Energy Policy Follies
Congress seems intent on doing something to address current gasoline prices. Last time around all they could muster was a pork-laden energy bill that did nothing meaningful to address consumer concerns about energy costs and price volatility. Alas, Congress does not seem to have learned its lesson, and is pursuing a new set of policies that will do little good, and may cause harm -- or so I argue in this NRO column.
If Congress really cares about high gasoline prices -- even if the gasoline is more affordable than in decades past -- they should consider the role of current federal policies in reducing supply, balkanizing markets, enhancing price volatility, and discouraging alternative fuel sources. Yet if Congress won't even reduce tariffs on ethanol imports -- which would significantly reduce the costs associated with current ethanol mandates -- I see little hope for more meaningful policy reforms.
On a related note, here is a new study on SSRN quantifying the effect of reformulated gasoline requirements on wholesale gasoline prices and price volatility. The abstract is below:
The 1990 Clean Air Act Amendments stipulated gasoline content requirements for metropolitan areas with air pollution levels above predetermined federal thresholds. The legislation led to exogenous changes in the type of gasoline required for sale across U.S. metropolitan areas. This paper uses a panel of detailed wholesale gasoline price data to estimate the effect of gasoline content regulation on wholesale prices and price volatility. In addition, we investigate the extent to which the estimated price effects are driven by changes in the number of suppliers versus geographic segmentation resulting from regulation. We find that prices in regulated metropolitan areas increase significantly, relative to a control group, by an average of 3.6 cents per gallon. The price effect, however, varies by ten cents per gallon across regulated markets and the heterogeneity across markets is correlated with the degree of geographic isolation generated by the discontinuous regulatory requirements.