Gasoline prices are going up and will reach new records by summer. This time it won’t be due to hurricanes, the war in Iraq, or greedy oil companies. The blame for higher gasoline prices rests with government policy. Let’s begin with the root cause of the current crisis. It began last summer with an energy bill that included a new ethanol mandate that will raise ethanol use to 7.5 billion gallons by 2012 beginning this year. In addition to requiring the use of ethanol in gasoline, Congress also refused to include liability protection for producers of MTBE. MTBE mandated by government has now become a target for trial lawyers. The result is that MTBE makers are pulling out of the market at a time ethanol production can’t meet the new demand mandated by Congress. So we are seeing gasoline inventories drawn down and gas supplies getting squeezed.

Trial lawyers are getting ready for their next tort bonanza. Because refiners have been given no legal protection, producers and refiners are exiting the market. Valero, one of the nation’s largest refiners has announced plans to phase out production. While refiners and producers are phasing out MTBE production, its replacement ethanol can’t be produced fast enough. Even the ethanol industry has acknowledged it can’t make up the shortfall. Refiners have been warning for years of the shortage problem and if they were given no legal protection from trial lawyers, they would exit the MTBE market. That is exactly what happened.
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