More On Gas Prices:

Last week I discussed the important new FTC Report that was released studying the causes of high gas prices. One of the factors discussed at length there was that of wide variance in fuel standards across the country, which creates varying fuel reformulation mixtures for different regions of the country. These different fuel standards can thus increase the variability of gasoline prices by making it more difficult to redirect gasoline from one part of the country to another to in response to local supply and demand shocks. Thus, these differences in local environmental regulations can lead to higher local gas prices by reducing market flexibility.

Andrew Samwick of Vox Baby points to this nifty map supplied by economist James Hamilton that shows the many different standards in place across the country. Each of these subregions requires a different gasoline blend from each of the others, thereby chopping up the country into dozens of isolated mini-markets.

Note that the discussion that goes along with the map was posted on June 20, prior to the release of the FTC Report last week. In the post, Professor Hamilton directs a skeptical eyebrow at the GAO's conclusion that higher prices could be attributed in part to reduced competition from a supposedly overly-lax merger policy. As Professor Hamilton would not be surprised to learn, I'm sure, the FTC Report quite persuasively supports his raised eyebrow.

Its not just that gasoline is no longer fungible. The fractured market (together with the added overhead of understanding and applying the various federal, state and local EPA regulrations) has made it inefficient for gasoline importers/blenders to supply the market. Many of these importers have left the market, forcing prices even higher as the marginal supply that was once available from foreign refineries is no longer present in the market.
7.11.2005 8:22pm
I have to wonder why some of those markets are even covered - like that western corner of Texas, for instance. I suppose it must make economic sense, but it seems that threatening to not supply it would be effective at changing regulations for areas that small. But then again, it is Texas (in this one case).
7.11.2005 8:22pm
Eric H (mail) (www):
That "western corner of Texas" is known to many people as El Paso, which shares a border with Juarez. I believe that most of the poor air quality there has to do with that so-called fuel that PeMex peddles on the other side of the border. It's so bad that Mexicans will travel north to fuel in the US. Thus, mandating a boutique gasoline in El Paso is like cleaning the ocean with a an aquarium pump.
7.11.2005 9:17pm
Michael Eisenberg (mail):
An often overlooked point that may also contribute to gas prices is Bush's insistance on building up the SPRO (Strategic Petroleum Reserve Fund). Instead of selling oil durign times of high demdand, he continues to buy, causing consumers to compete with the FED for oil. For more see here
7.11.2005 9:36pm
Hey, that's federalism for you. It's easy to be in favor of it when you want to smoke dope. It's a harder to wax poetic about it when it screws you out of a buck. Take the bad with the good, gentlemen, and don't complain when your ox is being gored.

Oh, and don't forget the general weakness of the dollar, making imported oil more expensive and increasing demand for exports. I don't know how much of an effect it's having, but it's certainly pushing pump prices higher.
7.12.2005 11:47am
Paul Gowder (mail):
Second the first paragraph of AK's comments. It's so easy for conservatives to jump around cheering for the states when they're not screwing the populace...
7.12.2005 6:45pm