http://www.scstatehouse.gov/sess119_2011-2012/bills/727.htmTO PROVIDE THAT THE WHOLESALE GASOLINE FOR EACH OCTANE SOLD IN THIS STATE MAY NOT EXCEED THE AVERAGE PRICE IT SELLS FOR ON APRIL 15, 2011, AND TO PROVIDE THAT PRICE SHALL REMAIN CAPPED FROM APRIL 15, 2011, UNTIL APRIL 15, 2012.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. (A) The wholesale price of gasoline for each octane rating sold in this State may not exceed the average price it sells for on April 15, 2011, as determined by the South Carolina Department of Revenue.
(B) The prices capped pursuant to subsection (A) are those from the refinery as the gasoline enters South Carolina whether it enters by pipeline, ship, or truck.
(C) The provisions of this section shall remain in effect from April 15, 2011, until April 15, 2012.
SECTION 2. This joint resolution takes effect April 15, 2011.
My comments:
When I first read of this law, I thought maybe it was a Mis-quote, i.e. a cap on PROFITS not a cap on TOTAL PRICE. I.e. a law reading that difference between the wholesale the price of Wholesale Gas and Retail price on April 15, 2011, will remain the same till April 12, 2012. i.e. making it illegal to jack up the price of gasoline up and over what it would normally be given the COST of gasoline.
The problem is when I downloaded the proposed law, it did NOT restrict profit or even the difference in price between wholesale and retail, but restricted what the wholesale price would be. The wholesale price is set by the international price of oil, thus NOT subject to laws of a state. Gasoline profits earned in State can be set by the state, but not prices set outside the state.
If this becomes the law of the State of South Carolina, it would only be workable if South Carolina can force the oil companies to ship oil to South Carolina at a loss i.e. fine wholesalers who do NOT have gasoline to sell at the fixed price, even if the reason the wholesaler does not have gasoline to sell is do to the fact the wholesaler can NOT buy any gasoline at the fixed price (i.e. buy gasoline at the world market rate, and then sell it at a loss in South Carolina). No such punishment is set in this law, so it is unenforceable.
Lets remember even Texas is a net importer of oil now-a-days, thus the alternative of fixing the price at the pump and forcing oil companies to sell gasoline at a set profit over cost is NOT possible even in Texas (i.e. the cost to produce Texas oil is quite low compare to the price of gasoline, thus if Texas produced more oil then it consumes, it could fix the price for internal use based on a fix profit set on oil produced within Texas. i.e. Price at your local Texas gasoline station fixed at 25 cents over wholesale price, Wholesale price fixed at 25 cents over refining price, Refining price fixed at 25 cents over what ever it cost at the pump to pump the oil out. If it only cost 25 cents to pump the oil, gasoline price is fixed at $1 a gallon.
Iran, Venezuela and other oil producing countries do the above, but only as long as they can pump more oil then their use. Indonesia use to be a member of OPEC but is now an oil importing country, and thus the price of Gasoline had to go up, for the simple reason the country no longer could control the price of the oil it used from the well to the local gasoline station. Indonesia has to buy oil at world prices and thus to break even on the oil it imports, all price of oil MUST reflect world price of oil. Some countries try to avoid this, China is one of the biggest country to avoid this problem, China set fixed prices for oil, often below the world price. The problem this leads to massive losses to oil importing companies who can NOT recover the higher world prices they are paying from their Customers. This leads to massive loses and massive shortages as the companies run out of money. Sooner or later the Chinese Government has to increase the fixed price just to keep the oil importers in business. This was a rough problem in 2008, not so much today for China has left its Currency increase in value compare to the Dollar (Oil is prices in Dollars), but given China's continued Currency controls, its controls on the price of gasoline sold internally and the increase in the use of oil within China something has to give and thus a time-bomb for China.
South Caroline does NOT have China's control over its people, Currency and oil imports, thus what China is doing will NOT work in South Carolin (And I doubt it will work long in China). Price controls work in Venezuela and Iran for both are net oil exporters, thus can control the price of oil from the well-head to the pump. South Carolina can NOT do that, for like Texas and China, South Carolina is a net importer of oil.
Price controls can work on the short term, provided the government imposing those controls understand it must use that time to fix why the price is going up (or to regulate how fast the price can go up). People will work within such a system if the losses they suffer is short term AND it is being used to solve the underlying problem.
On the other hand, price controls do not work if the underlying problems are NOT addressed. This bill does NOT address the underlying problems, i.e. the world price of oil. As such this bill, if past, will just lead to a shortage of Gasoline in South Carolina. I hate to say this but the better solution would be a bill to lead to faster drop in gasoline usage, a drop in gasoline usage will force the price of gasoline to drop. The best solution is the European Solution, a $5 a gallon gasoline tax.
Yes, you heard me, increase the price of Gasoline taxes by $5 a gallon and the price of Gasoline will drop like a rock. I did some calculations yesterday on DU, and determined that it is Cheaper for me to keep my paid for Dakota Pickup rather then trade it in for a more fuel efficient car until the price of Gasoline reaches $11 a gallon, then it pays me to trade in my Dakota for a car that gets 42 mpg. I cut my gasoline usage in half, but only at $11 per gallon. At $11 a gallon it pays me to buy a new car that gets 42 mpg, given my present car is paid for and it will cost me $20,000 to buy a 42 mpg car.
Thus I will cut my usage of gasoline, but the price of gasoline has to more then double its present price. On the other hand, when the price of gasoline does hit $11 a gallon, I cut my usage of gasoline in half, and thus half on my demand for gasoline disappears. With half of my demand gone, the price push on gasoline goes from upward to downward.
Now, I am NOT the only person looking at the above numbers, they are others just like me. They are people who will have to cut out gasoline usage well before Gasoline reaches $11 a gallon. The more people no longer use gasoline, the demand for gasoline will drop and with the drop in demand so will the price.
I am sorry, we have to DROP DEMAND, and the best way is via price.
Another way to do the above, is to impose Price Controls fixing Gasoline at a set price on the National Level. Then the Federal Government gives grants to anyone who trades in a car that gets less then 20 mpg for one that get more then 40 mpg. That will reduce demand for gasoline just by removing all the gas guzzlers from the market (and such guzzlers be destroyed). I would put in a stipulation that the car can not be sold for five years (and if damaged beyond repair, replaced by another 40 Plus vehicle) so demand for gasoline stays low. For people with cars between 20 and 30 mpg, I would permit them to trade their cars in under the same program, but limit the grant to the difference between the Value of the two cars. The reason for this is many people will opt for cheap used cars with decent fuel economy, if that is all their can afford, and the trade in value will drop with people being able to opt into a new 40 mpg model.
The whole thrust would be to reduce oil consumption. I would also mandate all Railroads convert to electric drive, or adopt a plan to do so within 10 years AND start the conversion within 1 year. This is to reduce oil used by such trains. I would also electrify the Interstate Highway system and mandate that all new Trucks USED on the Interstate system purchased within Five years MUST be capable of using the Electric system (Most trucks are done within three years). I would further mandate that the States look into other high capacity roads and adopt similar electric systems. All trucks must use the system within ten years. As parts of the Interstate system gets electrified, mandate the use of electric drive trucks only on those sections. Most interstates can be electrified quickly, most do NOT have any trees of other overhead wires to interfere with the electric drive.
A third thing I would do, is provide light rail to every city of the US, preferable underground away from other traffic. Light rail would take longer, for Light Rail works best in high density population areas, which also means high concentration of water lines, natural gas lines, electric lines, Sewerage lines, phone lines, and cable lines. Streets would have to be torn up at a high cost per mile given how many of the above lines run under almost every street in Urban America. Light Rail will provide transportation to people in the urban centers, reducing their need to use cars and this reduce oil usage.
A fourth thing I would do is adopt more intercity Rail transport, generally as part of the electrification of the Railroads. If the price of gasoline is to high, people will opt for other transportation including rail, provided you have more then four trains each direction a day. Amtrak would have to buy these new trains and run them, but it will reduce oil usage AND since such trains could be set up to stop in much of Rural America, we can address the needs of Rural America in America's reduction in demand for oil and the price for oil.
A further assistance to Rural America would be provide additional money to fix and install bridges and other highway improvements so people living in Rural America do not have to go miles out of their way do to a missing bridge. Such low volume bridges will reduce the use of oil in Rural America better then anything else and has to be part of any plan to reduce demand for oil and thus reduce its price.
Bicycle would also have to be encouraged. Many city roads built after 1900 have four narrow lanes (Those built from 1890-1920 tended to have two old streetcar right of ways, now paved as two highway lanes, with a lane of traffic on each side of the old streetcar right of way, today these tend to be four narrow lanes for Streetcar right of ways tended to be only five feet across NOT the Eight to Twelve lanes of Highway lanes) . It would be better to convert these roads to roads with a center turning lane, two lanes (one lane in each direction) and a bike lane on the edge. This could be done at the same time as any installation of an underground Light Rail Vehicle, but also can be done well before then. This would increase
Please note, what I mean by electric drive, is a system where power for the truck comes from overhead electric wires. Such trucks could also be equipped with a small diesel powered electric generator to propel it a short distance from its terminal to the Interstates (OR a small amount of Lithium batteries for the same short haul). Installation of such a system will be expensive, but it is cheaper then even Lithium battery drive electric cars, for the following reasons, no need to carry as many batteries, no lost in electric power as you charge the battery and then use that power of the Battery (This appears to be much lower then in lead-Acid Battery, but it is still a factor). The ability to pull power from the wires when needed (Mostly in Mountains, Electric drive with an overhead electric power source provides more power at less weight then diesel engines) and the ability to use Solar, Wind as well as Nuclear and Coal as a power source.
If price controls were used in conjunction with the above, price controls will work, as more and more people opt for more fuel efficient vehicle the price demand for oil will drop and with it the price. People will work under price controls IF it is short term and it is part of a plan to solve the underlying problems.
On the other hand, as a patch over a sore that no one has a workable plan to cure, price controls are ineffective and a waste of time and money. In fact the above plan to reduce oil usage is best implemented FIRST, and then if the price of oil goes to high, introduced price control (Or the threat of Price controls). In the above plan, it would be better to go with the $5 a gallon gasoline tax, and then use that money for the various other efforts to reduce oil usage first, then if the price of oil keeps going up, impose the price controls. The double attack, attack on the underlying problem of WHY oil in increasing in price (Excessive demand) combined with price controls that restricts the price of oil to what it would be if and when the entire plan above is implemented, would control the price of oil. Given the US is the number one consumer of oil, the above plan would have a negative affect on the price of oil and thus the price of oil will drop like a rock.
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