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How To Lower Gas Prices

Timothy Noah
Posted Thursday, June 22, 2000, at 4:56 PM ET

Why have gas prices spiked to $2.39 per gallon in the Midwest? There are several reasons, according to an ExxonMobil "op-ad" in today's New York Times:

But most important is the impact of new federal regulations to improve urban air quality. These new regulations required that a cleaner-burning reformulated gasoline (RFG II) be available in service stations in selected cities on June 1, the start of the summer driving season. RFG II is more difficult and expensive to make and requires more crude oil for each gallon produced.

The American Petroleum Institute's Web site is more emphatic about the ill effects of government regulation on gas prices:

[W]hat we are seeing today is a direct result of a government policy that imposes layer upon layer of uncoordinated regulations that not only drive up costs, but also take away the flexibility the industry needs to respond to new demands. The industry has consistently warned the government that such consequences would be the result of such policies.

According to a new report by the Congressional Research Service (it requires Adobe Acrobat, but a summary can be found here), the oil industry is exaggerating when it says regulation is the main culprit. Once you factor out high crude oil prices (which account for 48 cents of the current price), the most expensive components of the oil price rise are the cost of the RFG rule (25 cents) and the cost of a recent oil spill in the upper Midwest that's disrupted distribution (also 25 cents). While the RFG rule can certainly be tagged "government regulation," oil spills fall under the rubric "private enterprise." (For the record, the Environmental Protection Agency claims the cost of its RFG rule is more like 5 cents to 8 cents per gallon.)

[Correction, 6/26: As Paul Krugman pointed out in his June 25 New York Times column, the Midwestern pipeline disruptions were caused by an oil spill and a fire--not just by an oil spill. But since fires fall under the rubric "private enterprise" just as oil spills do, Chatterbox's argument is unaffected.]

Government regulation can drive the price of gasoline up--and, arguably, that's a good thing. Whether the EPA's reformulated gasoline regulations themselves are reducing pollution significantly is a matter of some debate. But if people drive their cars less because gasoline costs too much, you get less smog and less global warming. Indeed, from an ecological standpoint, it may not matter much whether it's the government or industry itself that's responsible for the price spike. The Federal Trade Commission, egged on by Al Gore, is investigating "whether inflated prices consumers are seeing at the pump result from any violation of federal antitrust laws," according to a statement from Chairman Robert Pitofsky. But if oil companies really are price-gouging, they may be doing the planet a favor! Indeed, this may be an example where government regulation, far from raising gas prices, lowers them. Assuming oil companies take at all seriously the threat that the FTC will throw the antitrust book, they'll price gas more conservatively.

Another, more environmentally friendly path to reducing gas prices via regulation would be to raise fuel-efficiency standards. The further a gallon of gasoline takes you, the less gasoline you need; the less gasoline you need, the less gasoline you buy; and the less gasoline you buy, the less oil companies can charge you for a gallon of gas. Unfortunately, the federal requirement for "corporate average fuel economy," the sales-weighted measure popularly known as "CAFE," has not risen for a decade, and since 1995 the Transportation Department has been forbidden by the Republican Congress not only to raise CAFE standards but even to study the effects of raising CAFE standards. (For a more detailed explanation of how CAFE works, click here.) A June 15 Senate vote maintained the ban on raising CAFE standards, but lifted the research ban--a move that the Sierra Club jubilantly proclaimed a major victory.

In the decade after CAFE standards were first enacted in 1975, fuel efficiency doubled. But the Reagan administration had little enthusiasm for the program. Bill Clinton proclaimed during the 1992 campaign that he wanted to raise CAFE to 40 or 45 miles per gallon--then, as now, it was 27.5 miles per gallon--but never pushed the issue when he had a Democratic Congress. Meanwhile, the '90s trend in the auto market toward SUVs, which are classified as "light trucks" and are required only to get 20.7 miles per gallon, drove down overall consumer-vehicle fuel efficiency to about where it was in 1980. At the moment, overall consumer-vehicle fuel efficiency is one of the very few environmental indexes that has gotten notably worse during the past 15 years.

Although the oil industry isn't wild about seeing oil prices fall, it isn't the main impediment to raising CAFE. That would be the auto industry. Even Bill Ford, the bleeding-heart-enviro chairman of Ford Motor Co., who's lately beaten his breast about how his company's SUVs are contributing to global warming (he quoted the Sierra Club calling the Ford Excursion the "Ford Valdez" in a Ford "corporate citizenship report"), remains firmly opposed to raising CAFE. That the auto industry is headquartered in the Midwest makes it particularly poignant that the region currently paying the most for a gallon of gasoline is also ... the Midwest.

(To read a follow-up to this article, click here.)

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Timothy Noah is a senior writer at Slate.
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Reader Response from The Fray:


There has been no effort to increase gas mileage in the last 10 or 15 years. Most of the gas consumed is wasted as heat. Detroit I am sure knows their products are needlessly wasting all of our natural resources, but, apparently are not concerned. The wealthy should be prohibited from owning stock in both oil and automotive companies. Mutual funds should not be allowed to own stock in both at the same time either. For many years a 3,000 lb car only delivered perhaps 15 to 20 miles per gallon. All of a sudden in the mid 80's with a little engineering 3,000 lb cars delivered about 30 miles per gallon. I am sure today they could easily increase fuel efficiency to 50 miles per gallon for a 3,000 lb car if they were forced to. The auto companies will not increase fuel efficiency until they are forced to do it. Where is our government on this problem? The engineering to double fuel efficiency is almost obvious to the mechanically minded public. If fuel is consumed in more efficient engines, the pollution will also drop utilizing less fuel. Less fuel, less pollution.

--Robert McNamara

(To reply, click here.)

(6/23)

It is not the Government's role to raise prices by taxation or regulation simply to enforce any supposed social goal. Controlling pollution is a legitimate function of government. Forcing someone to pay punitive prices to enforce someone's arguable idea is not. There is plenty of petroleum in this earth to serve our grandchildren's grandchildren. As the price rises naturally (and slowly over time) with greater difficulty of extracting oil, alternative sources of energy will be utilized when they are cost effective--and not before. Alternative methods of transportation will evolve as they are cost effective--and not before.

--John

(To reply, click here.)


Why all the effort to find the culprit for gas prices and high consumption? Obviously, the American public has made it clear they do not care about this, so why should industry or government? Forget words and look at actions. Otherwise they wouldn't all be buying SUVs that get 15mpg (and never go offroad), while a perfectly good station wagon that costs less and holds half as much again gets 30mpg. As long as people care more about status than--well, you name it--they get the government, economy and air quality they deserve.

--Ron Warrick

(To reply, click here.)

(6/26)

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