Free the Gas Market
We can’t change worldwide demand, but we can lift unnecessary restrictions on production and refinery capacity.

By Herman Cain
October 5, 2005

     Good ideas are hard to come by – especially in Washington. But a good idea can stand the test of time, and it can weather the assault of its critics if it gets the opportunity to prove itself.

     President Bush had a couple of good ideas in his recent address on the U.S. energy situation. He said he would temporarily suspend environmental regulations on gasoline production to ease our supply crunch, and he would work toward helping refineries expand. Congress, as well as state legislatures, must follow the president’s lead and find solutions to the pressing need for increased supply and refining capacity. Our demand for oil and gas products isn’t going down any time soon, and it’s time for Washington to get serious about our gasoline supply. It’s time to put ideas into action and free our gas market.

     Bush talked about suspending Environmental Protection Agency rules that require specific blends of gasoline for different seasons and different areas of the country. His reasoning was that suspending some of the rules during this post-hurricane crunch would allow gas to flow more freely around the country, getting supplies where they are needed.

     This is a good idea for the short term, and an even better idea for the long term. We are required to have 17 unique blends of gas due to different states’ emissions standards. Congress should enact a uniform federal standard for clean gasoline and eliminate the hodgepodge of fuel blends mandated throughout the nation.

     Some states even have laws dictating a minimum gasoline price, while others – as we saw after Hurricane Katrina – have laws restricting how high stations can raise their prices. That means we have laws against low prices and laws against high prices. And once a price is set, retailers must tack on state and federal gas taxes ranging from 26 cents to about 63 cents per gallon.

     Laws dictating prices run counter to free market principles. When supply is squeezed, it is policies like that that lead to shortages and “We’re Closed” signs turning up at gas stations. But my neighborhood station is also held captive by the supply chain of oil drillers and oil refiners. And that’s where Bush’s other good idea comes in.

     The president mentioned expanding existing refineries and the construction of new ones. Just like the gasoline blends, the EPA has its fingerprints on our refinery shortage. Regulations on plant emissions abound, not to mention the bureaucratic obstacles to building a new refinery. Arizona Clean Fuels has been trying to build a new refinery for the past 12 years – and it just got its air permit this year. If it is too much trouble to expand our nation’s refinery capacity, then investors won’t do it. And the ability to refine more oil would be a boon for our gas supply.

     One investor who’s interested in the supply problem is Richard Branson, the British entrepreneur behind Virgin Atlantic Airways. He says he’s ready to build his own refinery. It probably won’t be in the United States, because the process would be too tangled in bureaucratic red tape. This is a timely reminder that it’s entrepreneurs like Mr. Branson who will be able to increase the world’s refining capacity – not the government. Unless government gets out of the way, those would-be refinery builders might find other investments more attractive. I’d hate to see Mr. Branson’s American counterparts give up on refinery building and expansion in this country.

     There’s another idea that the president and Energy Secretary Samuel Bodman are talking about: conservation. Conservation certainly has a role in lowering gas prices, keeping our air clean and mitigating the effect of gas prices on our wallets. We could probably all reevaluate our driving habits and make more efficient use of the gas in our tanks. Conserving gas alone, however, is not the sole solution to combating rising energy prices or the supply problem. Rapidly rising worldwide demand for petroleum – particularly in China and India – directly affects petroleum supplies and, therefore, the price we pay at the pump. Further, the free flow of oil is a crucial component to the future of our free market economy.

     What we need is to free our gasoline market. I am definitely opposed to flagrant abuse of our environment, but I am also opposed to flagrant choking of our economy caused by too many regulations. The fewer restrictions suppliers face, the easier it will be for them to make gas available. Years from now, when we’re able to fill our tanks without worrying whether our neighborhood stations will be open tomorrow, we’ll be glad this generation acted on these ideas today.

Herman Cain is the former president and CEO of Godfather’s Pizza, Inc. and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company. He is the National Chairman of the Media Research Center’s Free Market Project.