Here's another example of how government can skew the marketplace:
The Petroleum Marketers Association of America is asking Congress to delay until after Apr. 1, 1994, a requirement that marketers begin collecting diesel fuel taxes Jan. 1.
Effective this Oct. 1, the 1990 Clean Air Act amendments required all No. 2 distillate (diesel) fuel used on the highway to contain no more than 0.05 wt % sulfur. To distinguish that fuel from high sulfur No. 2 distillate used off-road (either diesel or home heating oil), the amendments required refiners to dye the high sulfur distillate a blue-green color.
The recent Budget Reconciliation Act complicated the situation by taxing highway diesel at 24.4 cts/gal and requiring marketers to begin collecting it Jan. 1. High sulfur distillate is untaxed, and if low sulfur distillate is used offroad, it is eligible for a tax refund.
MARKETERS' COMPLAINT
PMAA's complaint is that now marketers are going to be thrust into both the tax collecting and tax refunding business, neither of which earns any profit, on larger volumes of fuel than anyone anticipated.
PMAA said the distillate dying program was designed to meet laudable environmental excise tax enforcement objectives, but "the problem is that the marketplace has not reacted the way legislators and regulators might have predicted.
PMAA predicted off-road consumers will buy all the dyed, high-sulfur no-tax distillate available. Some will prefer to buy the low sulfur No. 2 for environmental reasons or because the price difference between low and high sulfur is small. And others will be forced to buy it because high sulfur is simply unavailable.
Meanwhile, PMAA said, refiners and marketers are offering less high sulfur fuel than expected because many of them don't want to go to the expense of maintaining, segregated storage and transportation systems.
As a result, the higher off-road demand for low sulfur will result in more refunds than anticipated. Although consumers are technically responsible for obtaining their own 24.4 cts/gal tax refund from the Internal Revenue Service, marketers fear they will be stuck with that burden and their cash flow will be strangled.
A SOLUTION?
PMAA also proposed a fix: The government should require refiners and terminal operators to dye offroad, tax-exempt, low-sulfur diesel yet another color.
It also is urging refiners to take that step voluntarily, arguing it would help refiners keep their customers.
PMAA said under its fix, "The marketer gets a tax free fuel, the end user gets an environmentally superior fuel, and the IRS does not have to process refunds."
But refiners and terminal operators don't want to pay for installing another dye injection system at their sites
And then the marketplace would have not two, but three versions of the same fuel.
As with all mazes, there seems to be no way out of the problem.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
