Reformulated Environment
Review and Outlook
Copyright 2000 The Wall Street Journal
June 17, 2000
It'll be intriguing to see if Al Gore can make it through the summer
without getting tagged with at least some of the blame for high gasoline
prices.
Much of the price rise has to do with the federally mandated
introduction of something called "reformulated gasoline." It's an arcane
subject most people don't know much about. But Mr. Gore does, and the
re-election team is working hard to make sure responsibility for these high
prices gets off-loaded on the usual suspects.
In Milwaukee recently, Mr. Gore promised a "full investigation" into
whether "price gouging" was to blame for high gas prices in southeastern
Wisconsin and other parts of the Midwest. Oil refiners were summoned to
Washington on Monday to explain themselves to the Environmental Protection
Agency. And the Federal Trade Commission said Wednesday it had launched a
probe of its own into possible "price-gouging."
To be sure, OPEC's success under the tutelage of Mexican oil minister
Luis Tellez in limiting oil production contributes to higher prices at the
pump. But the high price of gasoline is mainly a story about environmental
politics, and about making the air around us as squeaky clean as the author
of "Earth in the Balance" can mandate it.
The difference between $1.60 a gallon gas in most of the country and gas
over $2 in certain places is largely due to the hyperzealous application of
the 1990 Bush Administration Clean Air Act amendments by Mr. Gore's
handpicked EPA Administrator, Carol Browner.
Federal rules mandating a new summer blend of so-called reformulated
gasoline, or RFG, came into effect June 1.
Wisconsin gasoline retailers recently requested a temporary waiver of
the RFG rules. The EPA rejected it. The state, in turn, is filing suit
against the EPA. Yesterday the American Automobile Association sent a
letter to Ms. Browner asking for a 90-day reprieve from the super-clean
gasoline rules. Fat chance.
Reformulated gasoline, now required in many of the country's urban
areas, contains additives -- ethanol or a chemical called MTBE -- called
oxygenates, which are supposed to promote more complete combustion and
thereby reduce tailpipe emissions. Problem is, MTBE has been blamed for
persistent groundwater pollution and a host of human ailments. Ethanol,
meanwhile, makes the liquid fuel itself unstable, causing more evaporative
pollution than would otherwise occur.
Refining gasoline is a relatively complex process, and the mandated
oxygenates make gasoline more expensive to produce. What's more, federal
courts have all but granted a patent on the new gas to one company, Unocal,
which seems to have gamed the mandate beautifully. Other refiners, who were
recently ordered to pay $69 million in back royalties for the new gas, are
considering litigating all the way to the Supreme Court.
But if things are starting to look bad now, just wait for what the EPA
has in store. Ms. Browner wants to ban MTBE, the oxygenate of choice for
something like 80% of the reformulated gasoline produced, as a suspected
carcinogen. (Refiners of course are bracing for a rash of liability suits
from the Vice President's tort-lawyer contributors stemming from their
compliance with the federal oxygenate mandate.)
That would leave the alternative ethanol, the notorious Iowa caucus
product, which is barely economical in the corn belt despite federal and
state subsidies. Considering that the stuff can't be shipped in gasoline
because it attracts moisture, it will pose even more of a problem for the
rest of the country. Still, an effective ethanol monopoly will please the
Administration's friends at the Archer Daniels Midland company, which
controls 50% of the U.S. ethanol market. But its price isn't likely to
please drivers.
But there's more. The Gore-Browner EPA is now plotting draconian rules
on the sulfur content of gasoline and diesel fuel.
Years ago when gas prices were lower, Vice President Gore cast the
tie-breaking Senate vote for President Clinton's 4.3 cent a gallon increase
in the federal gas tax, now more than 18 cents. And of course virtually all
the states also pile on gasoline taxes.
In fact, there's no need to mandate oxygenates at all. Already companies
like Chevron say they can blend gasolines without them with equal or better
emissions performance. What's more, annual emissions of the worst auto
exhaust pollutants have dropped by more than half since the 1960s, even
though there are twice as many cars on the road today driving twice as many
miles. Thanks to clean, modern engines, most of that improvement happened
well before the RFG program appeared.
The host of federal, state and local rules governing fuel production
have gotten so bad that there hasn't been a single new gasoline refinery
built in this country since the 1970s. And with the plants we've still got
operating at full capacity, any little hiccup in the supply chain -- like a
recent pipeline shutdown in Wisconsin -- is guaranteed to cause a problem
at the filling station. Markets do have a way of reconciling restricted
supply with hefty demand: higher prices. Something to ponder the next time
you find yourself being Gored at the gas pump.
|