Trying to pump in relief

News AASHTO Journal April 30, 2001
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With the price of gasoline quickly rising and reports of tight supplies for the busy driving season, legislation has been intro

With the price of gasoline quickly rising and reports of tight supplies for the busy driving season, legislation has been introduced in the House to temporarily repeal the 18.3-cent federal motor fuel tax.

Rep. James Sensenbrenner (R-Wis.) has reintroduced legislation titled the Freedom from Unfair Energy Level Act (H.R. 1575). The bill would place a six-month moratorium on the federal tax on gasoline and the 24.3-cent tax on diesel fuel. The bill also would eliminate 4.3 cents of the federal gas tax permanently.

The legislation comes on the heels of reports that gasoline prices have risen by 15% in one month. Trends indicate they will remain high through the summer--posing a possible threat to the slowing economy, The New York Times reported.

The American Road & Transportation Builders Association (ARTBA) says the 4.3-cent repeal would reduce federal highway transit investment by $5.6 billion a year. Transit would take a $1.4 billion cut. Completely eliminating the motor fuel tax for six months would decrease highway trust fund receipts and lower highway investment by $13 billion.

"(The current legislation) is a short-sighted solution to a much larger political problem," Matt Jeanneret, director of public affairs for ARTBA, told ROADS&BRIDGES. "The simple fact is the federal gasoline tax has nothing to do with the motor fuel price increase."

Mark Zandi, chief economist for the research firm, told the Times that consumers now spend roughly $125 billion a year on fuel. If the price of gasoline increases by 25 cents per gallon, another $20 billion would be added to the total sum.

The Energy Information Administration, part of the Department of Energy, said energy demand this summer may be slightly higher than it was last summer. But fuel inventories are lower than a year ago--which were at historic lows. This lag was supported by information released last week by the American Petroleum Institute that showed gasoline stocks increased by 1.3% last week to 195.7 million barrels compared with the previous week. That remains 2.4% lower than last year's levels for the comparable week.

In response, the average retail price of gasoline has risen 24 cents in the past month to $1.66 a gallon, according to the Energy Information Administration. A year ago at this time, the per-gallon price was $1.48; by mid-June it had risen to $1.71 on average, and in some cities it was higher than $2 a gallon.

The Times reported that, although oil reproduction cuts by the Organization of Petroleum Exporting Countries have played a role in the price hikes, a more significant contributor is a shortage of refineries in the U.S. Opposition by environmentalists and local groups has prevented construction of new refineries since the 1970s, and several aging ones have been taken off-line. As a result, refineries have been running at near-capacity for most of the past four years.

Last year, maintenance of urgent production levels met seasonal demands, but disallowed much buildup of inventory, the Times reported. Though refiners usually reconfigure plants to ramp up production of either gasoline or heating oil, depending on upcoming seasonal demand, tight supplies of both in recent years have upped the profit margins of refiners--and given them disincentive to switch gears so quickly their profit margins would be lowered, according to industry experts. They said as production swings back toward majority gasoline, prices will gradually lower.

Local polution control standards, which require different mixes of gasoline additives in different regions of the nation, make availability even more volatile. USA Today reported the price of MTBE, a natural gas-based additive that cuts emissions and increases the octane level of gasoline, has soared, contributing to the overall cost.

Chris Vavares, president of the St. Louis economic forecasting firm Macroeconomic Advisers, said economic growth could slow by 0.5% if average gasoline prices go up by 50 cents.

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