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Salma Alba
Mr. Rutti
AP Environmental Science
15 April 2015
Response to Whats Behind the Roller Coaster Prices of Gasoline? Article
The cost of gasoline has been going up and down in the recent months. Many people are
wondering what factors contribute this endless roller coaster of prices. The article provided four
of those factors. The factors are the prices of crude oil, gas taxes, a newly imposed policy, and
the Californias unique blend of gasoline. Each factor contributes to the roller coaster of prices in
different ways.
The newly imposed policy is one of the factors that contributes to the fluctuation of
gasoline prices. The policy is called cap-and-trade which is the popular name for the California
Global Warming Solutions Act of 2006. This acts aim is to reduce the states greenhouse gas
emissions. The Air Resource Board actually places limits or caps on emissions that are released
by the groups responsible for 85% of the states greenhouse emission pollution. The companies
are given emission allowances. Yet, they can buy more allowances if they exceed their limits.
The allowances are sold in an auction conducted by the ARB. The cost of the allowances depend
on the demand. About 600 companies participate in the program including oil producers and
refineries. In order to reduce emissions, the cap-and-trade will decrease the amount of
allowances over the course of time. Many groups consider these allowances as a hidden gas tax.
Furthermore, the cost of the allowances are subjected to the laws of supply and demand not like
the taxes whom are fixed. Cap-and-trade affect the increasing prices of gasoline by 10 cents a
gallon this year and 20 cents are predicted for 2020. Some estimations suggest that the cap-and-
trade can cause the prices to rise to 76 cents a gallon.
Taxes are also a factor that contributes to the roller coaster. In California, the consumers
pay slightly under 63.8 cents per gallon of gasoline taxes. This tax price is one of the highest
levels in the whole nation. The gasoline tax is made up of other taxes which are the federal
excise tax, the state tax, sales tax, and other fees. For the federal excise tax, the consumers pay
18.4 cents. The state tax makes up for 45.4 cents of the gasoline taxes. The state excise tax is
suppose to be lowered to 30 cents a gallon on July 1 which in its current status is 36 cents per
gallon Both the sales tax and other fees total up to 9.25 cents of the tax. Another factor is that of
Californias unique blend of gasoline. If California was to lose any fuel supply, it wont be able
to rely on outside supplies due to the different blends that the states have. In the colder months,
California uses a winter blend but during summer all gas stations must change to the summer
blend. The summer blend costs 12 cents a gallon more than the winters to make. The summer
blend also has a smaller chance of evaporating than the winter blend which then helps reduce air
pollution. This change of blends can cause refineries maintenance problems leading to temporary
closure. In other cases, fires and explosions occur causing closure. These closures then cause a
prices to go up. In the article, the author gave the examples of an explosion at an ExxonMobil
refinery and a workers strike that shut down a Tesoros plant of events that have caused an
increase in the prices in February. When the strike ended, the prices decreased.
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The last factor impacting the prices is the price of crude oil. All the factors contribute to
the roller coaster of prices, but this factor, price of crude oil, is the factor that has the greatest
impact on the prices. Indeed, when crude oil prices are low, the gas prices decrease and become
low as well. For example, in the beginning of this year, we witnessed the steepest decline ever
in gas prices nationwide. The crude oil prices were dropping and like a domino effect the prices
of gas decreased with it. The decrease also made it difficult to see the effect of cap-and-trade,
showing its influence on the gas price.
Finally, the phenomenon called Rockets and Feathers is responsible for the speed of the
fluctuation. Basically, when something happens that increases the cost of gas, the result is a
perceived shortage. Then the price of the gasoline rises by one provider and eventually other
follow. During this perceived shortages the gas stations end up losing profit due to the lose of
money in the purchase of the gasoline. So to gain their money back, the gas stations slowly
decrease the prices when the prices of gas come down. Overall, the four factors influence the
roller coaster of prices and the Rockets and Feathers phenomenon helps explain the speed of
this roller coaster.