Thursday, May 24, 2007

Listening To Politicians Gives Me Gas

Particularly when they start talking economics. The only economics they know is "I need more of your money to buy your neighbor's vote."

Alas, they're at it again, passing laws against "excessive prices" for gasoline by evil oil companies. No definition of "excessive" is ever included, of course.

Meanwhile, Ronald Bailey at Reason magazine explains the real reasons why gas prices are so high. And you'll be stunned to discover one of the major reasons is (shock!) the same politicians whining about gas prices.

For example, government subsidies of ethanol and federal targets for increased ethanol use are sending a message to oil companies NOT to build new gasoline refineries. After all, who knows how much market share will have gone to taxpayer-subsidized ethanol 10 years from now.

Ethanol has more problems than that as Bailey points out:

Every one of the six (oil industry) analysts I talked with pointed out that the federal ethanol mandate adds substantially to gasoline prices. Ethanol costs more per gallon than gasoline; it contains less energy per volume so a blend of 90 percent gas and 10 percent ethanol delivers 3 percent fewer miles per gallon; and ethanol has a higher vapor pressure which makes it even more expensive for refiners to meet EPA summertime vapor pressure maximums. The ethanol mandate also adds to costs for blending gasoline because companies now have to manage different two fuel supply chains. Lundberg notes that when California adopted its ethanol mandate, it boosted prices by 10 cents per gallon.

In fact, some research suggests that it actually takes more energy to make a gallon of ethanol than that gallon can produce. The net effect of ethanol could well be more pollution. It's certainly not energy independence.

UPDATE: If you heard my interview with Jerry Taylor of the Cato Institute, his latest article on Congress's oil-price idiocy is here.