Lower Gas Prices by Scrapping Counterproductive Regulations

Michigan motorists are paying near-record prices for gasoline, and the summer driving season has just begun. The economic ramifications are considerable. Higher gasoline prices reduce the disposable income of families, and increase costs for businesses. These are important factors in Michigan’s economic recovery.

In response, the Michigan Departments of Transportation and Agriculture, as well as the Public Service Commission, have all launched initiatives to “protect” motorists — the implication being that service stations are somehow attempting to cheat us. For example, the Department of Agriculture has increased undercover inspections of gas stations by 40 percent, while the Department of Transportation has created a website with pump price listings and instructions for submitting “gouging” complaints.

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In actuality, government is much more responsible for the high cost of gasoline than the corner gas station.

Particularly significant are overly stringent environmental regulations. The Environmental Protection Agency, for example, requires the use of some 30 different reformulated fuels (with seasonal adjustments) to bring states into compliance with the Clean Air Act. Producing dozens of “boutique” fuels unnecessarily strains the nation’s refining capacity, when the use of two or three blends at the most would likely achieve the same results.

The regulatory obstacles in siting and building new facilities further restrict domestic refining capacity. More than 20 U.S. refineries have shut down in recent years, but no new ones have been built since 1976. Those that remain are running at 96 percent of capacity, leaving little room for breakdowns. Consequently, any disruption in production can result in immediate price shocks at the pump.

This is particularly problematic in Michigan, which imports 42 million gallons of gasoline per day, on average, from outside of the Midwest.

Michael Ports, a spokesman for the Society of Independent Gasoline Marketers of America, summed up the problem in recent testimony to Congress: “The environmental compliance burdens placed on the nation’s domestic motor fuel refining industry over the past 20 years have effectively destroyed the world’s most efficient commodity manufacturing and distribution system,” he said.

At the state level, motorists would benefit far more were the Department of Transportation to focus on road maintenance rather than gas station inspections. Lousy road conditions in Michigan, now among the worst in the nation, reduce fuel efficiency and damage vehicles, both of which impose costs on motorists.

Gov. Jennifer Granholm and her administration have no influence on the OPEC production quotas that restrict fuel supplies. But Michigan citizens are poorly served when state officials misconstrue the facts about gasoline prices. Rather than demonize small business owners, the governor would do better to go after ill-conceived regulations that undermine the financial well being of Michigan citizens and the state’s economic growth.

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Russ Harding, former director of the Michigan Department of Environmental Quality, is senior environmental policy analyst with the Mackinac Center for Public Policy, a Midland-based nonprofit research and educational institute.