Responses to Katrina-Induced Shortages
James Hamilton beat me to the analysis, and gave the the issue his usual high-quality treatment. One passage worth noting:
“one measure that will help cope with that problem is today’s announcement from the Environmental Protection Agency that it is exempting all 50 states from federal fuel volatility and sulfur standards through September 15. Those who have followed my discussion of these fuel standards will know that I see this as one bit of welcome news. In addition to allowing a greater quantity of usable gasoline to be produced, the EPA measure will create a more integrated national market in which it will be easier to get the fuel to those communities where it is most needed. I was worried that the interaction between the refinery outages and the patchwork of isolated retail markets would produce a logistical nightmare. I applaud the EPA for this kind of “outside the box” boldness in responding to the problems. For the first time in quite a while I have some confidence that our government is prepared to take some of the steps needed to deal with this crisis.”
He’s right in emphasizing the fact that the waivers will help with relieving localized shortages, as they won’t do much to increase overall supply. The biggest problem in this situation is the matter of increasing fuel supply flexibility, as the 8 downed refineries supplied specific markets that could not use gasoline from surrounding areas without these waivers. By issuing these waivers, the EPA administrator is allowing refineries to produce one blend for the entire country (assuming the governors accept the waivers, as they likely will). There will be a small increase in the overall supply, but it won’t be as significant as the increase in supply flexibility. I’m not sure that this qualifies as “‘outside the box’ boldness”, however, as the ability of the EPA administrator to issue waivers in this case was written into the law specifically for situations like this.
Sorry for the lack of posts, it’s difficult to remain in contact this week. Normality will resume for me next week.