Another reason why gas prices are high

In a new paper -- "Market Fragmenting Regulation: Why Gasoline Costs So Much (and Why it's Going to Cost Even More)" -- University of Illinois law professor Andrew Morriss and Mercatus Center scholar Nathaniel Stewart show that much of the recent rise in the price of gasoline at the pump was caused by regulations that obstruct oil-producers' abilities to produce and distribute gasoline on a large scale.

Although government started interfering significantly in the oil market in the early 20th century, Morriss and Stewart find that beginning only in the late 1980s did the EPA and state and local governments launch unprecedented requirements on how fuel is formulated: "These fuel requirements added a set of constraints to refinery operation and transportation of fuels." Significantly, "Through various State Implementation Plans (SIPs), state and local governments also imposed restrictions on gasolines sold in their jurisdictions. Although there is no comprehensive list of formulations mandated by all levels of government, there appear to be at least seventeen different formulations -- a major increase from the single standard (the lead standard) in place in the mid-1980s. In addition, some state and local governments have imposed 'biofuel' requirements."

The consequence? What would have been a national market in gasoline now is a fragmented market. Refiners are unable to take advantages of economies of scale. Consumers are denied the lowest possible prices for gasoline.