for this, not the government’s own meddlesome regulations.

Bloomberg wire service reported on April 1, "RFG mandates have helped boost the average retail price of [gasoline] to an all-time high," in large measure because the costs they impose on our already overburdened refining sector are passed along at the pump. The rules also create needless shortages. For example, the report noted, "Fuel for New Jersey cannot be sold in New York … because New Jersey is still using MTBE to meet the federal rules. Most ethanol is shipped by rail or barge from the U.S. Midwest, raising the possibility of supply disruptions." Granting RFG waivers would give refiners "the flexibility to meet demand."

12 states have statutory minimum gasoline prices, a form of government-sponsored seller collusion. 1 state has the "Unfair Sales Act" — which is meant to describe what would supposedly happen if gas prices were permitted to fall to market levels.