U.S. OPENS 'CLEAN FUEL' GRAB BAG

Commercial temptations and official skepticism will buffet U.S. oil and gas companies as they try to make the government stop playing politics with vehicle fuels. Yet try they must. Their consumers are in jeopardy.

The Bush administration's Clean Air Act reauthorization initiative turned air quality issues into a "clean fuel" grab bag. By promoting methanol, the White House bill signaled the start of fuel competition outside the market, Professional social schemers now crowd hearing rooms in Washington, D.C., to decry market failures and to propose taxes, incentives, and prohibitions aimed at making people behave in certain ways. Promoters of gasoline substitutes eagerly chime in. Tax dirty fuels, they say, Mandate this or that "clean" alternative. Government can be talked out of what commerce withholds, especially when the argument has an environmental ring.

INDUSTRY'S VESTED INTERESTS

Oil and gas industry representatives participate in this game at their peril and with vested interests aglow. Oil producers and re-liners naturally want to protect gasoline markets. Natural gas producers and pipelines naturally welcome a promising automotive market for their fuel. Gas processors naturally think LPG deserves more attention. Just as naturally, skeptics in Congress and the public discount as self-serving any petroleum industry pronouncements on fuel choice and clean air.

So how should the oil and gas industry proceed? Mainly by resisting the temptation to seek goodies from the "clean fuels" grab bag, by making consumer interests the top priority, and by promoting free markets.

When social schemers talk of market failures they usually mean mass consumer choices at variance with their preferences. Yet the notion has merit. The market isn't perfect. The market does tend to ignore long term, indirect costs, such as environmental harm. But that's a reason for the government to set environmental standards, not to reject the market as the arena for fuel selection. The only other arena is government itself, recent performance of which deserves review.

When the administration pushed methanol, Congress appropriately wondered how a clear, odorless, water-soluble poison that produces worrisome quantities of formaldehyde when burned could be deemed "clean fuel." Then Congress proposed fuel specifications that in many areas would mandate ethanol, an economically invalid additive that can boost gasoline oxygen content but aggravate ozone pollution. Ethanol also makes farm states and grain distillers happy. So, for political reasons, lawmakers are specifying uneconomic and largely untested fuel formulations and rationalizing the damage to consumer interests with wishful environmental claims.

MARKET FAILURES TAME

Compared with fuel choice mischief like this, market failures look tame. The oil and gas industry should call for an immediate end of the game and refuse to take part as long as it goes on. It should urge the government to set and enforce air quality goals and to let fuel manufacturers and consumers find the best ways to reach them.

Today's vehicle fuels are cleaner than yesterday's. Tomorrow's must be cleaner still. But "clean" in Denver means something different from "clean" in Los Angeles or Omaha. A "clean" fuels program must recognize the diversity of the air quality challenge. It must hold open all options-gasolines, alcohols, natural gas, LPG, electricity-by not officially favoring one at the expense of others. Only the market can provide the flexibility essential to further air quality progress. Only the market can protect consumer interests at the same time.