Washington Politics and High Gas Prices

High summertime gasoline prices aren’t anything new. As the temperature rises each year, without fail, so too, does the cost of a gallon of gasoline.  While this summer is no exception, the price difference over the last year is startling. According to AAA, American drivers are paying 23 cents more per gallon this July than the same time last year.
 
Yet, let’s not be too hasty in blaming a convenient scapegoat for this pain at the pump. There are many factors that contribute to high gasoline prices, and Washington plays a huge role in driving up costs.
 
Subject to the laws of supply and demand, the price of crude oil accounts for nearly 70 percent of the cost of gasoline. According to the U.S. Energy Information Administration, federal, state and local taxes are the second-largest determinant of gasoline costs, accounting for 13 percent of the price consumers pay at the pump. In fact, combined state and federal taxes add 49.9 cents on average to every gallon of gasoline we pump into our tanks.
 
About 11 percent of the cost of a gallon of gasoline is accounted for by the retailers’ costs as well as their profits. The process of refining crude oil into gasoline also accounts for eight percent of retail gasoline prices, according to the EIA.
 
In 2012 the United States imported 41 percent of its crude oil supply. And despite counterproductive federal policies, domestic crude-oil production exceeded imports for the first time in 16 years. Unfortunately, the bad news for motorists is that oil and gas production on federal land is lagging behind the boom on private lands. Only two percent of offshore federal lands and six percent of onshore federal lands are currently leased for oil and gas drilling.
 
A study by the nonpartisan Congressional Research Service found that oil and gas production on federal land has decreased considerably since 2007. The report also found that the average wait time for a drilling permit increased 41 percent between 2006 and 2011. The process now takes an astounding 307 days on average. As a result, domestic production is not as high as it could be, and drivers are paying more at the pump – all thanks to the federal government.
 
Federal policies are also stunting oil production and killing energy jobs in my home state of Mississippi and other states along the Gulf of Mexico. New drilling restrictions are projected to decrease Gulf oil production this year by 10 percent from 2010 levels.
 
The bottom line is that regulatory costs contribute greatly to the price tag consumers see when they fill up their tanks with gas. Since the 1990s, refineries have spent $128 billion complying with federal environmental regulations. Those increased costs were responsible for putting several U.S. refineries out of business during that same time period.
 
Regrettably, federal policy makers never saw the writing on the wall. To this day, Washington continues to pursue costly mandates that only contribute to higher refining costs – costs that are, without fail, always passed down to the consumer.  A great example is the Renewable Fuel Standard, which mandates the blending of increasing levels of ethanol into the gasoline supply each year. But not only is ethanol more expensive, it is also less efficient and requires drivers to fuel up more often.
 
It gets worse. The Renewable Fuel Standard was crafted in 2007 under the guise of steadily increasing gasoline consumption. However, gasoline demand later declined right along with the economy. As a result, refiners are now faced with blending more corn ethanol into gasoline than there's demand for, forcing them to purchase an increasing amount of ethanol credits called RINs – Renewable Identification Numbers. Because of the rising demand for these credits, RIN prices are soaring and causing gasoline prices to spike in tandem – especially in California. Earlier this month, RINs reached a high of $1.40. In January, the price remained below 10 cents. That's a 130% increase.
 
The RFS, it should be pointed out, also requires companies to buy a specific blend of cellulosic biofuel that isn’t even available yet on the commercial market.
 
For those wondering why gas prices continue to rise year after year, look no further than Washington, D.C., where the federal government believes it can regulate every inch of the energy industry without any consequence to consumers. Yet those of us who believe in free markets know that restrictions on oil and gas production, unreasonable and expensive mandates, and excessive taxes mean everyone pays more. That may sound like basic Economics 101, but we’re still waiting for Washington to finally catch on.

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