2005 was a very expensive year for gasoline.
And thanks to Washington, 2006 could be even worse.
The feds did not waste any time, with two costly gasoline
requirements having taken effect on January 1st. That's right. The
year has already begun with two new regulations that will raise the
price at the pump.
The first is the new ethanol mandate -- part of the massive energy
bill passed last August. Under the new law, 4 billion gallons of
this corn-derived fuel additive will have to be included in the
nation's gasoline supply throughout 2006.
Ethanol costs more than gasoline (if it didn't, its producers
would not need federal help) -- and its use reduces fuel economy.
The new mandate is great news for some well-connected special
interests, namely Midwestern corn farmers and big ethanol producers
like Archer Daniels Midland (ADM). But those who are stuck paying
the tab -- you -- will be far less thrilled.
The second regulatory price boost will come as a result of the
latest round of sulfur reductions from gasoline, pursuant to a
costly Clinton-era regulation. Similar low-sulfur rules applicable
to diesel fuel also take effect in 2006 and will have an even
bigger impact on diesel costs.
While Washington is doing things that will hurt consumers, it
isn't doing much to help them. These new gasoline regulations would
not be so hard to take if EPA regulators or Congress used the
occasion to clear away several of the old ones that also add to
fuel prices. The energy bill does contain some modest streamlining
measures, but overall, 2006 will bring more regulatory additions
than subtractions.
Over the past ten years, the EPA has imposed a bewildering variety
of fuel requirements, with as many as 18 so-called boutique fuels
in use at any given time. The cost and complexity of this scheme
goes well beyond any rational clean air justification. Granted, air
quality has been improving, but it was doing so just as quickly
before these newfangled fuel requirements were imposed.
The new ethanol and sulfur rules may each add several cents to the
price per gallon -- bad enough, but it's the cumulative burden of
all these federal regulations that is even more substantial.
The fuel regulations will continue to grow after 2006. For
example, EPA is required, pursuant to a settlement of a lawsuit
brought by an environmental group, to propose another round of
regulations limiting the amount of benzene and similar trace
components from gasoline. The regulation must be proposed by
February 2006 and take effect by 2007.
In addition, Washington has done little about the regulations that
make it difficult for oil refiners to expand capacity. No new
refinery has been built in decades, and expansions of existing
refineries must run a gauntlet of time-consuming requirements. The
red tape is a part of the reason that refinery capacity has barely
kept pace with growing gasoline demand. It is challenging enough
for refiners to produce sufficient gasoline while meeting the
expanding list of fuel specifications, but even more so when the
sector is already stretched thin.
Of course, there are factors outside of our government's control
that raised the cost of gasoline in 2005 and will likely continue
to do so in 2006. Chief among them is the surging global demand for
oil. Oil in 2005 averaged about $57 per barrel, a $16 increase over
2004. Each additional dollar per barrel translates into roughly 2.5
more cents per gallon of gas. Yes, Congress could help bring down
prices over the long term by allowing increased domestic
production, including the 10 billion barrels of oil in Alaska's
Arctic National Wildlife Refuge (ANWR), and tens of billions more
located in restricted areas off America's coasts. But in the
near-term, there is little Washington can do to influence the cost
of crude.
It is possible that global demand growth will slacken in 2006 and
we'll benefit from a drop in oil prices. But if that doesn't
happen, the creeping regulatory burden will make gas more expensive
this year than last. And until Washington gets serious about
reining in its ever-expanding list of fuel rules, America is likely
to experience even more pain at the pump in the years ahead.
Ben Lieberman is a senior policy analyst at The Heritage Foundation (heritage.org), a Washington-based public policy research institute.
First appeared in TCS Daily