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The Market Effects of Going Green: Evidence from California's Wholesale Reformulated Gasoline Market

This paper analyzes the market changes that occurred in California's refining industry following the 1992 implementation of the California Air Resources Board's Phase II reformulated gasoline regulations. This paper uses monthly panel data to determine the impact that these regulations have had on the disparity between California's finished gasoline rack prices and that in other regions of the country. The findings suggest that large refiner compliance to Phase II increased the rack price of finished gasoline in California as compared with other regions. This relative price increase, which was likely triggered by the increased production costs associated with Phase II, is consistent with similar results found throughout the literature. However, as small refiners were required to comply with these regulations, this analysis finds that the premium paid for finished gasoline in California increased significantly. This additional increase in the rack price differential, along with trends in industry concentration, suggests that Phase II may have disproportionately disadvantaged California's small refiners, causing increased profits and market share for larger competitors.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Efficiency; Energy and the Environment – Policy and Regulation

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q55 - Environmental Economics: Technological Innovation
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Gasoline prices, regulation, reformulated gasoline, California

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-6

Published in Volume 30, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.