The Effects of Crude Oil Price Controls, Entitlements and Taxes on Refined Product Prices and Energy Independence

Abstract

The implications of the analysis in this paper fall into several categories. First, the entitlements program under the Emergency Petroleum Allocation Act (EPAA) policy of 1974-75 achieved its stated objective--namely, the equalization of refiners' average costs of crude oil. The current entitlements program under the more intricate Energy Policy and Conservation Act (EPCA) policy does not achieve that objective. Second, the price controls and entitlements under both EPAA and EPCA have reduced the market prices of most refined products, including gasoline and (under EPCA) residual fuel oil. Third, the controls and entitlements have increased independence in some refined products and not affected it in others; the effect on independence in residual fuel oil is qualitatively indeterminate. In contrast, both the EPAA and EPCA policies have definitely reduced independence in crude oil; one way of interpreting this particular implication is that the entitlements program provides a subsidy to imported crude oil. Finally, comparing the phased decontrol called for under the current EPCA policy with the Carter administration's proposed new crude oil price controls and ''equalization tax,'' it is found that the two policies would have similar price and independence effects on refined products. For independence in crude oil, however, the effectsmore » of the administration's proposal would resemble those of only the first of the three time periods examined for the phased decontrol under existing policy, and it cannot be known which policy is more likely to increase U.S. independence through May 1979. Moreover, the Carter plan would not lead to the increased independence in crude oil that would occur once the current phased decontrol was completed. 27 references.« less