It’s the Regs, Stupid!
Don’t blame OPEC for the fluctuating gas prices.

By Eric Peters, an automotive columnist for the Washington Times
August 29, 2001 10:10 a.m.

f you're sick of wildly fluctuating gas prices, don't blame the oil barons of OPEC — at least, not entirely. Part of the blame can be laid squarely at the feet of federal and state clean fuels regulations — and at the canny but ethically bankrupt manipulation of those regulations by a single company, Unocal Corp. of El Segundo, Ca.

Unocal effectively obtained a patent on a regulatory standard it helped create — supposedly as part of a cooperative and "public-spirited" joint venture with other oil companies and air-quality officials in the state of California. It was an unprecedented — and audacious — shuck-and-jive by a company that no longer even sells gasoline in the United States.

The idea was for all parties concerned to work together to arrive at a single standard for the so-called reformulated gasoline (RFG) that would be required by law as part of air-quality-improvement programs. Instead of each refiner or oil company producing slightly different mixes of RFG — which would entail higher prices and supply difficulties — the idea was to agree upon a single formula, or "recipe" for RFG that would satisfy the regulatory requirement, and thereby eliminate the problem of multiple types of RFG, each slightly different in its chemical mix from the other, being shipped in separate tanker trucks, or via "dedicated" pipelines, at much greater cost.

Note the crucial point that no new type of fuel (or additive) as such was being worked out; rather, what was being attempted was mutual agreement upon a mix of already well-known additives and refining processes.

Well, while this "cooperative" venture was still in operation, Unocal was furtively sending in patent applications that ultimately gave the company property rights to what became the regulatory standard for RFG. Other oil companies that wanted to produce motor fuel legal for sale in California and other states that adopted the RFG requirement would henceforth be compelled to pay Unocal a royalty equivalent to about 5.75 cents per gallon — a boon worth millions, perhaps billions — simply for complying with the legal technicality they helped create.

Remember, no new type of fuel was created by Unocal; no new process or technique. All that Unocal did was secure a patent on the legal definition of RFG — a technicality — and thereby lock out other formulations of RFG that might be equally effective at curbing vehicle exhaust emissions, but which do not meet the specific (and largely arbitrary) recipe set forth in the regulatory standard.

Government regulators are finally investigating this sordid ploy. On Aug. 6, the Federal Trade Commission and the U.S. Patent Office announced jointly that they were looking into the whole business to determine if, in fact, Unocal unlawfully "gamed" the regulatory process to its financial advantage.

The evidence sure suggests as much.

The California Air Resources Board (CARB), which is the state regulatory body Unocal "worked with" alongside the other oil companies, released a letter in late July directed to the FTC that alleged Unocal "withheld information from the state" and used "secret" patent applications to secure rights to the recipe for RFG it was at the same time working on "cooperatively" with CARB and the other oil companies. CARB Executive Officer Michael Kelly wrote that "Unocal's actions threatened the integrity of the rule-making process" and could result in a markup of as much as 100 percent in the cost refineries will have to pay in order to comply with the RFG/clean fuels requirements. Federal officials had previously cited Unocal's patent grab as one of the contributing factors in last summer's gas-price spikes.

Unocal says what its patent grab is "above reproach" — even though it is profiting handsomely for creating nothing new and merely cashing-in on a clever stratagem devised to turn the regulatory process to its financial advantage.

Hopefully the FTC and other federal agencies will step in and take appropriate action. The regulatory process should not be allowed to serve as a means of fleecing American motorists — who are the ones who will ultimately be paying those nickle-per-gallon royalties to Unocal in the form of higher at-the-pump prices.