Evian water @ $1.29 per pint = $10.32 per gallonNow, tell me again about the high cost of gas?
Posted on 05/16/2005 7:42:02 AM PDT by SmithL
California boasts the biggest population of any state, the largest manufacturing base and agricultural harvest, and the highest waterfall and lowest valley. But the Golden State has recently laid claim to a less illustrious distinction: home of the nation's highest-priced gasoline.
During this spring's gasoline price run-up, California inherited the title from Hawaii, the island state that relies almost entirely on expensive imported fuel. Even after recent declines, last week's state average of $2.57 outpaced Hawaii by 6 cents and the national average by 39 cents, according to the AAA of Northern California.
Why?
There are three major reasons that Californians pay more at the pump: far stricter environmental standards, a larger proportion of imported fuel, and higher taxes than most states. Though the oil industry vigorously denies it, some experts also believe consolidation and market manipulation play a role.
"There are very substantial barriers to entry that protect a very tight oligopoly," said Mark Cooper, director of research for the Consumer Federation of America. "When you get so few producers in an individual market, it's easy to raise prices even without colluding."
Environment
The industry itself stresses that 75 percent of the retail cost of gasoline consists of crude oil and taxes, both items beyond its control. The next biggest cause of California's high prices, refiners argue, is environmental regulation.
A patchwork of sometimes overlapping rules governs gasoline sold in California. Most notably, in 1991 the California Air Resources Board approved the nation's strictest gasoline rules, aimed at cutting emissions by one-third. It required most refiners to produce a reformulated gasoline, with limits on toxics such as benzene and hydrocarbons, by 1996.
An even more rigorous standard went into effect in 2004, after the state banned the fuel additive MTBE, which was found to leak into and pollute groundwater. Because the federal Clean Air Act required gasoline in most areas of the state to contain an oxygenate, which improves energy efficiency and cuts tailpipe emissions, refiners were forced to replace MTBE with ethanol.
State refiners invested nearly $6 billion to comply with these regulations, said Joe Sparano, president of the Western States Petroleum Association.
Recovering these costs together with the higher price of producing reformulated gasoline have driven the state's fuel 8 cents to 14 cents per gallon above conventional gasoline, according to the California Department of Energy.
But that money buys important air quality and health safeguards, according to environmental organizations.
The California Air Resources Board estimates the 1996 rule eliminated 1 billion pounds of emissions per year, the equivalent of taking 3.5 million cars off the road every day. In turn, the inhalation cancer risk dropped 46 percent from 1995 to 2002, according to a report by the Bay Area Air Quality Management District.
"In terms of a reduction in total pollution, it is one of the most efficient programs out there," said Roland Hwang, vehicles policy director for the Natural Resources Defense Counsel. "We are fighting for every ton of pollution reduction we can get, and there aren't other sources out there short of closing down power plants."
Imports
At the same time, however, those gains have been partially offset by the continual addition of cars to California roads, said Suzanne Garfield, a spokeswoman for the California Energy Commission.
That growing demand, tied to California's surging population, is also driving up prices as supplies are stretched to the limit. Indeed, during the past few years, California went from a net gasoline exporter to a net importer.
The environmental regulations exacerbate this constraint. Only a handful of outside suppliers produce California's "boutique" gasoline, and of the 22 state refiners, only 14 have made the necessary upgrades to produce it.
Severin Borenstein, director of the University of California Energy Institute, said the scarcity alone drives up prices, but it also "puts sellers in a position to jack up prices above competitive levels."
It's impossible to distinguish artificial scarcity from the legitimate variety, but together they've increased California prices another 15 to 18 cents, he said.
The industry categorically denies assertions of price manipulation.
"There have been 30 studies and investigations over the last 20 years," said Sparano, specifically citing the U.S. Department of Justice, Federal Trade Commission and Government Accountability Office. "Each and every one of those reports have found that there has been no collusion, no manipulation, no managing of the market."
Mergers
Sparano also disputes claims that oil industry consolidation has resulted in higher prices. But on this topic, the FTC and GAO part ways.
A 2004 GAO study of mergers from the mid-1990s through 2000 found the deals generally led to higher wholesale gas prices, up an average 2 cents in six out of eight modeled cases. In the other two, prices declined an average of a penny. Market concentration boosted California prices a much higher 7 cents on average, in part because of the highly specialized product.
The state impact was also magnified because the industry was more concentrated to begin with here, said Borenstein, who reviewed the study on behalf of the GAO.
A final factor in California's higher pump prices is taxes.
A survey by the American Petroleum Institute found that, as of January 2004, California's average state and federal taxes on a gallon of gas were 50.8 cents. That's the fourth-highest of any state and compares with a nationwide average of 42.7 cents.
Mark Hinkle, a past chair of the Libertarian Party of California, calls this government gas gouging. Moreover, he believes that state government "meddling" is almost entirely to blame for high gas prices, because the regulations have increased the cost of producing gas while discouraging the construction of new refineries.
"These things just wouldn't happen if the government got out of the business of trying to manage the economy," he said.
But some environmental groups and public policy experts think there should be more, not fewer, taxes and regulations on gasoline.
Leondard Evans, author of "Traffic Safety" and a 33-year veteran of General Motors Corp., advocates steadily raising taxes on fuel because he believes only higher prices can curtail demand for the limited resource.
"We are addicted to a product produced by nations that are doing a great deal of harm in the world ... (and) if we use less fuel, we produce less carbon dioxide," he said.
I've heard there are multiple formulations of gasoline in California based on geography, too, causing economy of scale problems. That is, "boutique formulations" are required for some areas, raising costs and prices.
Can someone verify/debunk this?
Thanks!
The NRDC is a consortium of primarily oil and gas interests posing as an environmental group. They do everything they can to maintain energy shortages.
And they did that a few years ago to the point where Governor Davis was scrambling to squander the state's tax dollars on high-priced long-term electricity contracts.
If they'd build nuclear power plants, they could close down the fossil-fuel burners.
The enviro-nazis would rather have the oil off-shore in CA seeping from the ocean floor and polluting the water than to drill for oil to use for gasoline. I think such ignorant people should pay at least double what the people in Texas and Louisiana pay, since those two states have been producing off-shore oil for the other free-loading states for 40 years.
Evian water @ $1.29 per pint = $10.32 per gallonNow, tell me again about the high cost of gas?
Sorry, there are currently and have been numerous "upgrade" projects in California. Shell Martinez a few years ago added a new unit with a DCU, Chevron El Segundo, Arco/BP, Exxon/Tesoro Benica, Exxon/Mobil (Torrance and many others have all had upgrades such as debottlenecking and mechanical upgrades. Most upgrades have been for increased production at existing facilities.
Market manipulation in Cali is crap.
If you want to see manipulation, come here.
You can drive 5 miles and see the same gas price on every corner. Doesn't matter what the company is.
That's what I had heard.
Here's an Idea for them, Try DRILLING for oil. CA have huge reserves but no one wants to see those ugly drill rigs pumping $$'s into state cofers.
Your comparison would only be valid if you drank a gallon or more of Evian each way on your trip to and from work every day.
Also, the State of California bans new small diesel cars, so that more fuel is wasted.
How is that market manipulation? It may in fact be perfect competition. If one station lowers the price, the others have to follow or else they will lose business.
Huh? If it is scarcity that drives the prices up, then its not that prices are above competitive levels, it is simple supply and demand i.e. the competitive level is higher in CA then elsewhere.
BS. Imagine what the harm would be if we didn't use it. We would have 500 million horses crapping all over the streets, and the size of our economy would be about 1/2 what it is today.
Consumption of both products is a choice made by the consumer.
can't site chapter and verse but yeah... southern formulations are different than in the north because of the way the smog is held in more by the mountains in the south
If you drive 20,000 miles per year and your car gets 20 mpg at $1.80/gal you spend $1800 per year on gas, or $4.93 per day. At $2.50 per gal that would be $2500 per year or $6.85 per day, for an increase of $1.92. Drink one less bottle of water per day and you get the equivalent of $1.80 gas.
The difference is that people buy more gas than they do water, and also people feel that they have to buy gas in order to properly run their lives. Evian water is a purely discretionary product, and anyone who thinks it is too expensive simply doesn't buy it, as there are many alternatives. There aren't any short-run alternatives to buying gas. Consumers simply have to accept the prices that they are offered. That is why people get riled up about gas but not Evian.
I'm not up in arms about the cost of gas, but Michael, in addition to what Malsua wrote, in order for your comparison to make even a little sense, all water sold by the gallon would have to cost over $10.00. As it is, you can go to any grocer and purchase a gallon of spring water for as little as 89 cents, a far cry from $10.00 per gallon.
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