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.