EPA restrictions vary across regions, limiting fuel substitution and thus creating sharp price differences, as some have been pointing out for a while now. Professors Richard Gilbert of Berkeley and Justine Hastings of Yale have an interesting proposal to address this problem: de-couple the fuel from the additives. This would allow greater substitution between refineries. Retailers could then combine the fuel with the additives.
Their plan would appear to be based on the following logic. Tying fuels and additives together in markets segregated by EPA regulation leads to price variation that competition can't erase. Eliminate the tie-in, and the market for raw gasoline is re-integrated. Hence the law of one price will take hold, and scarcity premiums will disappear. If additives can be purchased on competitive terms, and little efficiency is lost by unbundling the two elements, the price for the final product will fall. Interesting idea.