By James Pilcher
The Cincinnati Enquirer

Ohio charges nearly a dime more in taxes on a gallon of gasoline than its neighbor to the south, yet Northern Kentucky consistently has higher gas prices.

The reason? The three counties directly south of the Ohio River are required to use reformulated gas, a cleaner-burning formula that helps keep the air clean but also costs more to make.

As the debate over clean air intensifies with the coming of tougher standards for ozone and other pollutants, reformulated gas may be on the table as a way to reduce vehicle emissions in Ohio as well as Kentucky. Ohio could see its prices rise if it begins using more expensive reformulated gas, while Kentucky could choose to use an even stricter formula that could cost even more to make and use.

"We run into supply problems in Kentucky all the time, and in the past, the nearest market that had the same kind of RFG (reformulated gas) we did was Chicago," says Steve Harper, president of Florence-based Harper Oil, which distributes gas to stations throughout the region and operates several convenience stores.

"We were told when we got it that it would be a 2- to 4-cent difference than Ohio, which we can live with," says Harper, who has also served as the chairman of the Kentucky Petroleum Marketers Association. "But now, the differential can get as high as 10 to 15 cents a gallon."

An Enquirer analysis of daily average prices for Cincinnati and Northern Kentucky over the past five years shows that prices were higher south of the river on 86 percent of the days during the period. The average price differential in the period between 2001 and this month was nearly 4.2 cents a gallon on days when Kentucky was higher.

That difference was more than 5 cents a gallon on days Kentucky was higher since the beginning of 2003, however - the average difference has been 5.7 cents a gallon so far this year.

This week was no different. The average price for a gallon of regular unleaded was $1.78 on Thursday in Northern Kentucky but only $1.68 in Ohio, according to the independent Oil Price Information Service.

Yet Ohio charges 24 cents a gallon in excise taxes, a rate that will go up by another two cents in each of the next two years. That compares with Kentucky's tax rate of 16.4 cents a gallon. The federal government charges an additional 18.4 cents a gallon.

Southwest Ohio and Northern Kentucky use vehicle-emissions testing, known as E-check, as one way to try and limit one ingredient of ozone, an odorless, invisible gas that can act as a lung and eye irritant. The gas is created when vehicle and industrial emissions mix with sunlight.

Kentucky also decided in the early 1990s to use reformulated gas in Northern Kentucky and Louisville, switching for the first time in the summer of 1995.

Ohio opts for E-check

At the same time, in the early '90s, Ohio elected not to require reformulated gas, which includes additives such as the corn-product ethanol, to control emissions. The state began its E-check tests in 1994.

Butler County Commissioner Michael Fox says state legislators decided not to use reformulated gas because they listened to oil companies, which warned that the gas would be more expensive to make and would hurt consumers.

"What big-oil interests have done is that they have used their lobbying clout to create a market where regulations drive cost higher by not having a uniform standard," says Fox, a former state legislator. "By not creating a wider market for reformulated gas, and by virtue of their success in screwing up the system, then it does indeed cost more."

U.S. Sen. George Voinovich, R-Ohio, who was governor when E-check was implemented, disagrees.

"We felt like E-check was a more cost-effective way than reformulated gas, because the gas would have cost more over the long run to consumers than the test," Voinovich said.

The federal Environmental Protection Agency has not yet told states what they can do to meet the tougher air standards, but EPA Administrator Mike Leavitt says most of the previous options will remain open to states, including reformulated gas.

That could mean that Kentucky regulators might consider a different, more stringent formula for that gas, while their Ohio counterparts may look at RFG as an option. That could add to the already dizzying array of varieties of RFG.

Tom Kloza, editor of the independent oil industry newsletter OPISNet issued by the Oil Price Information Service, says there are already more than 100 different blends and grades across the country.

Since those different kinds can't be made abroad and shipped here, the change at refineries from regular to reformulated in the spring can lead to supply shortages and price spikes.

"The base stock gas to which ethanol is added is so hard to make that it can really be susceptible to price fluctuations throughout the summer," Kloza says. "And the further they get from regular, white-bread gas, the more potential there is for problems, especially in the summer, when demand is high."

Standard formula promoted

But Fox says he would welcome reformulated gas, and the potential increase in cost, in exchange for the elimination of E-check.

"I would imagine most people in Ohio would be there with me," Fox says. "I would go as far as to say that we should be using it as a standard across the country in the summer, or at least have a standard formula approved by the EPA."

And while the potential exists for reformulated gas creating higher prices, Harper says it also could help stabilize prices between the two states.

"If we're both using the same formula, it could mean that we have the same price, and perhaps even lower the price over here, or at least equalize them," Harper said.

E-mail jpilcher@enquirer.com