Fuel switching, gasoline price controls, and the leaded-unleaded gasoline price differential

The Environmental Protection Agency and others have opposed gasoline price decontrol, alleging a wider posted price differential between leaded and unleaded grades would result, inducing more motorists to switch illegally to leaded gasoline fouling catalytic converters and hence increasing air pollution. EPA's model must assume that only the unleaded price ceiling is binding. It is shown that the resulting excess demand is shifted to a close substitute: leaded gasoline. Hence, controls cause more consumption of leaded fuel in new cars (switching) and more pollution. Thus, decontrol would have a palliative effect, contrary to EPA's claim.