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EPA not culprit for recent hike in gasoline prices

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A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for July 5, 2000

EPA not culprit for recent hike in gasoline prices
As Midwestern gasoline prices begin to come back down, some are still looking to blame the Environmental Protection Agency (EPA) for the high prices motorists have faced at the pump this spring and summer. The state of Wisconsin is suing the EPA in an effort to further lower gasoline prices. The suit aims to force the EPA to suspend the tighter air quality regulations that went into effect on June 1. Under these rules, certain urban areas that fail to meet the EPA’s clean air standards are required to sell a blend of gasoline, called reformulated gasoline (RFG), to help cut down on smog. In the Midwest, Chicago and Milwaukee are the two largest cities required to sell RFG. The EPA estimates that RFG should cost less than 10 cents more per gallon to produce than the conventional gasoline used in most of the rest of the region.

With gasoline prices peaking at well above $2.00 per gallon in Chicago and Milwaukee, and given that prices in RFG areas are well above the Midwest average, the EPA rules look like the obvious culprit. A more serious look at the data shows that the issue is not so clear cut.

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The chart above shows the percentage change in gasoline prices in the Midwest and in the U.S. as a whole, from May 1 to July 3. Over this time period, prices for all types of gasoline in the Midwest rose considerably faster than the national average. However, Midwest RFG prices actually grew somewhat slower than the non-RFG prices. Since May 29, two days before the new rules went into effect, Midwestern conventional gasoline has risen by 14%, while RFG prices have risen by only 4%. While something is causing Midwestern gasoline prices to outstrip the national average, blaming the EPA is too simplistic a conclusion. It’s far more likely that the cause stems from regional supply problems arising from pipeline disruptions, low spring inventories, and other factors.

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