Gasoline content regulation as a trade barrier: do boutique fuels discourage fuel imports?
This paper examines the impact of Clean Air Act Amendments of 1990 (CAAA) environmental regulations on U.S. motor gasoline import patterns. Following the damage to U.S. petroleum refining infrastructure from hurricanes Katrina and Rita, the federal government provided temporary relief for several weeks from so-called boutique fuel specifications designed to improve air quality in certain regions of the country. These temporary waivers increased marketers’ ability to sell gasoline originally destined for specific regional markets into a greater number of markets. We hypothesize that these same waivers also encouraged gasoline imports more than increased prices would have alone. We test our hypothesis using two analyses. The first consists of a simple transfer function analysis designed to separate price effects (and thus effects of refinery closures) from the effects of regulatory relief. The second analysis consists of a natural experiment comparing the primary recipient of regulatory relief—the Gulf Coast gasoline market— to the rest of the United States. Both analyses suggest that the CAAA-related specifications prevent a substantial amount of gasoline imports from entering the United States under normal circumstances.
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