Obama should lift the requirement for ‘summer formula’ gas

Joanne Butler Contributor
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Summertime is approaching, but the livin’ ain’t easy, not with gas at over $4 a gallon. Will President Obama take action to reduce gas prices? I’m not optimistic.

The Obama administration says the problem is increased demand from China and India plus bad actions by speculators. If President Obama really wants to help low-income and fixed-income folks (who are the most adversely affected by rocketing gas prices), then he should immediately suspend the EPA’s requirement for “summer formula” gasoline, which is more expensive and is directly contributing to the current price hike.

Blaming China and India is a weak response, as oil analysts have been predicting for years that increased Asian demand would drive up prices.

As for those perennial villains, oil speculators, Democrats changed the law in 2008 (over George W. Bush’s veto) to increase regulatory oversight in that sector by closing the so-called “Enron Loophole.” If something more was needed to further limit oil speculation, why didn’t Obama have legislation passed in 2009 or 2010, when Nancy Pelosi was speaker of the House and Harry Reid was the Senate majority leader?

Asian demand and speculators: these are recycled excuses.

But the White House won’t acknowledge that the annual winter-to-summer gasoline switch contributes to price increases, because the switch is a result of environmental concerns. The EPA requires reformulated gas for summer use to reduce emissions. The practical result is a decreased supply of gasoline, and, thanks to the iron law of supply and demand, prices go up.

Why does EPA’s requirement for reformulated “summer gas” cause supply to decrease? First, refineries must temporarily shut down production when they switch from winter to summer formulas. Second, the summer formulation results in less gasoline produced per barrel of crude oil, when compared to the winter formulation. Lastly, imports increase to make up for the shortfall in domestic summer refining; one analyst says the issue is compounded by the fact that summer reformulated gas is a “boutique” product, expensive to produce with a limited market outside the USA. Bottom line: thanks to the EPA, we have less gas at higher prices every summer.

My guess is that the White House big brains are secretly happy that gas is over $4 a gallon, as they look to Europe’s very high gas prices as a model for us. They imagine an America where we’ll be like the Dutch, and ride our bicycles everywhere. News flash to Washington: America’s not a flat, itty bitty, densely populated country. News flash #2: gas pumps do not employ means-testing. Wealthy people pay the same price as poor people; but, on a relative basis, the poor have more of their income go into the gas tank when gas prices spike.

Is going green worth it if we have to unduly burden the unemployed guy or gal filling up the tank on the way to a job interview?

With the summer vacation season only weeks away, will the Obama administration use the tools at its disposal to reduce the price of gasoline? Or will it put its environmental agenda above our need to end the recession and create jobs? Without action, we could be headed for a double-dip — recession, that is, not vanilla fudge ripple.

Joanne Butler is a senior economics fellow at the Caesar Rodney Institute of Delaware. You can email her at joanne-butler@comcast.net.