Our View: Gasoline regulations inflate price
Gasoline prices reached a record high in California, making us wonder if it might be time to revisit energy policies in the state. Determining what causes the rise and fall of gas prices isn't easy — there are whole industries devoted to it. However, there are a few things that certainly don't help and ought to be corrected.
Let's begin with supply. California artificially constricts fuel supplies by banning oil drilling along the coast. The Federal Energy Information Administration estimated in 2011 that there were some 15.4 billion barrels in the Monterey Formation off the coast of California. "If the EIA estimate is reasonably close to the mark, the Monterey Formation would be in a class with oil fields in Saudi Arabia," wrote Tom Gray for City Journal. To put that in perspective, that's roughly quadruple the estimated reserves in North Dakota's Bakken shale formation. By Gray's count, those barrels would be worth about $1.5 trillion in today's prices.
California also restricts the choices available at the pump. California has one of the highest gas taxes in the nation — 68.9 cents per gallon, compared with 19 cents in Arizona. Given that so many commute, this tax hits the poor disproportionately.
Since 1996, California law requires a special blend of gasoline, which means that oil companies cannot obtain the benefits of scale that they can elsewhere in the nation. In theory, this special blend helps reduce pollution, but given the increased efficiency of gasoline engines and breakthroughs in gasoline production elsewhere, it's unclear whether it is still necessary.
In our view, it might be a good idea to consider letting refineries use the cheaper "winter" fuel sooner than late October. Gov. Jerry Brown's decision Sunday to permit refineries to produce the winter-blend gas earlier this year is a welcome reprieve, though we wonder why he alone is allowed to make the cost-benefit analysis. If $5 a gallon gas requires the intercession of the governor, why not at $4 a gallon?
California has only 14 refineries, which makes the state far more susceptible to price spikes when one or more of those refineries is shuttered or damaged. Because of the rules mandating Californians use a special blend, motorists can't rely on gas produced at other refineries and are subject to price volatility.
A solution to this refinery problem would be to allow parts of the state exemptions from the more costly blend. Residents in parts of the state have always had greater environmental concerns than others. Allowing each county to decide which fuel is best for its residents would go a long way to lowering prices.
