Who’s Really to Blame for High Gasoline Prices?

by | Feb 22, 2005 | POLITICS

Gas prices are on the rise again. While no one has begun to complain yet (at least not too loudly), gas prices are still higher than they need to be. Many think oil companies are to blame for high gas prices. In fact, in May 2004 a poll showed that 77% of Californians believed this […]

Gas prices are on the rise again. While no one has begun to complain yet (at least not too loudly), gas prices are still higher than they need to be. Many think oil companies are to blame for high gas prices. In fact, in May 2004 a poll showed that 77% of Californians believed this to be true. However, this just shows the media has failed to properly inform people about who’s causing high gas prices. Let’s investigate the clues to find out who’s really to blame.

One thing is certain: oil companies are not to blame for high gas prices. These companies are responsible for producing the gasoline we need. In California, where gas prices are among the highest in the nation, the oil industry has been repeatedly investigated to find evidence of “price manipulation” (four times in 2003 alone) and none has ever been found.

Although there are other causes of high gas prices, such as high gasoline taxes, the primary cause is environmental regulation. For example, environmental regulation significantly restricts drilling for oil in Alaska and on the continental shelf. More drilling could considerably increase the gasoline supply (up to 20% from greater Alaskan drilling alone) and thus lower prices.

Further, there are currently eighteen different gasoline formulations in use across the U.S., 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 states and cities, are forced on Americans by environmental regulations.

The situation is worst in California, where environmental regulations are strictest. For example, California was one of only three states to require the removal of the octane booster MTBE in January 2004. This reduced the gasoline supply by almost 10%, since MTBE made up about 10% of the gasoline supply.

Using corn-based ethanol as a replacement won’t help much since 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 since it cannot be produced in refineries and doesn’t travel well through pipelines. Michael Economides, a petroleum engineering professor at the University of Houston, predicted gasoline prices would increase 35 to 40 cents as a result. Given that the average price in 2004 was almost 30 cents higher than in 2003, he wasn’t too far off.

In addition, the California government has forced gasoline stations to install double-walled underground tanks, which forced many stations to rip perfectly good single-walled tanks out of the ground. It also imposes the harshest emissions requirements in the country, which make necessary the use of a more costly, special blend of gasoline not produced anywhere but in California. Emissions requirements are scheduled to become even more harsh in the coming years. It’s no accident that gas in California is generally 30 to 40 cents above the national average.

From drilling to refining to distribution, environmentalists have done everything they can to drive up the price of gasoline.

The above discussion raises a question: Why do environmental regulations exist?

Some 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’s never been shown to be a danger to humans in the amounts to which they might be exposed. Claims that it “causes cancer” are based on experiments in which mice were fed doses almost 70,000 times larger than to what humans might be exposed. No scientist worthy of the title would make claims based on that kind of 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. This is what they explicitly state. For instance, Adam Kolton of the Alaska Wilderness League states, “Drilling the wildest place in America is objectionable no matter how it’s packaged.”

Oil companies deserve to be praised for producing an abundance of gasoline despite the massive burden of environmental regulations foisted upon them. To increase the supply of gasoline further, we need to start by eliminating these regulations. If the government makes the choice to protect people’s freedom, gasoline below a dollar-per-gallon won’t be just a relic of the past.

Brian P. Simpson is an economics professor and chair of the Department of Accounting, Finance, and Economics in the College of Professional Studies at National University in La Jolla, CA. He is the author of A Declaration and Constitution for a Free Society, and the two-volume work on Austrian business cycle theory titled Money, Banking, and the Business Cycle (Palgrave Macmillan, 2014) and the book Markets Don’t Fail! (Lexington Books, 2005). Visit his website brian-simpson.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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