Thursday, September 21, 2006

Government Creates Oil Shortages, Raises Prices

The politicians lament about how we are dependent on foreign oil and clamor that the government should do something about it. Consumers complain about the high price of gasoline, and demand the government should do something about it. But government has already done too much—and that's the main problem.

As noted in previous postings on this blog, our government has prevented oil drilling in large areas of the U.S., both on and offshore, and, even where it is allowed, has made it far more expensive than it need be through costly regulations. Refineries have had to pay more than $47 billion over the last 12 years to comply with environmental regulations that include, among others, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Oil Pollution Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. And that's not even including the Sarbanes-Oxley law and similar laws that apply to general business practices, not just to environmental issues. Naturally, the cost of complying with these regulations must be passed on to the consumers in the form of higher prices. The tens of billions of dollars spent by the industry to comply with regulations did nothing to increase the supply of gasoline. And from 2006 to 2012, fourteen new major environmental programs will force additional costs on refineries.

Government regulations are also the reason not a single new oil refinery has been built in the U.S. in the past 29 years. Companies can't get the permits. One company has been trying to get a permit for 16 years. A shortage of refining capacity leads to a shortage of product—and higher prices. Last week the Wall Street Journal featured an article about an Indian billionaire who is building a gigantic oil refinery in India. It will employ an incredible 150,000 people. He expects the largest customer for the gasoline it will produce will be the United States. He believes the cost saving from not having to comply with U.S. regulations will far more than offset the cost of shipping the gasoline all the way from India. So profits and jobs go overseas. And we continue to complain about our dependence on petroleum imports and jobs going abroad.

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