Rajan Wilcox
Colorado is facing an unprecedented surge in diesel fuel prices, with costs skyrocketing to record highs. The situation has prompted concerns about the impact on inflation and the broader economy. In response to the crisis, Governor Jared Polis has taken action by formally requesting that the Environmental Protection Agency (EPA) grant Colorado a waiver from the requirement to sell federally approved cleaner fuel during the summer ozone season. Gov. Polis argues that the switch to reformulated gasoline will significantly increase fuel prices in the state, contradicting the EPA's estimate of a minimal impact. The governor's office cites Colorado's geographical isolation from major refineries and dependence on out-of-state fuel providers as contributing factors to the rising fuel costs.
| Characteristics | Values |
|---|---|
| Governor of Colorado | Jared Polis |
| Action Taken | The governor has formally asked regional and national EPA officials to issue a waiver for the northern Front Range, delaying the requirement of reformulated gasoline. |
| Reasoning | Polis argues reformulated gas will shoot Colorado gas prices up by 50 cents a gallon or more, whereas the EPA says its studies show the impact will only be a few cents. |
| Current Gas Prices | The average price of a gallon of diesel fuel is the highest ever recorded in Colorado. One year ago, the price of unleaded in Colorado was $2.976. Nationally, the price of unleaded is $4.204 as of Tuesday. |
| Predicted Impact | The rising cost of diesel will be felt in grocery stores, hardware stores, and on flights as jet fuel prices accelerate, leading to a continued rise in inflation likely to ripple across the economy. |
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What You'll Learn
Governor Polis requests a waiver from the EPA to delay reformulated gasoline
Colorado is facing rising diesel fuel costs, with prices hitting an all-time high in the state. Governor Jared Polis has requested a waiver from the EPA to delay the requirement for reformulated gasoline in the northern Front Range, citing concerns about further increases in gas prices.
Reformulated gasoline, according to the EPA, is denser and evaporates less quickly in hot weather, reducing ozone-causing emissions. While the EPA estimates that the impact on gas prices will only be a few cents per gallon, Governor Polis argues that prices could rise by 50 to 60 cents or more. In a letter to the EPA, the governor requested a waiver to delay the implementation of reformulated gasoline by weeks, a year, or more.
Colorado's gas prices have been affected by various factors, including its geographical isolation from major refineries and dependence on out-of-state fuel providers. The state's only refinery, Suncor, has also faced challenges. Governor Polis's request for a waiver aims to provide relief to Colorado residents from the rising fuel costs.
While the EPA's data assessment estimates a minimal cost increase, some experts disagree. AAA Colorado's Skyler McKinley notes that while Colorado has enjoyed cheaper gas prices than the national average, the introduction of reformulated gas will likely lead to prices creeping up. However, McKinley believes that reformulated gas will not cause spikes of 70 cents to a dollar this summer.
The EPA has received requests from gasoline distributors to add new infrastructure that can handle both traditional and reformulated gasoline. These distributors plan to bring supplies from out of state to compete with Suncor and help keep prices down. The outcome of Governor Polis's waiver request remains to be seen, but it highlights the efforts being made to address the rising diesel fuel costs in Colorado.
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The impact of reformulated gasoline on prices is disputed
The impact of reformulated gasoline on prices in Colorado is disputed. Gov. Jared Polis has argued that the switch to reformulated gasoline will increase prices by 50 to 60 cents per gallon or more. However, the EPA disputes this, with studies showing the impact to be only a few cents per gallon, estimated at between 3 and 5 cents.
The discrepancy in estimates stems from differing views on the impact of reformulated gasoline on production costs. Polis's prediction may be influenced by Colorado's reliance on out-of-state fuel providers, who can exit the market at any time, as well as the state's insufficient in-state refining capacity. Additionally, Polis's estimate could factor in the potential for supply disruptions, such as the incident at Suncor, Colorado's only refinery.
On the other hand, the EPA's lower estimate considers the preparations made by fuel suppliers to deliver reformulated gasoline cost-effectively. The EPA also notes that other gasoline distributors have requested permits to add new infrastructure that can handle both traditional and reformulated gasoline, which could help keep prices down by introducing competition for Suncor.
While the exact impact on prices remains uncertain, it is clear that the switch to reformulated gasoline will lead to higher prices in Colorado. The extent of the price increase will likely depend on a combination of factors, including the ability of fuel suppliers to absorb additional costs and the level of competition in the market.
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Colorado's geographic isolation from major refineries
Colorado is geographically isolated from major Gulf Coast refineries and is separated from the national distribution network. The state has insufficient in-state refining capacity, so it relies on out-of-state fuel providers, who can leave the market at any time. This makes Colorado vulnerable to supply disruptions and price fluctuations.
Colorado is a Rocky Mountain state with diverse geography and geology. It is the eighth-largest state in terms of land area, spanning about 104,000 square miles. The state has wide plains that meet the mountains running through its center. The majority of Colorado residents live in metropolitan areas at the base of the Rocky Mountains, along the state's eastern edge, leaving much of the state's mountainous areas and plains sparsely populated.
Colorado has two petroleum refineries in the Denver area, with a combined capacity to process 103,000 barrels of crude oil per calendar day into motor gasoline, diesel fuel, asphalt, jet fuel, and other petroleum products. Upgrades to the refinery have enabled the production of refined products that meet clean fuel standards. However, Colorado's crude oil production from the Niobrara Shale exceeds its refining capacity, leading to the construction and repurposing of pipelines to transport crude oil to out-of-state refineries.
Demand for refined petroleum products in Colorado far outstrips the state's refining capacity. To meet this demand, Colorado relies on pipelines from states like Wyoming, Texas, and Kansas, as well as rail and truck transportation. Several major interstate pipelines cross Colorado, shipping natural gas to six other U.S. states. The state also has two natural gas trading hubs at interstate pipeline interconnections: the Cheyenne hub near the Wyoming border and the White River hub in the Piceance Basin.
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The rising cost of diesel and its impact on inflation
Several factors have contributed to the steep rise in diesel costs in Colorado. One significant factor is the state's reliance on out-of-state fuel providers due to its geographical isolation from major refineries and insufficient in-state refining capacity. This dependency on external suppliers leaves Colorado vulnerable to market fluctuations and supply disruptions. Additionally, the recent requirement to sell federally approved cleaner fuel during the summer ozone season has further impacted prices. The transition to reformulated gas, which is denser and has lower evaporation in hot weather, is expected to increase costs. While the EPA estimates a minimal impact of a few cents per gallon, Governor Jared Polis and other officials predict a more significant rise of up to 60 cents or more per gallon.
The consequences of these rising diesel costs are far-reaching. Diesel is used not only for road transportation but also for agriculture, industry, and aviation. As a result, the increased cost of diesel will likely lead to higher prices for consumers across various sectors. This includes everything from groceries and hardware to air travel. The impact of rising diesel costs on transportation and logistics can further drive up the prices of goods and services, exacerbating inflationary pressures.
To mitigate the impact of rising diesel costs on inflation, Colorado's governor has taken several steps. Governor Polis has formally requested a waiver from the EPA to delay the requirement for reformulated gasoline, citing concerns over the potential for significant price increases. This waiver, if granted, could help alleviate the immediate cost burden on consumers. Additionally, the governor has likely engaged with regional and national EPA officials to explore options for stabilizing prices and ensuring a consistent fuel supply. These efforts reflect the recognition of the urgent need to address the rising diesel costs and their potential to fuel inflationary trends.
The rising cost of diesel in Colorado is a complex issue with significant economic implications. While the governor has taken steps to address the situation, the underlying factors contributing to the cost increase are multifaceted and influenced by broader market dynamics. As diesel prices continue to soar, the state may need to explore additional measures to manage inflation and protect consumers from the full impact of these rising energy costs.
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The EPA's response to Governor Polis' request
In response to the rising diesel fuel costs in Colorado, Governor Jared Polis has requested that regional and national EPA officials issue a waiver for the northern Front Range, delaying the requirement for reformulated gasoline. Reformulated gasoline, which is denser and evaporates less quickly in hot weather, is said to increase prices by 50 cents or more per gallon, according to Governor Polis. However, the EPA estimates a much lower impact of a few cents per gallon or 3 to 6 cents per gallon.
The EPA's response to Governor Polis's request has been mixed. On the one hand, the EPA has acknowledged the potential for a slight increase in costs, with their data assessment estimating a rise of 3 to 5 cents per gallon, which is in line with their studies on the impact of reformulated gasoline. On the other hand, the EPA has also noted that other gasoline distributors have requested permits to add new infrastructure in Colorado that can handle both traditional and reformulated gasoline. By bringing in supplies from out of state, the EPA aims to compete with the only refinery in Colorado, Suncor, and help keep prices down.
Taylor Gillespie, the public affairs director for Region 8 of the EPA, stated that fuel suppliers to the Denver Metro/North Front Range market have had sufficient time to prepare and are able to deliver reformulated gasoline in a cost-effective manner. This suggests that the EPA believes the impact on costs may not be as significant as Governor Polis has argued.
While the EPA has not explicitly granted or denied Governor Polis's request for a waiver, their actions indicate a commitment to mitigating any potential price increases. By allowing for additional infrastructure and competition from out-of-state fuel providers, the EPA is taking steps to keep gasoline prices as low as possible for Colorado residents.
In conclusion, the EPA's response to Governor Polis's request has been a combination of acknowledging the potential for a slight cost increase and taking proactive measures to mitigate any significant price spikes. Their data assessments and the actions they have taken suggest that they are committed to ensuring that the transition to reformulated gasoline does not place an undue burden on Colorado citizens.
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Frequently asked questions
The Colorado Department of Transportation has proposed a new 3-cent fee per gallon on diesel fuel. This is in addition to the existing taxes and fees, which amount to about 25 cents per gallon.
The new fee is anticipated to generate $20 million in revenue annually. While this may contribute to rising diesel fuel costs, it's important to note that various factors from supply and demand dynamics to global events can also influence fuel prices.
No, the new fee has not been implemented as of yet. The Colorado legislature must approve any new fees, and there has been opposition and concerns raised by some state senators and representatives.
The additional revenue from the new fee is intended to fund road maintenance and improve transportation infrastructure in the state. The Colorado Department of Transportation also plans to lower a road safety surcharge, known as the FASTER fee, by $11 per year for drivers.
Governor Jared Polis has primarily focused on opposing the Environmental Protection Agency's (EPA) mandate for the use of reformulated gas in Colorado, which is expected to increase gas prices. He has requested waivers and delays, arguing that the impact on prices could be significant, and that the state is already taking other measures to address the ozone problem.
