- The Washington Times - Sunday, September 10, 2000

''Cleaning the air" can also be a great way to clean-out motorists' wallets. Unocal, the nation's ninth-largest oil company, figured out how to do just that in the late 1990s patenting various blends of gasoline its scientists thought might meet pending EPA rules for cleaner-burning fuels required under the Clean Air Act and its amendments. The gamble paid off. When the EPA issued the new rules last year, Unocal held patents for the gasoline blend that met EPA specifications for tighter air quality standards.

That meant that other oil companies were forced to pay Unocal which ironically no longer sells gasoline in this country royalties of 5.75-cents per gallon or spend millions of dollars on additional, time-consuming research to find a formula Unocal didn't already have under lock-and-key.

The result has been an alarming rise in per gallon prices as well as spot shortages in the Midwest this summer. Unfortunately, the current blip on the energy radar screen could easily turn into a more permanent, economy-flattening blob since oil industry analysts are warning Unocal's current 5.75 cent a gallon royalty could rise to 17 cents a gallon in the near future.

Unocal's ploy was conceived while it participated in a series of supposedly "cooperative" R&D; meetings with a consortium of oil companies and California air quality regulators in the early 1990s. The purpose of the consortium was to work towards a mutually advantageous agreement on a single standard for "clean" gasoline that would meet impending air pollution control requirements.

During the meetings, Unocal presented its "independent" findings to California regulators and made helpful suggestions as to the specifications that would later be incorporated into the law. At the same time, however, Unocal scientists were secretly pursuing a patent application that not so coincidentally matched those same regulatory specifications to a "T."

Unocal did not reveal its twin paths of pursuit to the other oil companies in the consortium, so they had no inkling of the left hook that was coming their way. When Unocal's patents were granted in 1994, they in effect gave the company sole right to any gasoline that could legally be sold in California under the new rules.

The company subsequently announced it would demand royalties for the use of its "intellectual property" by any other oil refiner that attempted to produce motor fuels meeting the regulatory standards which now affect 38 percent of the country. A slew of litigation ensued. While the lawyers haggled, fuel prices rose. The price hikes, for the most part, were caused by shortages of gasoline arising from the reluctance of refiners to produce "clean" gasoline for fear of having to pay massive royalties to Unocal. The Federal Trade Commission, analyzing the causes of this summer's shortages, attributed them to the clean fuels rules and the haggling surrounding them. And it noted that the state of California conceded in a legal brief that Unocal's patents would be "worthless" if not for the new clean air rule.

Energy prices are rising precipitously as the year draws to a close with motor fuels and natural gas topping the charts. But shortages of both are due less to natural fluctuations or shortages than to political and regulatory manipulation. Contemplate this as you fill up your family car and pay your ever-increasing monthly home heating bill this winter.



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