HIGH, BUT INTENTIONALLY SO:

If you really want to reduce gas prices, here's how (BEN LIEBERMAN, 5/31/04, Chicago Sun-Times)

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.

Lower prices should not be a national goal, but more rational high prices should be. That means reducing the costly burden of complex regulation and replacing those savings with direct taxation (offset by tax cuts elsewhere to maintain revenue neutrality).

Posted by Orrin Judd at May 31, 2004 10:21 AM