TCS Daily

Hidden Costs of Government in Energy Prices

By Tom Knisley - July 3, 2000 12:00 AM

MINNEAPOLIS, MN - This spring, when gas prices spiked above a buck fifty, drivers across the country had to start cutting back on the daily latte habit. For me it meant giving up my daily Pepsi on my evening commute and fewer trips to the vending machine at work. That's because higher gas prices were eating a higher percentage of my walking-around money, what economists call disposable income. It was an inconvenience, but no real sacrifice. That was then.

Now prices at the pump here in the Midwest have topped the $2.00 dollar mark and motorists are starting to feel real pain. So what has the Clinton Administration done to ease the cash crunch motorists are feeling? Well, step one is to attack a corporate villain. The EPA has been busy blaming domestic refiners for the higher prices. An EPA spokesman said, "We see no good explanation for why the high prices exist. ... We think the high prices are unfair and inappropriate." Now how would the EPA know what the appropriate price is?

Simple, because they're responsible for much of the increase. In addition to soaring crude prices, you can thank environmental regulations that went into effect June 1 for rising prices. The EPA mandates that 17 U.S. markets, including Chicago and Milwaukee (where prices are highest), sell reformulated gasoline from June first through the summer driving season. This is nothing new. The EPA has been mandating reformulated gasoline during the smoggiest months for several years now. And each time the regulations went into effect gas prices have increased by less than a dime.

But this time, when the regulations kicked in, gas prices in the Chicago area jumped as much as 30 cents a gallon. That's why the EPA says the prices are unfair. They say price increases should be consistent with those in the past. But what they don't tell us is that the rules have changed. Last year's reformulated gas didn't need to be as clean as this year's regs require. The cleaner gas requires more oil to produce the same gallon of gas. More oil per gallon of gas refined means higher prices.

That's on top of the $37 billion in regulatory costs that the government has already imposed on the oil industry -- and by extension on America`s drivers -- in the last decade. The oil industry paid $8 billion in regulatory costs in 1998 alone. And that's only the cost of regulations.

The federal excise tax on gasoline is now 18 cents per gallon, up more than 50% in the last 10 years. States take their chunk as well, an average of 24 cents a gallon. So 42 cents a gallon is going straight to government coffers. That works out to roughly $54 billion a year. The Clinton/Gore gas tax increase of `93 alone takes $7 billion annually from U.S. drivers. And with the highway trust fund running a surplus of some $29 billion, it`s hard to argue against a tax cut.

Oh, and while we're calculating the cost government imposes on motorists, let's not forget the $2000 - $2,500 in regulatory costs the government tacks on to the sticker price of each new car.

If George W. Bush is smart he'll make gas prices a major issue. The windy city is seething over gas prices and Bush is dead even with Vice President Gore in Illinois, a state that could tip the election.

One last point: Before any of you politicians out there get too excited soaking SUV-driving yuppies, remember this -- gas taxes, like general sales taxes, are highly regressive. The poorest among us pay the highest percentage of income. A person driving a Lexus LX470 can afford the spike in prices, a single mother on her way to the factory late shift can't.

Tom Knisely is a free-lance writer and television producer in Minneapolis.

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