Wednesday, August 09, 2006
I would take any comment on ethanol and the price of Minnesota gasoline from King Banaian from SCSU with a grain of saltExcellent idea. Use the whole shaker if you like, though it's bad for your heart.
...on his blog, he has frequently expressed his displeasure with ethanol because of the subsidies.And I've expressed my displeasure over its high price because Congress, including Rep. Mark Kennedy, has opposed lowering the price by allowing Brazilian imports of biofuel that is much cheaper. My complaint is that ethanol policy is tied up in agricultural subsidies to protect U.S. farmers at the expense of both American consumers and agriculture in the developing world. I'll stand by that.
What he fails to mention is: 1) Minnesota gets most of its crude oil from Canada, not Alaska, shipped in via pipeline (which are open)...Curious comment from an avid anti-smoking guy. Oil is as fungible as cigarette smoke -- if the Alaska pipeline shuts down, that decrease in supply increases prices for all substitute oil sources, including Canada. You can't have Canadian sources and Alaskan sources separated any more than you have smoking and non-smoking sections of restaurants.
2) Minnesota refines most of its gasoline in-state, at two large refineries.Do you wonder why? For a large part, as I said in the article, the reformulated gas used in Minnesota is unique. When our prices are high, you would think neighboring refineries would move gas from the cheaper places to us -- this is called arbitrage -- but they can't because that would require them to re-refine the gas to meet our EPA restrictions to burn the funky fuel mix. This adds enough cost that there are limited arbitrage opportunities for out-of-state refiners. Thus the in-state refiners have a government-created barrier to entry that permits prices to remain high here.
3) The "state laws" (E10 mandate) he refers to have been in place for nearly a decade, and has had no negative impact on local prices. Truth is, Minnesota has historically enjoyed some of the lower gas prices in the nation for some time.Actually, to do this requires the state of Minnesota to have not raised taxes on gasoline in quite a number of years, compared to our neighboring states. Iowa has a 0.7 cent per gallon higher tax than Minnesota does, yet its average gasoline prices are a dime a gallon cheaper. Minnesota is lower than the national average by only a little bit, and this week we're 3.5 cents above the Midwest average. The lower taxes help when supplies are normal, but the reformulation restrictions bite hardest when supplies are disrupted.
Bob ends his diatribe with "what is the cost of doing nothing?" The Taxpayers' League publication Gasbags gives us a nice answer to that
Doing something always seems better than doing nothing, but history and basic economics tell us that markets are much better at adjusting to short and long-term trends than government planners. Few people know that the gas shortages of the 70�s were caused by government price controls and control over allocation of gas�not by any real shortage in petroleum. The lesson? Markets work better than government planners.I suspect Bob hasn't read Basic Economics. Now would be a good time. Also recommended, Oil and the Apocalypse, published today by Christopher Westley.