Taxes and Regulations Impact Pump Prices
Posted July 2, 2018
In previous posts (see here and here), we’ve discussed factors that have affected gasoline prices in the past. The cost of crude oil is chief among them, accounting for more than 50 percent of the fuel price according to EIA. Some other factors are seasonal, and taxes imposed on each gallon of gasoline vary from state to state.
For starters, when the weather warms up refiners and blenders are required by law to formulate summer fuels designed to limit emissions and help prevent ground-level ozone. This is done by altering a fuel’s Reid Vapor Pressure (RVP), which measures volatility or how easily fuel evaporates at a given temperature.
In the summertime, EPA requires a lower RVP to prevent fuel evaporation as the temperatures rise. But just because a low RVP is helpful in summer, it’s important to switch back to a higher level in the fall. If the RVP is too low on a cold day, the fuel will be less volatile than it should be, causing the engine problems when starting and running. It takes the industry time to shift refinery and blending capabilities from winter to summer blends and vice versa, which in the past has affected pump prices even before the new blend is required by law.
While most evaporative emissions are captured by automotive Onboard Refueling Vapor Recovery systems, EPA regulations on summer-blend fuels also help limit evaporative pollutants and help keep the air clean.
In addition to the EPA’s summer-blend gasoline requirements, some states and regions limit certain fuel properties to address specific air quality needs. The result is a patchwork of fuel requirements, sometimes referred to as “boutique fuels.”
Most of these unique requirements apply only to summer blends, and many areas have eliminated these boutique requirements as the local air quality has improved. The result is some logistical challenges to distribute multiple grades of fuel, which can get complicated as the map below shows:
On average, according to EIA, taxes currently make up 18 percent of what consumer are paying at the pump. The federal government charges 18.4 cents for every gallon of gasoline and 24.4 cents for every gallon of diesel purchased in the United States. Revenue from federal taxes funds environmental projects, highways and other mass transit projects.
Each state also applies different taxes on both gasoline and diesel fuels. State “gas taxes” provide revenue for government services that tend to benefit drivers, such as the construction, maintenance and repair of roads. Fuel is taxed in a variety of ways, from taxing a “per gallon” rate at the pump or by charging wholesalers for the gasoline before it reaches the station.
Some states apply higher taxes than others. They relate high gas taxes with the transportation costs from moving fuel from the refinery to the consumer. Pennsylvania and California boast the highest gas taxes in the country.
You can see these costs in the graphics below. Click on them for even more information. First, for gasoline:
And for diesel:
The natural gas and oil industry produces the fuels Americans can depend on every day in accordance with an array of fuel standards. From 1990 to 2016, refiners have invested $5.97 billion in environmental expenditures, including technologies to make fuels cleaner. The oil and natural gas industry is continuously innovating to improve the environmental performance of products that reliably get us where we want to go – in summer and throughout the year.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and four grandchildren.
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