The Economics Of Gasoline Regulation: Price Impacts And Consumer Costs Of Environmental Air Quality Programs

Abstract

This research examines economic impacts of two gasoline regulations designed to combat tropospheric ozone pollution. I construct several fixed effects econometric models to assess impacts of reformulated gasoline and low volatility gasoline on retail gasoline prices and consumer costs. I estimate that reformulated gasoline has had a positive and statistically significant impact on real fuel prices of approximately 3.4 to 6.0 cents per gallon. I estimate that federal low volatility gasoline has had an insignificant price impact of 0.0 to 0.8 cents per gallon, but find that state-level controls more stringent than federal standards may have increased prices by over 8.0 cents per gallon. I also find that both reformulated gasoline and low volatility gasoline price effects likely vary substantially between cities. I present a framework for examining changes in welfare and estimate that over 15 years the reformulated gasoline program has cost consumers between $15.1 billion and $39.0 billion.