- The Washington Times - Thursday, June 29, 2000

Gasoline prices hit record highs in parts of the Midwest, and Vice President Al Gore knows just what to blame: free enterprise. That's not how he puts it, of course. Big Oil, he says, "may have gotten too big" and is now gouging consumers at the pump. But the corollary, Mr. Gore's unspoken complaint, is that free markets have failed to discipline the profit impulse of oil companies, thereby allowing them to charge prices as high as $2 per gallon.

Naturally, Mr. Gore is willing to overlook the federal government's own role in the controversy. His blinkered view is reminiscent of critics whom Nobel laureate Ronald Coase singled out for their own hostility to free markets. "When," he wrote, "they are prevented from sleeping at night by the roar of jet planes overhead (publicly authorized and perhaps publicly operated); are unable to think (or rest) in the day because of the noise and vibration from passing trains (publicly authorized and perhaps publicly operated), find it difficult to breathe because of the odour from the local sewage farm (publicly authorized and perhaps publicly operated), and are unable to escape because their driveways are blocked by a road obstruction (without any doubt, publicly devised), their nerves frayed and mental balance disturbed, they proceed to declaim about the disadvantages of private enterprise and the need for government regulation."

Mr. Gore has demanded that the Federal Trade Commission investigate the oil industry for overcharging at the pump. Faced with a real cartel overseas, the Organization of Petroleum Exporting Countries (OPEC), the vice president conjures up one at home. It was OPEC, not the U.S. oil industry, that cut production and drove up prices from $10 per barrel in late 1998 to about $30 a barrel just a year later. Far from complaining about the production cutbacks, at least until they began to threaten Mr. Gore's presidential quest in electoral vote-rich Midwestern states, the administration has helped put the United States at the mercy of the cartel. It continues to oppose efforts to develop this country's own oil reserves in places like the Arctic National Wildlife Reserve. More recently, it locked up some 43 million acres of government lands in so-called roadless areas that would make it next to impossible for the industry to explore them for new sources of energy.

The feds also helped make possible, perhaps inevitable, the still higher gasoline prices peculiar to cities like Chicago and Milwaukee. In a fit of bipartisan folly, former President George Bush, a Republican, and a Democrat-controlled Congress passed amendments to the Clean Air Act in 1990 that required the use of reformulated gasoline to reduce auto emissions that contribute to ground-level ozone, also known as smog. No doubt, the proponents had the best of intentions when they agreed to the law, but the legislative emissions had at least two unfortunate byproducts.

The first was a chemical called MTBE. Used in the new, improved, reformulated gasoline, it was supposed to help reduce smog. Alas the chemical also began showing up in drinking water supplies across the country, stirring up fears of cancer-causing contamination and health problems worse than those MTBE was supposed to alleviate. To the great embarrassment of environmental officials who thought it was such a great idea, places like California have begun phasing it out.

The second problem associated with the 1990 reforms are the high Midwest gas prices. The Environmental Protection Agency mandates the equivalent of specialized, gourmet gasoline in Milwaukee and Chicago, a recipe that even changes by season. (The industry says the agency requires four different gasoline blends between Chicago and St. Louis alone, a distance of 300 miles. Thirty-three of the 62 products that go into the mixture must be shipped separately.) There is relatively little demand outside those cities for the product, and manufacturers keep correspondingly reduced amounts on hand.

Hence, anytime there is a disruption in delivery, as happened with pipelines serving the Chicago area, it is difficult to find more supplies of it. The result is higher gas prices. A June 16 analysis from the Congressional Research Service reports that Chicago's reformulated gasoline (RFG) prices are running about 50 cents higher than the rest of the nation's. Perhaps 25 cents of that difference results from supply problems, the service concluded, and another 25 cents to the "unique" requirements for RFG gas there.

So what are the good people of Chicago and Milwaukee getting for all their gas money? Not much. In a report released in May 1999, scientists with the National Research Council, an arm of the National Academy of Science, examined the alleged environmental benefits of RFG and found them as insubstantial as the smog they were supposed to reduce. "Although long-term trends in peak ozone in the United States appear to be downward," the scientists said, "it is not certain that any part of these trends can be significantly attributed to the use of RFG." Part of the problem, they explained, is that "a sizable portion" of smog ingredients comes from a relatively small number of high-emission cars, and "there is great uncertainty over how rfg affects emissions from high emitting vehicles." Interestingly, the industry, like Mr. Gore, does not want the standards relaxed for fear it will simply reduce the already small incentive refiners have to make RFG in the first place.

Charging gasoline consumers high prices for little or no environmental benefit does not leave Mr. Gore or this administration in the strongest position to accuse others of "price gouging." If anything, the federal government is more guilty than oil companies. Don't expect the FTC to investigate anytime soon.

E-mail: smithk@twtmail.com

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