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HEARING ON REFORMULATED GASOLINE (RFG)—PART I
TUESDAY, SEPTEMBER 14, 1999
House of Representatives,
Subcommittee on Energy and Environment,
Committee on Science,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:10 a.m., in Room 2318, Rayburn Building, Hon. Ken Calvert (Chairman of the Subcommittee) presiding.
Chairman CALVERT. The hearing will come to order. This is a second in a series of three hearings on automotive fuels that are being held by the Energy and Environment Subcommittee. The previous hearing focused on sulfur. This hearing will look into the Environmental Protection Agency's Reformulated Gasoline Program. The third and final hearing will be on fuels for the future.
Reformulated Gasoline, or RFG, is required under the Clean Air Act Amendments of 1990 for areas that do not meet certain air quality standards. The Act created a mandate for oxygenates in non-attainment areas.
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There are several oxygenates that can be blended into gasoline, however, MTBE is the most prevalent ethanol with ethanol a distant second. Oxygenates, as the name implies, boost oxygen levels in gasoline and are intended to help reduce tailpipe emissions. However, a recent study by the National Research Council indicated that the clean air benefits derived from oxygenates may be overstated. Dr. Chameides, the Chairman of that NRC Panel, is here today to discuss the findings of that report.
In recent years, it has become clear that MTBE has been leaking out of storage tanks and was finding its way into underground water supplies, while surface water is being contaminated by a combination of boat and Jet Ski motors as well as storm runoff. Based on these findings, the EPA's Blue Ribbon Panel recommended that the Agency lift the mandate for oxygenates in RFG. Dan Greenbaum, the Chairman of that Panel, is here today to discuss his Panel's findings.
The current unpopularity of MTBE has created some new problems. With the phaseout of MTBE in California and Maine, two important issues come to the forefront. The first is, can we maintain or improve air quality using lower oxygenate levels or non-oxygenated gasoline. The second is, can we make up gasoline supply shortfalls if MTBE is eliminated from the fuel supply?
Air quality is a serious concern to me. My Congressional District has some of the most polluted air in the country. We need to make sure that we continue our efforts to improve air quality, but in a way that ensures maximum flexibility along with continued stringent emissions standards.
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I am cosponsor of Congressman Bilbray's bill, H.R. 11, which would allow California to lift the oxygenate requirement currently in effect without sacrificing air quality requirements. I am pleased that H.R. 11 has the support of 51 members of the California delegation. Since there is only 52 of us, that is pretty good.
Can we remove oxygenates and still meet emission requirements? Apparently. Chevron has a gasoline formulation that meets California standards, which, by the way, are the most stringent in the country, without using oxygenates. I believe it is important to continue to encourage this kind of environmental research and development.
Another serious concern that I have, whenever we discuss changes in gasoline specifications, is whether it will disrupt the supply or drive up the price unnecessarily. MTBE makes up a significant percentage of the gasoline supply in California and the Nation. We need to make sure that when we compensate for the loss of that supply when MTBE is phased out, otherwise we will have price spikes and supply disruptions. For California, this roller coaster ride has become pretty tiresome. I am sure the rest of the Nation will feel the same way.
This hearing is composed of two Panels. Today's Panel is composed of witnesses from federal and state agencies and two witnesses that chaired government studies on oxygenates. The second Panel, which will be convened here on Thursday, will be composed of RFG stakeholders.
Today we will hear from Margo Oge, the director of EPA's Office of Mobile Sources within the Office of Air and Radiation. Ms. Oge appeared before this Subcommittee in July, when we discussed fuel sulfur regulations. Welcome back.
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Dr. William Chameides is also a return witness. He testified before this Committee on the reactivity of VOCs in paints and coatings last year. I welcome you back as well. Dr. Chameides chaired the National Research Council's Panel that issued the report titled, Ozone-Forming Potential of Reformulated Gasoline.
Dr. Dan Greenbaum chaired the EPA's Blue Ribbon Panel and is also the President of the Health Effects Institute. Mr. Tom Skinner is the Director of the Illinois Environmental Protection Agency.
And, finally, we have Mr. Mark Buehler, the Water Quality Manager from the Metropolitan Water District of Southern California. I would like to note that Mr. Buehler supplies most of my constituents back home with the most precious of commodities, water. Welcome.
I hope that these witnesses will enlighten us on some of the history of the RFG program, its costs, its benefits, and what we can expect in the future.
I look forward to hearing today's testimony and pursuing these subjects in greater detail.
Before we get started, however, I would like to remind the members of the Subcommittee that our witnesses—and our witnesses at these hearings are being broadcast live on the Internet, so please keep that in mind during today's proceedings.
I would also ask for unanimous consent that all members who wish have their opening statements entered into the record. Without objection, so ordered. The distinguished ranking member of the Subcommittee has been called away temporarily to another Committee hearing, but he should be back shortly. So I will recognize Ms. Johnson who is acting on his behalf for any opening comments.
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Ms. JOHNSON. Thank you, Mr. Chairman. And thank you for calling this hearing. I am pleased to be here to stand in for the Ranking Member of this Subcommittee. He has to testify before another Committee at 10:00 this morning, but he will be here shortly. I know that he is planning to join us, so he would like to give his own opening statement.
I would like to welcome all of our witnesses today for the first two hearings of this Subcommittee we will hold on the reformulated fuels program. This program has been very beneficial in reducing emissions from automobiles. And certainly, I live in an area quite like yours with an environmental problem. I hope that our witnesses today will be able to provide us with some options for maintaining the progress we have made in this area and for addressing the problem that has arisen with respect to water quality.
I thank the witnesses for being here and agreeing to participate and I look forward to the testimony. Thank you.
Chairman CALVERT. I thank the gentlelady. The distinguished Chairman of the Science Committee, Mr. Sensenbrenner, is here and I believe you would like——
Chairman SENSENBRENNER. Yes.
Chairman CALVERT [continuing]. To ask some questions.
Chairman SENSENBRENNER. Yes.
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Chairman CALVERT. I ask unanimous consent that he be allowed to pose his questions at this time. Any objections?
Chairman SENSENBRENNER. I thank you——
Chairman CALVERT. The gentleman is recognized.
Chairman SENSENBRENNER. Thank you very much. Good morning. And I would like to thank the Panel for appearing before the Science Committee this morning. The reason I am here this morning is to address an issue that occurred a few years ago but is still very fresh in the mind of many folks in my district in Wisconsin and the adjoining districts.
Ms. Oge, in your statement, which I note was delivered late to the Committee, you say that the EPA is committed to working with ''the regulated community.'' Ms. Oge, do you believe that the regulated community includes the public? Ms. Oge, you might not remember one of the last times we met, but I certainly do. It is not a fond recollection.
As I recall, you made a commitment to Congressman Barrett, to me, and to the people of Wisconsin to speak to them about the EPA's reformulated gas mandate. There was a hearing in Milwaukee that you attended. There was not enough time to hear all of the witnesses. There was not a big enough room to accommodate the people who wished to appear to testify.
You made a promise to Congressman Barrett and to me to return the following day to address those members of the public who were denied access to your hearing, and, unlike General MacArthur, you never returned.
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Furthermore, you testified before a duly constituted Committee of the Wisconsin Assembly. And in the middle of that hearing, and in the middle of the question and answer period, you got up and walked out and went to the airport and flew back to Washington, D.C. I don't know who made that decision, but we had a near-riot situation when you appeared in my neck of the woods.
And you and your team made the situation even uglier the following evening when you failed to appear as promised. I believe, and I told Administrator Browner this, that we are all employees of the American people, whether we are elected or whether we are appointed. They pay our salaries. And, as such, we owe the public the courtesy of making ourselves available to explain government policy whenever and wherever the need arises.
I have here the Milwaukee Sentinel from the morning of Tuesday, February 21, 1995. It says, ''Big Crowd Rips EPA Rule.'' And I would like to point out to show the insensitivity that you and the department that you head in the EPA. It says, ''Governor Tommy G. Thompson has asked EPA Administrator Carol Browner to suspend the Federal Clean Air Act requirement in the April 1. Wisconsin's United States Senators Herbert H. Kohl and Russell D. Feingold, both Democrats, have also asked for the suspension of reformulated gas sales until health officials investigate.''
You blew them away, you blew us away, and you blew the people who showed up to testify with their health concerns away. And you were wrong. Because now it appears very clearly that the MTBE requirement that you and your agency put into reformulated gas is causing health problems.
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You were told that, if you wanted to listen, over 4 1/2 years ago in Milwaukee, Wisconsin. And you were also told about the 10 to 17-cent per gallon spike in the cost of reformulated gas over the non-reformulated gas. It has now come to light that the EPA may have used ''slipshod science to justify new anti-pollution rules,'' as cited in a July 28, USA Today editorial.
How can you ask people to have faith in the EPA when the USA Today itself said, ''That the report is a marker of a wider, more dangerous problem. With little public notice, the EPA, time and time again, has used slipshod science to justify new anti-pollution rules, then defended the rules to the hilt, even if that defense came at the expense of its own science.''?
Ms. Oge, you and your agency have a lot of explaining to do. You have been wrong not once, not twice, not three times, but many times. And unless you can clean up your act and, you know, start using good science, and defending your science in the form of public opinion rather than running away, as you did twice in Wisconsin, what you are trying to do, which I think is well-intentioned, is going to fall apart. Thank you.
Chairman CALVERT. I thank the Chairman. Ladies and gentlemen, it is our policy to swear in all the witnesses. If you will stand and raise your right hand. Do you swear to tell the truth, the whole truth, and nothing but the truth, so help you God? Thank you. You may be seated. Let the record hold that the witnesses answered in the affirmative.
Without objection, the full written testimony of all the witnesses will be entered into the record. However, I would ask that you summarize your testimony in five minutes so we will have plenty of time for questions. But before we start that, I would like to recognize the Ranking Member, Mr. Costello—welcome—for your opening remarks.
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Mr. COSTELLO. Mr. Chairman, thank you. And I apologize for running late. I was testifying before another Subcommittee. Mr. Chairman, I appreciate you convening both this hearing and other hearing later on this week on EPA's Reformulated Gasoline Program and MTBE in ground and surface water.
First, I would like to introduce my friend, Tom Skinner, from my home State of Illinois. Mr. Skinner is the Director of the State of Illinois Environmental Protection Agency and is well acquainted with issues related to the Reformulated Gasoline Program. I am pleased that he is able to be here today and to participate on today's Panel.
As Mr. Skinner and other Panelists will testify, the Reformulated Gasoline Program has reduced emissions of air pollutants to a greater extent than initially anticipated. It has also had another important benefit. It has provided a predictable market for ethanol and helped the industry to expand beyond the experimental trial stage to real-world testing in the only arena that really matters, the marketplace. In time, this experience will establish ethanol as a viable alternative energy product.
Over 50 ethanol plants now operate in 19 states, including my home State of Illinois, providing a new market for agriculture crops and increasing farm income. Last year, the industry produced 1.4 billion gallons, a record output, and along with it provided $3.5 billion in revenue to the Federal Treasury.
As we consider amending the Reformulated Gasoline Program, I want to ensure that we do not sacrifice the air quality benefits we have achieved or set back our efforts to develop alternative fuels. The lesson to be learned here is the necessity of proceeding on the thorough understanding of the impacts and implications of alternative policy options. If we do not, we run the risk of merely substituting one problem for another.
It is clear that we have a water quality problem associated with the increased use of MTBE in reformulated gasoline. As I understand it, one of the primary pathways through which MTBE reaches water sources is through leaking underground fuel tanks. If true, this suggests that the program Congress put in place in the RCRA and Superfund Amendments of the mid-1980s should be re-examined. Perhaps there are steps Congress and the Administration can take to improve this program and prevent other types of fuel-related contamination of our water sources.
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Again, Mr. Chairman, I thank you for calling the hearing today. I appreciate all of the witnesses being here and I look forward to hearing their testimony.
Chairman CALVERT. Thank you. Our colleague from Illinois would also like to make an opening statement. Mrs. Biggert.
Mrs. BIGGERT. Thank you, Mr. Chairman. I commend you for holding this hearing today on the Reformulated Gas Program and its future. I also want to welcome a fellow Illinoisan, Mr. Tom Skinner, of the Illinois Environmental Protection Agency.
I was fortunate enough to hear him speak and testify on this very subject in a July field hearing held in Springfield, Illinois. And I think he provided a valuable perspective on this issue and I am glad that he is here today to be able to share that perspective with this Committee.
As a long-time resident of Illinois, I can report that the air in and around the Chicago area has improved quite a bit in the last 20 years. I believe that the RFG program, and ethanol, in particular, has contributed significantly to that improvement. That is why I am troubled about the Phase II of the RFG program and it has it—as it has been outlined by the United States Environmental Protection Agency.
Here is what troubles me. At the same time that MTBE is being forced out of California, it is being forced into Illinois. The EPA claims that ethanol does not meet the greenhouse gas emissions enough during the summer to meet its Phase II requirements.
Refiners may be left having to use MTBE to meet the requirements of the program. This would have a dramatic effect on corn-producing states, as well as a detrimental effect on the environments. I would hate to see the use of MTBE in the Chicago area erode support for the RFG program which has succeeded in cleaning the air and providing another market for ethanol. Thank you, Mr. Chairman.
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Chairman CALVERT. I thank you, gentlelady. Ms. Oge, you may begin your opening statement.
STATEMENT OF MS. MARGO T. OGE, DIRECTOR, OFFICE OF MOBILE SOURCES, OFFICE OF AIR AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY
Ms. OGE. Good morning. Mr. Chairman, members of the Subcommittee, I would like, if you can allow me, to take a few minutes to respond to the comments of Mr. Sensenbrenner.
Chairman CALVERT. You have five minutes. You can do whatever you like.
Ms. OGE. Okay. Very briefly, what I want to say is that I have served as a public servant for 19 years. I consider it the highest honor to do that, to serve the public.
And also what I want to say is that my recollection is somewhat different. We did our best at a very difficult situation at the time in Milwaukee. I would like to thank you for the opportunity to appear here today to discuss the Reformulated Gasoline Program or otherwise known as RFG.
The Clean Air Act Amendments of 1990 put in place a number of programs to achieve cleaner motor vehicles and cleaner fuels. The reformulated gasoline requirements emerged from combining several Congressional goals, including air quality improvement and enhanced energy security. RFG is an effective way to reduce smog precursors such as volatile organic compounds, nitrogen oxides, and air toxics.
The first phase of the RFG program, starting in 1995, required the reductions of volatile organic compounds and toxics by 17 percent and NOx by 1.5 percent. RFG performance has exceeded these requirements. Most notably, overall toxic reductions in RFG areas are about twice that required, which is approximately 30 percent.
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The second phase of the program, beginning in 2000, is expected to achieve even greater environmental benefits, equivalent to taking more than 16 million vehicles off the road.
The federal RFG program is required in ten metropolitan areas which have the most serious smog pollution levels. Many other areas have elected to opt-in to the program to help reduce air pollution. At this time, 30 percent of the country's gasoline consumption is cleaner-burning reformulated gasoline.
The Clean Air Act Amendments of 1990 require that RFG contain 2 percent oxygen content by weight. Neither the Clean Air Act nor EPA requires the use of MTBE in RFG. Both ethanol and MTBE are used successfully in the current RFG program in fuel providers choosing to use MTBE in about 80 percent of the RFG.
Oxygenates, like ethanol and MTBE, help to reduce air toxics and also precursors by diluting or displacing gasoline components like benzene and aromatics. Despite the air quality aspects of oxygenates in RFG, there is a growing concern about contamination of drinking water by MTBE, as well as in ground and surface waters.
In response to concerns associated with the use of oxygenates in gasoline, EPA Administrator Browner established a Blue Ribbon Panel of leading experts, and you have two of the experts here in this Panel, to assess issues posed by the use of oxygenates in gasoline. The Panel issued its findings and recommendations to the Administrator in July.
The Panel recognized the significant air quality benefits of the reformulated gasoline. But also the Panel found that the use of MTBE in the program has resulted in detections of MTBE in 5 percent to 10 percent of the drinking water supplies in areas where reformulated gasoline with MTBE has been used.
The great majority of these detections today have been well below the levels of public health concern with approximately 1 percent rising to levels above 20 parts per billion.
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In light of these findings, the Panel recommendations to the Administrator fall under the following broad categories, which Mr. Greenbaum is going to discuss, I hope, in more detail: To prevent leaks through improvement of existing programs; amend the Clean Air Act to remove 2 percent, by weight, oxygen mandate; maintain the current air quality benefits of the program, and reduce the use of MTBE.
EPA intends to address the Panel's recommendations to the extent possible with the Agency's current administrative authority. We are also committed to working with Congress to provide targeted legislative solution to respond to recommendations that maintain our air quality gains, allows for the reduction of MTBE, and preserves the important role of renewable fuels like ethanol.
Mr. Chairman, in closing, I want to let you know that we are committed to working with Congress and states and others involved to address the Blue Ribbon Panel recommendations to the Administrator. This concludes my prepared statement and I would be happy to answer any questions. Thank you.
[Statement and biography of Ms. Oge follow:]
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Chairman CALVERT. Thank you, gentlelady. Dr. Chameides.
STATEMENT OF DR. WILLIAM L. CHAMEIDES, CHAIRMAN, NATIONAL RESEARCH COUNCIL PANEL ON OZONE-FORMING POTENTIAL OF REFORMULATED GASOLINE AND REGENTS PROFESSOR, SCHOOL OF EARTH AND ATMOSPHERIC SCIENCES, GEORGIA INSTITUTE OF TECHNOLOGY, ATLANTA, GEORGIA
Dr. CHAMEIDES. Good morning, Mr. Chairman, and members of the Subcommittee. I am William L. Chameides, Regents Professor—sorry, I forgot to put my microphone on. That is an academic for you. Excuse me. I am Regents Professor of Earth and Atmospheric Sciences of the Georgia Institute of Technology and was elected to the National Academy in 1998.
Today I am testifying as Chair of the National Research Council's Committee on Ozone-Forming Potential of Reformulated Gasoline. The Research Council is the operating arm of the National Academy of Sciences, chartered by Congress in 1863.
Our Committee prepared its report in response to a request by the United States Environmental Protection Agency. It consisted of a diverse group of 11 scholars from across the country. We began our work in 1997 and a report was released on May 11, 1999.
In the lower atmosphere, ozone is produced by chemical reactions involving nitrogen oxides, volatile organic compounds, and carbon monoxide in the presence of sunlight. And all three types of these ozone-precursors are emitted by gasoline-fueled motor vehicles.
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As part of the Nation's effort to mitigate the ozone problem, the Clean Air Act Amendments of 1990 called for the development and use of reformulated gasoline and further mandated that RFG contained at least 2 percent oxygen by weight. And as you know, MTBE and ethanol are two of the oxygenates most commonly added to RFG to meet this requirement.
As the federal RFG program was implemented, a debate arose as to the best way to assess the air quality benefits of using RFG blends containing different amounts of MTBE and ethanol. EPA has established emission performance standards for RFG blends based on the mass of emissions.
However, because the addition of ethanol to gasoline increases the volatility of the resulting mixture, ethanol-blended gasolines tend to have increased evaporative emissions unless special low Reid Vapor Pressure or RVP gasoline is used. And you can think of RVP as just a measure of the evaporation potential of the fuel.
Proponents of ethanol have argued that the effects of increased volatility of ethanol blends might be offset by the emissions having less potential to react in the atmosphere and form ozone, and thus, they argue that mass-based emission standards may be inappropriate.
And our Committee was formed to help resolve this debate. We were asked to give special attention to specifically the effects on ozone air quality and to focus on MTBE and ethanol blends.
It is important to note that the Committee was not charged or constituted to address the design or implementation of new regulations. The Committee was not charged or constituted to address relevant, but separate, issues about domestic sources versus foreign sources of fuel, relative energy and cost implications, relative health and global impacts. For example, the use of renewable versus non-renewable fuels or the effectiveness of oxygenates or other substances for enhancing the octane value of the RFG blends.
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I want to specifically point out that this was a technical committee focusing on technical issues. Despite statements that you might hear to the otherwise, this morning we made no recommendations as to regulations, current forms of those regulations, or laws, or any changes to those.
Let me go over a few of the major conclusions that we came up with that I think are most relevant to this Subcommittee. Trends: The long-term trend in peak ozone in the United States appears to be downward. At the same time, the emissions of ozone precursors from gasoline-fueled motor vehicles have substantially decreased.
The use of RFG significantly decreases both the exhaust and evaporative emissions from motor vehicles. For example, the total decrease in VOC emissions is estimated at about 20 percent. Even so, the net impact of RFG on ambient ozone concentrations, like many other ongoing ozone-abatement programs, is a few percent. For this reason, it is difficult to quantify the specific contribution of the RFG program to the apparent downward trend in ozone.
Effective Aspects of RFG: In addition to the oxygen mandate, RFG—the RFG program requires a variety of other characteristics in the gasoline blends. The major contributors to reducing the emissions of ozone precursors from motor vehicles in the RFG program appear to be the requirement for low RVP, low volatility, which helps depress evaporative emissions and low sulfur content, which prevents poisoning of a vehicle's catalytic converter.
The Effect of Oxygen in RFG: According to the data available to the Committee, the addition of oxygen to fuel in the form of commonly available oxygenates had little impact on improving ozone air quality. Data suggest that oxygen causes a small reduction in the mass of VOC and CO emissions, and the data on NOX emissions is inconsistent.
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The most important benefit of oxygenated additives in RFG appears to be a reduction in the emissions of some air toxics, for example, benzene. This benefit is attributable to the displacement of toxic components from the blend and may or may not be associated with the presence of oxygen in the additive.
MTBE Blends Versus Ethanol Blends: The data—Exhaust Emissions first. The data suggests that the reactivity of exhaust emissions from motor vehicles operating on ethanol-blended RFG are somewhat lower than the reactivity of exhaust emissions from motor vehicles operating on MTBE-blended RFGs. However, the difference is not statistically significant and the difference appears to be related to CO emissions.
In the case of Evaporative Emissions: Both the mass and reactivity of evaporative emissions from motor vehicles using ethanol-blended gasolines used in emissions tests—these were gasolines that weren't necessarily meeting the RFG requirements, but these were gasolines that were blended with ethanol and happened to have a higher RVP—these gasolines lead to significantly higher evaporative emissions than motor vehicles using MTBE-blended gasolines.
And the higher evaporative emissions of the ethanol blends were likely due, at least in part, to their having a higher RVP. The increase in the evaporative emissions outweigh the small decrease in the reactivity of the exhaust emissions using ethanol from these blends.
RVP of Ethanol-Containing Fuel: The use of a hypothetical ethanol-containing RFG with an RVP that is 1 pound per square inch, which is a measure of volatility again, higher than other RFG blends, would have a detrimental ozone air-quality impact.
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This conclusion should be caveated with the fact—with the statement that these tests—these conclusions are based on test data from primarily normally functioning motor vehicles and they may or may not have underestimated the benefits of ethanol blends in high-emitting motor vehicles.
Two other conclusions that we mentioned are that the models that are currently used in the—by regulatory decision-makers, are problematic and should be improved. Specifically, they shouldn't be used to demonstrate the effectiveness of the RFG program. And the phasing in of Phase II of the RFG program offers a great opportunity to actually track the benefits of the RFG program.
That concludes my prepared statement, Mr. Chairman.
[Statement and biography of Dr. Chameides follow:]
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Chairman CALVERT. Thank you, Doctor. Mr. Greenbaum.
STATEMENT OF MR. DANIEL S. GREENBAUM, CHAIRMAN, EPA BLUE RIBBON PANEL ON OXYGENATES IN GASOLINE AND PRESIDENT, HEALTH EFFECTS INSTITUTE
Mr. GREENBAUM. Thank you, Mr. Chairman.
Mr. Chairman, and, members of the Committee, I thank you for the opportunity to appear before you today to present the results of the work of the Blue Ribbon Panel on Oxygenates in Gasoline.
As you know, in the wake of reports of the detection of the additive MTBE in drinking water supplies in Maine, in California, and elsewhere, the Blue Ribbon Panel, which consisted of experts on air and water quality, as well as representatives of the oil, ethanol, and MTBE industry and the environmental community, was convened by United States EPA Administrator Browner to investigate the facts of the situation and to recommend actions that allow—would allow us to achieve both clean air and clean water.
The Panel, which began its work in January of this year, conducted an in-depth investigation of the air quality, water quality, fuel supply, and price issues surrounding the use of oxygenates in gasoline. We held six meetings in six months, including two field meetings in California and in the northeast, hearing from experts, including Dr. Chameides, and reviewing dozens of existing and new studies of oxygenates in gasoline.
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We issued our recommendations, which are attached to my testimony, in—on July 27 and our full report will be available on the web later this week.
Based on that review, the Panel found first, that reformulated gasoline has provided substantial reductions in the emissions of a number of air pollutants from motor vehicles, most notably, as Dr. Chameides said, volatile, organic compounds, carbon monoxide, and also mobile-source air toxics. In most cases, those reductions were—exceeded those required by law.
Second, there have been growing detections of MTBE in drinking water, with between 5 percent and 10 percent of drinking water supplies in RFG areas showing detectable amounts of MTBE. The great majority of these detections have been below levels of public health concern, with approximately 1 percent rising to levels above 20 parts per billion. And only in rare incidents—there are cases, but they are rare, of very high levels showing up in water supplies.
Detections at lower levels, however, have raised consumer taste and odor concerns that have caused water suppliers to stop using water supplies and to incur costs of treatment and remediation.
The major—third, the Panel found that the major source of this groundwater contamination appears to be releases of RFG from underground gasoline storage systems. As you know, these systems have been upgraded over the last decade, and that has likely reduced in—resulted in reduced risks of leaks.
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However, approximately 20 percent of those systems have not yet been upgraded and there continue to be reports of releases from some upgraded systems, most likely due to inadequate design or installation or maintenance or operation of the systems.
In addition, many of those systems are not currently regulated under the program, the RCRA program, under which EPA sets guidance for the standards.
The other major sources of water contamination appear to be small and large spills and recreational water craft, particularly those with older motors.
Based on its investigation, the Panel looked at a range of alternatives and we recommended that the United States EPA work with Congress and the states to implement a four-part integrated package of reforms to ensure that water supplies are protected while the substantial reductions in air pollution that have resulted from RFG are maintained.
Specifically, the Panel first, recommended a comprehensive set of improvements to the Nation's water protection programs, including over 20 specific actions to enhance underground storage tanks, safe drinking water, and private well protection programs.
Second, the Panel agreed broadly that the use of MTBE should be reduced substantially, with some of our members supporting its complete phase out, and that Congress should act to provide clear federal and state authority to regulate and/or eliminate the use of MTBE and other gasoline additives that threaten drinking water supplies.
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Third, we recommended that Congress act to remove the current Clean Air Act requirement that 2 percent of RFG, by weight, consist of oxygen to ensure that adequate fuel supplies at reasonable price can be blended quickly and in a cost-effective manner while we move quickly to reduce the use of MTBE.
And very importantly, fourth, the Panel recommended that EPA seek mechanisms to ensure that even as you reduce the use of MTBE, there is no loss of current air quality benefits.
Now, in recommending these steps, and particularly the lifting of the oxygen requirement, the Panel was aware that Congress had enacted that requirement to advance several national policy goals that were beyond the scope of the Panel. And we expected that Congress would likely seek other mechanisms to meet those same interests.
Although the Panel agreed broadly on its recommendations, two members, while agreeing with most recommendations, had concerns with specific provisions. The MTBE industry representative felt that water protection reforms proposed by the Panel were sufficient to protect water supplies, and the ethanol industry representative was concerned that the Panel's recommendation to lift the oxygen requirement did not adequately reflect the benefits of using oxygenates.
In sum, the Panel found that we have a successful cleaner-burning gasoline program in place, but we need to take action today to ensure that the detections of MTBE in drinking water that we have seen, and which, fortunately, in the great majority of cases, have not been of public health concern, do not continue to grow.
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Our full report, as I noted earlier, will be available later this week on the Panel's home page, and which I have provided in the testimony, and I thank you for this opportunity to testify.
[Statement and biography of Mr. Greenbaum follow:]
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Chairman CALVERT. Thank you, gentlemen. If we can continue, we will finish up the opening statements and we will suspend for a journal vote and come right back. Mr. Skinner, you may begin your testimony.
STATEMENT OF MR. THOMAS V. SKINNER, DIRECTOR, ILLINOIS ENVIRONMENTAL PROTECTION AGENCY, SPRINGFIELD, IL
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Mr. SKINNER. I, too, forgot my microphone. Representative Biggert, thank you for your kind remarks. It is truly a privilege and an honor to be here testifying before you this morning. This is the first opportunity I have had to testify in Congress and I can only say that I wish my children were old enough to appreciate the magnitude and the respect with which I undertake this duty.
I would like to acknowledge up front that Illinois, as most of you or all of you know, is very—ethanol is very important to us. We produce, I believe, 40 percent of the ethanol currently. We use a significant portion of it. Ninety-five percent of the gas used in the Chicago area is, in fact, an ethanol blend.
Having said that, I am not here this morning as the Director of the Illinois Ethanol Promotion Agency. I am here as the Director of the Illinois Environmental Protection Agency. And were it not for the fact that we believe that there are true environmental benefits that ethanol provides, I would not be present here. So I acknowledge that we have an interest in it, but it does provide environmental benefits, and that is really what I am here to talk about.
The use of oxygenates in reformulated gasoline in certain non-attainment areas, including the Chicago metropolitan area, is required pursuant to the Clean Air Act. Oxygenates do have environmental benefits. They reduce the amount of air toxics emitted by vehicles and they promote more complete fuel combustion.
Since the RFG program was introduced in the eight-county Chicago area in 1995, as I said, more than 95 percent of our RFG has used ethanol as its oxygenate. Ethanol-blended RFG has enjoyed the acceptance of millions of vehicle owners in the area since its introduction. And, in fact, some areas, such as Milwaukee, Wisconsin, as Chairman Sensenbrenner pointed out, one way or the other, it switched with great success from the other primary oxygenate, MTBE, to ethanol as a result of citizen complaints.
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The RFG program is one of the key elements of our strategy to reduce ozone in the Chicago area. Despite steady improvement in air quality, Chicago is still classified as a severe non-attainment area for ground-level ozone.
Between 1990 and 1996, the Chicago area made major reductions in emissions of VOCs, a principal component in ozone formation. Reductions of approximately 400 tons per day have been achieved from both mobile and stationary sources. And ethanol-blended RFG has been one of the major strategies that enabled us to achieve that cut, reducing VOC emissions by over 100 tons per day.
The Phase II RFG program, as originally announced, essentially could prevent continued use of ethanol and RFG during the summer months in the Chicago area and seriously threaten its use during the remainder of the year.
This is because the summertime VOC emission reduction requirements for Phase II RFG necessitate the use of a very low volatility fuel. Since the addition of ethanol slightly increases the volatility of the resulting blend, an even lower volatility and, therefore, more expensive base gasoline must be supplied. Without such a base gasoline to accommodate the addition of ethanol, ethanol-blended RFG may be effectively excluded from the summertime program.
Aside from the dramatic economic ramifications to corn-producing states, and to the 22-state Governors' Ethanol Coalition, the cessation of use of ethanol would be terrible news from an environmental standpoint as well, because, for us, it would likely result in the forced increase use of MTBE in reformulated gasoline.
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We share the concerns about MTBE expressed by other members of this Panel. It does not make sense to continue to use MTBE for its air quality benefits when such use creates other, more serious water and land pollution problems.
And it particularly does not make sense to force states that historically have used ethanol to switch to the more problematic MTBE as a result of Phase II RFG regulations. We would be moving backward, not forward, from an environmental perspective.
You may be asked to reduce or eliminate the oxygenate requirement from RFG. We would suggest that you not do so and request that you not do so for very sound environmental policy reasons.
The recent study by the National Research Council acknowledged that the presence of oxygen in gasoline may reduce vehicular carbon monoxide emissions by approximately 15 percent. The report also recommended amending the RFG program regulations to account for this impact and concluded that approximately 20 percent of the ozone-forming potential from vehicle exhaust emissions was attributable to carbon monoxide.
In addition, carbon monoxide itself is a criteria pollutant under the Clean Air Act, and the use of ethanol-blended fuels is one of the most effective means in Illinois and other states to keep those emissions below the federal health standard trigger levels.
We are pleased that United States EPA has indicated it is going to take another look at the issue. We especially welcome the recent commitment by Administrator Browner to consider a carbon monoxide credit or offset program to account for ethanol's role in combating ozone formation through reduced carbon monoxide emissions.
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Producing the maximum possible carbon monoxide credit could substantially lower the cost of producing oxygenated fuel blendstocks and help assure ethanol's continued use in Chicago, Milwaukee, and other ozone non-attainment regions.
In summation, the use of oxygenated fuels has contributed to cleaner air in our metropolitan areas and ethanol, in the final balance, is the environmentally beneficial oxygenate of choice.
If I am going to leave you with one message here today, I guess it would be that, from our perspective, ethanol works. We have tried the program. It has been in place in Illinois. We have seen considerable environmental benefits and we would hate to see it—we would hate to have to move backward as a result of RFG. Thank you.
[Statement and biography of Mr. Skinner follow:]
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Chairman CALVERT. Thank you, Mr. Skinner.
Mr. Beuhler.
STATEMENT OF MR. MARK D. BEUHLER, AFFILIATED WATER DISTRICTS OF CALIFORNIA AND WATER QUALITY MANAGER, METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, ON BEHALF OF THE ASSOCIATION OF CALIFORNIA WATER AGENCIES
Mr. BEUHLER. Mr. Chairman, members of the Subcommittee, my name is Mark Beuhler and I am the Director of Water Quality for the Metropolitan Water District of Southern California. I also had the privilege of serving on the Blue Ribbon Panel with Dr. Greenbaum and others and would like to talk today about the drinking water community perspective on MTBE.
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Metropolitan, my water district, serves about 16 million people. We are the largest producer of drinking water in the country. And I might add, we also serve the Chairman's service area with some of their water.
We have left copies of written testimony that we are giving through the Association of California Water Agencies. I might also add that I understand that the Governor's Office in California is also leaving a written statement. And a comment on that; the drinking water community in California is very strongly behind the Governor's Executive Order to phase it out in California.
The—it is often assumed, especially in the west, that ''whiskey is for drinking and water is for fighting''. A quote from Mark Twain. MTBE is an unusual issue for us in that there is no debate among the drinking water community. We are quite united on this issue.
MTBE is a known animal and a potential human carcinogen. Our consumers can taste it down to levels as low as five parts per billion. Now, five parts per billion is about a teaspoonful of MTBE in an olympic-size swimming pool. Very, very potent compound in terms of tasting it.
And if our consumers can taste it in the water, they will not drink the water. They understand that drinking a potential carcinogen is not a good idea.
MTBE is unique in the realm of contaminants we have faced as a community of drinking water suppliers. It moves much quicker than most of the other contaminants we face. In fact, the phrase we use for it is, it moves faster than the regulators can track it. It also doesn't degrade well. So once it gets into the water, it stays there.
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And the taste threshold is quite low. It—actually, that is almost a good thing because people taste it before it hits a health level, but they will not drink the water. And we have to let our consumers know if it is present in the water at detectable levels based on new regulations.
Drinking water suppliers have been significantly impacted. The case of Maine was cited earlier. Other states have had the same example. In California, the City of Santa Monica has lost half of its wells. South Lake Tahoe has lost a third of its wells and they have no backup supply of water.
Also there are concerns with smaller users of water, people with individual wells. From the Drinking Water Community perspective, the current situation is not fair. The decision to use MTBE is an economic decision and it is based on the choice between MTBE, ethanol, or reformulated gasoline. But the community that is impacted bears the full brunt of the cost of MTBE contamination.
I would like to conclude with an example. About 50 years ago, a chemical was introduced into widespread use throughout the United States, and, for that matter, the world. And that chemical was DDT. DDT undoubtedly saved millions of lives by preventing malaria. And then disturbing information came back about its impact on the environment.
We feel that MTBE is somewhat similar. That there were unintended consequences and the quicker it is phased out of use, the better. Thank you.
[Statement, biography and financial disclosure of Mr. Beuhler follow:]
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Chairman CALVERT. Thank you, gentlemen. We will suspend and come back right after our journal vote. Appreciate it.
[Recess]
Panel Discussion
BLUE RIBBON PANEL AND NATIONAL RESEARCH COUNCIL PANEL RECOMMENDATIONS ON GASOLINE FORMULATIONS
Chairman CALVERT. The hearing will come to order. Ms. Oge, in light of the recent reports by the NRC and by the Blue Ribbon Panel, do you still believe that federal requirements on specific gasoline formulations make sense?
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Ms. OGE. Mr. Chairman, we do believe that the reformulated gasoline is an effective program. It does reduce VOC, NOX, and air toxics. At the same time, what we heard through the Blue Ribbon Panel process, is that refineries can get the air quality benefits without having necessarily a specific mandate in place. But——
Chairman CALVERT. So to carry on—excuse my interruption. If——
Ms. OGE. I am sorry.
STATUS OF REFORMULATED GASOLINE [RFG] FORMULATIONS WITHOUT OXYGENATES UNDER THE CLEAN AIR ACT AMENDMENTS [CAAA] OF 1990
Chairman CALVERT. If the oxygenate mandates in a non-attainment area, let's say, in my home State of California, and we can still meet the California standard, which is, as you know, the most restricted standard in America, we can still do that without oxygenates. You wouldn't have a problem with that.
Ms. OGE. Legally, we would still have a problem. Your state has given us a waiver that we are in the process of evaluating. As you know, the Clean Air Act specifically requires that 2 percent mandate. California has requested a waiver from the 2 percent mandate. They have provided some information that we have reviewed and evaluated and have gotten back to the state with some additional questions. So——
EPA POSITION ON FLEXIBILITY FOR REFINERS UNDER THE RFG PROGRAM
Chairman CALVERT. Let me ask you—do you believe that we could achieve better results by letting gasoline refiners formulate gasoline to meet emission regulations without the government mandating specific fuel composition?
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Ms. OGE. Definitely, the State of California has proven that gasoline can be produced to—and deliver significant air quality benefits without specifying the oxygen mandate.
COSTS AND BENEFITS OF THE RFG PROGRAM VERSUS PROPOSED GASOLINE SULFUR REDUCTIONS
Chairman CALVERT. In your testimony you stated that Phase II of the RFG program will be equivalent to removing 16 million vehicles from the road. In the sulfur hearing, we heard testimony that 30/80 Sulfur Rule would be equivalent to removing 55 million cars from the road. Has the EPA done a cost benefit analysis of these rules and have you compared the costs and benefits of the two rules, one against the other?
Ms. OGE. Yes. We have, Mr. Chairman. And I will be glad to submit the information to the Subcommittee.
Chairman CALVERT. And just a short comment? Would it—removing sulfur a good thing?
Ms. OGE. Removing sulfur is an excellent thing and it is a very cost-effective thing. Also the Reformulated Gasoline Program——
Chairman CALVERT. Is it more cost effective than reformulated gasoline?
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Ms. OGE. Again, removing sulfur does help improving air quality by enabling cleaner technologies to be introduced in the marketplace. Reformulated gasoline provides cleaner fuel for all the fleets in the marketplace today. Both programs are cost-effective and both programs help areas in achieving cleaner air requirements.
Chairman CALVERT. Dr. Chameides, in your testimony, you mentioned sulfur reductions as a promising way to meaningfully reduce emissions. How do sulfur reductions compare to oxygenate mandate in terms of clean air benefits?
Dr. CHAMEIDES. Mr. Chairman, based on the data that we looked at, reducing sulfur in gasoline had a much larger impact on reducing the emissions of VOC, CO, and NOx than did having the presence of a small amount of oxygen in the fuel.
Chairman CALVERT. Do you have any comments on the EPA proposed rule to reduce gasoline sulfur to the 30/80 level—that is, 30 parts per million average sulfur, with 80 parts per million cap?
Dr. CHAMEIDES. Mr. Chairman, with all due respect, I am here today as the Chair of a technical Committee of the National Research Council and I think it would be inappropriate for me to comment on rules and regulations and policy matters in the sense that our Committee was not formulated to look at those issues.
Chairman CALVERT. Or do you believe that lowering sulfur would improve air quality?
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Dr. CHAMEIDES. Yes. I do.
ADEQUACY AND TIMELINESS OF EPA'S ADVISORY ON METHYL TERTIARY BUTYL ETHER [MTBE] IN DRINKING WATER
Chairman CALVERT. Mr. Beuhler, the EPA issued an MTBE drinking water advisory warning of possible contamination and other problems in areas where MTBE is used. Do you believe that advisory was adequate and timely?
Mr. BEUHLER. Mr. Chairman, speaking from a California perspective, and I might add that, in addition to your service area, Representatives Miller and Rohrabacher also are in a service area. The California standards are a little bit stricter and, we think, somewhat more protective. The standard in California, secondary standard, which is based on when people can taste it, is five parts per billion. And the state is now looking at a health standard of 13 parts per billion. So a little different perspective on what levels first are aesthetically acceptable and, second, what is safe.
LEAKING UNDERGROUND STORAGE TANKS [LUST] AND OTHER SOURCES OF MTBE IN UNDERGROUND DRINKING WATER SUPPLIES
Chairman CALVERT. Do you believe the EPA program mandating the repair and replacement of underground storage tanks can ever be sufficient to protect underground water supplies?
Mr. BEUHLER. No. And that makes a very good point. The—clearly, the bulk of the problem is leaking underground tanks. However, there are a number of documented cases where wells have been contaminated by other means, such as one case, an automobile crash, another case, poor fuel practices at gas stations. In fact, in South Lake Tahoe, so far, they have not seen a single demonstrated case of underground tanks leaking and, yet, they have lost a third of their wells.
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Chairman CALVERT. Thank the gentleman. Mr. Costello?
STATUS OF ETHANOL RFG PROGRAM IN CHICAGO AND MILWAUKEE NON-ATTAINMENT AREAS
Mr. COSTELLO. Mr. Chairman, thank you. Ms. Oge, I understand that your agency has been working closely with Mr. Skinner and the Illinois Environmental Protection Agency on the RFG program. Do you consider the RFG program to be a success in the Chicago and Milwaukee areas?
Ms. OGE. Definitely, Mr. Costello.
Mr. COSTELLO. Has the use of ethanol alleviated the early problems with RFG in Wisconsin?
Ms. OGE. Definitely. Ethanol has been successfully used in both Chicago and Milwaukee and it has helped both areas in achieving cleaner air.
ETHANOL PROGRAMS IN MINNESOTA AND IOWA AND FLEXIBILITY UNDER THE CAAA OF 1990
Mr. COSTELLO. Some states, such as Minnesota, are now—and Iowa, are now considering virtually moving to mandate ethanol use in those states. What is EPA's perspective on giving states the flexibility to decide which RFG to use?
Ms. OGE. If the—the states have really a number of strategies available to them when they look at fuels. Obviously a state, if it needs cleaner air, could be opting-in to the federal Reformulated Gasoline Program and, if they do that, they would have to follow pretty much the program as it is right now. At the same time, however, states do have flexibility to develop their own state programs, and I would suspect that is what you are suggesting with the State of Minnesota.
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Mr. COSTELLO. So your agency would not have a problem with——
Ms. OGE. We would be very glad to work with the State of Minnesota to help them identify the most cost-effective way of getting cleaner air.
Mr. COSTELLO. So if——
Ms. OGE. And ethanol has, again, been proven to be an effective oxygenate in the areas that it has been utilized today through——
Mr. COSTELLO. Since it has proven to be successful, your agency, at this point, would not object then.
Ms. OGE. My agency would be very willing to sit down with the state representatives from Minnesota to help them evaluate the fuel requirements that they are considering.
Mr. COSTELLO. But if they could demonstrate that, in fact——
Ms. OGE. Yes.
Mr. COSTELLO [continuing]. That is their best way to——
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Ms. OGE. Yes.
REOPENING THE CAAA OF 1990 OR OTHER LEGISLATIVE SOLUTIONS TO REDUCE THE USE OF MTBE
Mr COSTELLO. You indicate that the Administration intends to pursue a legislative solution that allows for the reduction of MTBE. Since there is no mandate now that MTBE or any other specific oxygenate be used, is a legislative solution necessary?
Ms. OGE. Mr. Costello, our legal counsel is still looking at the Clean Air Act and trying to evaluate the flexibility that the Agency has to regulate MTBE. The current reading from that preliminary work is that we will need legislative authority to phase down the MTBE use. And that is what the Blue Ribbon Panel has suggested and the Administrator is willing to work with Congress to achieve that.
MARKET EFFECTS IN ILLINOIS IF ETHANOL IS MANDATED UNDER STATE LAW
Mr. COSTELLO. Mr. Skinner, if the State of Illinois—if the Illinois legislature or the governor decided to mandate ethanol in the State of Illinois, similar to what other states are looking at right now, how would—is the industry prepared to deliver this change? How long would it take? What problems would be associated? What is the down side? What is the positive side for both the industry and for the people of Illinois?
Mr. SKINNER. Well, as you may know, Representative Costello, there has been some informal talk among members of the Illinois General Assembly about a possible ban or a phase out on MTBE.
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It is difficult for me to sit here, I suppose, and speak from the industry perspective, because I have never been a part of that—of the petroleum producing—production industry. But clearly, the ethanol production facilities are sufficient in Illinois to supply Illinois' needs, probably Wisconsin's needs, and other adjacent states.
If ethanol were mandated as the fuel of choice, it is possible that the price of gasoline would go up, of the reformulated gasoline, although probably not as significantly as the producers would tell you today, that it will go up.
You know, I guess this is an obvious point, but the producers are in the business to make money. Their decisions are entirely based on economics. Unless they are given either incentives or a mandate to switch, they are unlikely to do so and they are likely to put up a fight about switching because it may potentially cost them more money. But that is not to say that it is not doable if those circumstances arose.
PERCENTAGE OF ETHANOL PRODUCED IN ILLINOIS THAT IS USED IN THE RFG PROGRAM
Mr. COSTELLO. What percentage of Illinois' ethanol production goes to the production of reformulated gasoline, and are there other markets for ethanol at this time?
Mr. SKINNER. Clearly, the gasoline program is the largest market for ethanol without question. I mean, ethanol has been used for some time, even before the RFG program, as an octane booster. And hopefully, under any circumstances, it would continue to be used as such. But there is no question, we simply could not replace ethanol's role in RFG if it were taken away.
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Mr. COSTELLO. Mr. Chairman, thank you. I am out of time.
Chairman CALVERT. I am sure we will have time for a second round if you choose. Ms. Biggert.
BLUE RIBBON RATIONALE FOR RECOMMENDING THE ELIMINATION OF THE OXYGENATE MANDATE
Mrs. BIGGERT. Thank you, Mr. Chairman. Mr. Greenbaum, you testified that your Blue Ribbon Panel recommended that Congress remove the current oxygenate requirement. What was their—am I to understand that this recommendation is based solely on the costs concerns associated with reduced MTBE usage?
Mr. GREENBAUM. Well, there—it was really based primarily on both cost and the fuel supply and availability concerns. The Panel received testimony that the ethanol supply could increase for other parts of the country. Obviously it has been quite substantially provided in the midwest.
But it seemed clear that if you wanted to move quickly to reduce MTBE use, and MTBE constitutes 87 percent of the oxygenate nationwide used in RFG, that you needed to provide the flexibility to both increase ethanol use, which involves building the infrastructure and expanding that, and also to provide for non-oxygenated fuels in areas where that, particularly initially, was the best cost-effective way to do it.
SOURCES OF DATA FOR NRC PANEL REPORT AND POTENTIAL GAPS IN THAT DATA
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Mrs. BIGGERT. Okay. Thank you. Then,
Dr. Chameides, did your NRC Committee do anything with independent studies of the situation, or did you rely on existing data and information?
Dr. CHAMEIDES. As is the case in most, if not all, NRC studies, we rely on existing data and other studies and try to synthesize that information.
Mrs. BIGGERT. Did—you seemed to have identified that there was some gaps in the information. Do you think that there needs to be more studies, independent or additional studies, needed to fill in those gaps?
Dr. CHAMEIDES. I think if I was to identify two concerns from a technical point of view, one would have to be related to what we call high-emitting motor vehicles. These are motor vehicles, for reasons that are not always entirely understood, simply emit more—have more emissions of ozone precursors or toxics and end up being responsible for a disproportionate amount of the total emissions. And I think that it is fair to say that we don't know quite, as well as we do with normal vehicles, how RFG acts within those high-emitting vehicles and what the role of oxygen in the fuel is for these high-emitting vehicles.
And the other area that I would say probably needs some study is to get a better database to improve models like the predictive model that is used by EPA and others to predict what various blends of RFG will have in terms of emissions.
INADEQUACY OF EPA MODELS TRACKING CARBON MONOXIDE [CO] IN THE ATMOSPHERE AND THE ROLE OF OXYGENATES IN THE REDUCTION OF CO
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Mrs. BIGGERT. Okay. Thank you. Then, Ms. Oge, from what I understand that Dr. Chameides said that oxygenates may reduce carbon monoxide emissions by approximately 15 percent. And Mr. Skinner brought up a point about the use of the oxygenates and the carbon monoxide emissions. And Mr. Greenbaum testified that the RFG has provided a substantial reduction in the carbon monoxide emissions.
As I understand it, the United States EPA has not accounted for the reduced carbon monoxide emissions in the current ozone model. So I share a concern with Mr. Skinner about the consequences of, you know, ignoring these benefits, especially in the Phase II program. Isn't carbon monoxide a critical pollutant?
Ms. OGE. Yes. It is. Although we have done a tremendous job in reducing carbon monoxide. The cars today are over 99 percent cleaner with carbon monoxide than they were before. But it continues to be an issue in certain parts of the country, especially during the wintertime. So oxygenates, like ethanol and MTBE, does reduce carbon monoxide, specifically for those areas that continue to have a CO problem in the country.
EPA'S POSITION ON CO CREDITS TO ALLOW YEAR ROUND USE OF ETHANOL IN THE RFG PROGRAM
Mrs. BIGGERT. Well, I suppose what I am getting at is why in the Phase II then you are really saying that ethanol doesn't meet the requirements and yet it, particulary in the winter, it would obviously meet or reduce the carbon monoxide by 15 percent.
Ms. OGE. Yeah. What the National Academy of Science reports clearly indicated is that the Agency should consider giving credit to CO reductions from reformulated gasoline. And we are committed to do that. We have been working with the State of Illinois, Wisconsin, with our state—other state stakeholders and the ethanol industry to—and naturally California, because California is in the process of doing exactly the same task as us, which is to address the CO benefit from reformulated gasoline.
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So the Agency is committed to undertake regulatory work to provide this type of CO accountability in the Reformulated Gasoline Program.
Chairman CALVERT. All right.
Mrs. BIGGERT. Thank you. Thank you, Mr. Chairman.
Ms. OGE. And hopefully this will help areas that use ethanol for the second phase of ethanol like Chicago.
Chairman CALVERT. Thanks, gentlelady. Mr. Miller.
''KNEE-JERK'' OXYGENATE MANDATE, WATER AND AIR QUALITY, PHASEOUT TIMEFRAME AND CONTINUED RESEARCH NEEDS
Mr. MILLER. Thank you, Mr. Chairman.
Mr. Skinner, you dealt briefly on the mandate of sewaging and how we would deal with that. I know in California we mandated MTBE to be used. At the same time we funded cleanup through the state legislature which is kind of ironic.
And it seems like we continue to mandate, based on knee-jerk science. It is like a post-op fallacy. ''A'' occurs and ''B'' occurs, therefore ''A'' caused ''B.'' That is a concern I have. Mr. Beuhler, you said that a third of the wells in Lake Tahoe are closed, yet there is no—you can't find any tanks that are leaking. There is no contamination. How is that occurring then?
Mr. BEUHLER. It gets at the question Mr. Calvert asked earlier, which is what is the major source? In this case, it looks like, in the South Lake Tahoe area, spills of gasoline, leaking valves, leaking hoses, it simple housekeeping at these gasoline sites. And once it spills, it doesn't take very much at all to contaminate the water, which leads, at least the water people, to the conclusion that there really isn't much choice. Even with the best underground tank systems science can provide, it can't contain this stuff.
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Mr. MILLER. Okay. Now, Mr. Greenbaum, and, Dr. Chameides, I am correct in that you disagree that on levels of emission reduction can be attributed to oxygenated RFG. And why is that?
Mr. GREENBAUM. You are saying that we——
Mr. MILLER. You disagree on the level of emission reduction that can be attributed to oxygenated RFG.
Mr. GREENBAUM. Well, our panel looked at this question. We—first of all, that RFG provided substantial reductions and that in excess of what is the law. I think that the database on exactly what role oxygenates have played in doing that is not as clear as one would like it to be.
Mr. MILLER. There is not an adequate science at this time to justify it.
Mr. GREENBAUM. Right. There are—it is a complex question to ask them because the issue is not just what direct role the oxygenates themselves play, but what alternatives are there to provide the octane, the clean octane, that oxygenates provide. That is what we learned as we went through the process of beginning to understand the refinery system and the blending system in the United States.
And that is a—it is difficult to attribute a specific benefit to the oxygenates, perhaps, in some of this. And there are fuels, as has come forward in California, that can be blended without any oxygen and appear to have all of the same benefits.
The cost-effectiveness of using oxygen, whether it be ethanol in the midwest or MTBE in other parts of the country, has—and other reasons for using it, have meant that it has been the way of choice of—and would likely be even if you immediately lifted the mandate for some period of time to come. It is the easiest way to actually continue to meet the air quality standards.
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Having said that, there are alternatives and that is the piece that we—led us to believe that the mandate could be lifted and you could ensure that you still got the same air quality.
Mr. MILLER. Then is it somewhat premature to promote substitutes for MTBE until the research on oxygenation is complete?
Mr. GREENBAUM. Well, they—well, there are a series of substitutes that could be used, including parts of crude oil, that are in gasoline already today. We recommended that those—that any work on all of those alternatives be accelerated—research on those be accelerated——
Mr. MILLER. But——
Mr. GREENBAUM [continuing]. Recognizing that we are——
Ms. MILLER. But it needs to be accelerated. There is—there needs to be additional research before we continue to mandate based on knee-jerk reactions we have in the past.
Mr. GREENBAUM. Well, we absolutely did not suggest that there should be any mandate——
Mr. MILLER. Okay.
Mr. GREENBAUM [continuing]. Of a specific alternative.
Mr. MILLER. That is my question. Right?
Mr. GREENBAUM. Right. I mean—absolutely.
Mr. MILLER. To the point——
Mr. GREENBAUM. We felt by lifting the mandate and keeping the standards, other than the 2 percent standard, you could—the result would be you would allow a mix of solutions to occur——
Mr. MILLER. Okay.
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Mr. GREENBAUM [continuing]. Some increase uses of ethanol and others without mandating one specific solution.
EPA COMMENTS ON THE MTBE PHASEOUT AND BAN TIMEFRAME
Mr. MILLER. Okay. Ms. Oge, in March, Governor Davis in California ordered the removal of MTBE by the earliest possible date, no later than December 31, 2002. And on production of or importation of finished gasoline that are downstream locations, basically he didn't set that early date. He said that could be at a later date and that would be at terminals and service stations. Do you know when that date is and what is your reaction to this schedule is? Is it appropriate, necessarily long, or is it too short?
Ms. OGE. I believe that the phase down of—phase out of MTBE scheduled for 2000—I want to say, 2——time frame.
Mr. MILLER. 2002. Yes.
Ms. OGE. 2 time frame.
Mr. MILLER. Is that adequate?
Ms. OGE. It—what we have—again, the California situation, Mr. Miller, is different than the rest of the country, because we know that there are actually refineries in the State of California that can produce today reformulated gasoline without oxygenates. So the time frame that they have set aside appears to be accurate.
What we are hearing from the refinery industry, outside of California, is that they are looking approximately at a 4-year lead time.
Mr. MILLER. Yeah. It——
Ms. OGE. But I also, if I may, I want to talk a little bit about oxygenates. What——
Mr. MILLER. Well, let me close because I am out of time. And then I will let you do that.
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Ms. OGE. Okay.
Mr. MILLER. I think my concern, Mr. Chairman, is we mandated MTBE, refineries invested billions of dollars, and we are leaving them on the hook every time we continue to——
Ms. OGE. Yes.
Mr. MILLER [continuing]. To create some new mandate based on inadequate science. And that is my concern. You know, we—as legislators, we attempt to do what is right and generally—and in issues like this, it is rather knee-jerk and that is really sad. And I will let you continue. I have to go to——
Ms. OGE. Mr. Miller, the——
Chairman CALVERT. Thank you, gentleman.
MORE ON CAAA OF 1990 OXYGENATE MANDATE AND OXYGENATE BENEFITS
Ms. OGE. Very briefly, the Clean Air Act mandates the use of oxygenates. It really doesn't mandate the use of a specific oxygenate. Neither Congress or the EPA mandates MTBE. It just happened that the refinery community found that MTBE is the most cost-effective oxygenate for parts of the country to use it. Other parts of the country have been successfully using ethanol as the oxygenate of—that they have preferred.
Basically what happens when you add oxygenate at 10 percent of the volume of gasoline, is of that you are displacing other components of gasoline, like benzene. Benzene is a known human carcinogen. Aromatics and all the things that we know are toxic chemicals.
And what I want to let you know, I am sure you are aware of, gasoline is a dangerous mixture of compounds. So what happens when you add ethanol and MTBE, you are displacing or diluting these other compounds of gasoline. And that is why you do have gasoline that is cleaner as far as air toxics. That is why we are seeing the significant air toxic benefits.
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For example, the first year that the program was introduced, there was a study that was done for EPA that showed that benzene was reduced by 43 percent in the parts of the country that were using the reformulated gasoline.
Chairman CALVERT. Thank you, gentlelady. Mr. Ehlers.
Mr. EHLERS. Thank you, Mr. Chairman. I am trying to get a handle on this. Is the problem of the release of materials from underground storage tanks or are there other problems? For example, if—would you consider MTBE a success from the standpoint of what it has done in connection with cleaner air? Ms. Oge, first, and then, Dr. Chameides.
Ms. OGE. Definitely. Both MTBE and ethanol in reformulated gasoline have been able to help many parts of the country. Actually, there are close to 30 areas in the country. One-third of our fuel today is reformulated gasoline to reduce volatile organics which are precursors of ozone and air toxics. So it has definitely has been a success in helping us achieve cleaner air.
LEAKING UNDERGROUND STORAGE TANKS AND OTHER POSSIBLE SOURCES OF MTBE IN WATER SUPPLIES
Mr. EHLERS. So you are saying it is—the problem is simply the leakage into the ground water from underground storage tanks. Is there any evidence that MTBE is getting into the water supply as a result of airborne activity? In other words, it is volatile components getting out and it is getting into the water through rainfall and so forth.
Ms. OGE. The major source of MTBE in drinking water is underground leaking storage tanks and pipes. There is a very small amount of deposition of airborne MTBE in the water, but that is very significant in comparison to other ways of getting MTBE to the water.
And, again, the concern with MTBE, at this point, is the specific properties of the material, which are the water solubility and the mobility. So when you do have leaking of gasoline, MTBE is the first to find itself—
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Mr. EHLERS. Okay.
Ms. OGE. [continuing]. Into the drinking water and ground water supplies because it travels as fast as water. So that is the concern. So when it gets there, for the most part, reports have shown today has been detected at very low levels and the concern is the taste and odor with those drinking water supplies where MTBE has been detected today.
MTBE AS EARLY WARNING OF A STORAGE TANK LEAKS AND MONITORING FOR LEAKS
Mr. EHLERS. Well, that brings up the issue then of the underground storage tanks. And I have a lot of experience with that since I sponsored the Bill in the Michigan Senate to clean up the leaking underground storage tanks. In fact, I became referred to as the king of leaking underground storage tanks (LUST) which, of course, is very shortened to the king of LUST, which is not a good title for someone in politics to have.
But we did a—I thought we did a very good job in Michigan of cleaning up underground storage tanks. And I would disagree with the statement made earlier by someone that you simply can't contain this stuff. I am convinced that you can.
In fact, I can see where MTBE could be valuable as sort of the canary in the mine shaft. If it, in fact, has greater mobility and greater solubility, it would be the early warning system for a leaking tank and would allow you to repair it before you get great releases of other petroleum products.
So I am puzzled by this because we have in law an—by your department, a requirement that there be no leaking underground storage tanks and that there be means of detecting that. At least in Michigan, we require monitors around the tanks to detect leakage quickly. We require daily measurements of the contents of the tank to determine that there is no lost fuel.
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If that is—if it is that much of a problem, that tells me we haven't fixed the leaking underground storage tank problem. And rather than simply saying, well, we have to stop using MTBE because the tanks still leak, I say, let us fix the tanks that were supposed to be fixed in the first place.
Ms. OGE. We definitely agree with you that we need to do the best that we all can, both at the federal and state level, to address the underground leaking storage tanks. And my understanding is that to date about 80 percent of the systems meet the federal requirements. And the states are working very hard to address underground leaking storage tanks.
The dilemma, however, with MTBE is that you cannot have any assurance that you are not going to have spills of gasoline; that the systems, the underground leaking storage tank systems will work properly, that you are not going to have overfill. And when that happens, because of the characteristics of MTBE, MTBE does travel very fast in the water and it is very persistent in the environment. And that is the concern that we have.
I want to make certain that you realize that we don't have today a public health threat of our drinking water supplies because of MTBE. But the concern is that high levels of MTBE use in the next five, ten years, we may find ourselves in that position. That is why we are concerned to prevent the problem before it happens.
Mr. EHLERS. But, as I said, if you have a leaking underground storage tank, you have a pollution problem, whether it is MTBE or something else. And the sooner you find out about it, the better. Has——
Ms. OGE. We agree with that. And we want to make sure that the underground leaking storage tanks are replaced and they are fixed.
Mr. EHLERS. If you will——
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Chairman CALVERT. Mr. Greenbaum, do you have any quick comment?
UPDATED UNDERGROUND TANKS ARE INADEQUATE FOR MTBE STORAGE
Mr. GREENBAUM. Well, just a quick comment on the Panel's findings on this issue because it was a key part of our discussion. At which—at one point at which I had to ask the Panel, given a set of 20 recommendations that we made for making sure that we are protecting and fixing underground tanks, is that adequate to solve this problem without having to reduce the MTBE use? And with one exception on the Panel, the Panel felt that was not the case.
And that there were two issues quickly there. And I used to be the head of Environmental Protection in Massachusetts implementing an underground storage tank program. So I understand this problem well.
One is, that the standards we have in place today around the country, which were done nationally by EPA and then tightened in some states to be even more stringent, were based in the late '80s on an assumption of what would be in gasoline which did not include, at that point, 11 percent, by volume, MTBE. So that the leak detection requirements and other things allowed for a certain amount of spillage before you absolutely had to be able to find it.
Because we know that most of gasoline actually doesn't move that fast and biodegrades quite well in the ground water, the addition of MTBE changed that calculus in a way that our rules had not allowed us to anticipate number one.
And, number two, although EPA has these rules in place, they are 825,000 tanks subject to the rules nationwide. There are a total of 4 million tanks in the rules in the country, many of which have other sorts of regulations, but not all of which have the requirements of upgrade that EPA has put in place.
So there is such a vast universe of things that need to happen that we really felt the time necessary to do that, the amount of MTBE that would leak in the interim, that it would be incumbent on us to both reduce the MTBE use substantially and go ahead and fix the tanks.
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Mr. EHLERS. One final comment. I would just suggest that most oxygenates are likely to have high mobility.
Mr. GREENBAUM. That is correct.
BOATS AND JET SKIS AS A SOURCE OF MTBE CONTAMINATION IN LAKE TAHOE AND LAKE PARIS
Chairman CALVERT. Before we go to Mr. Barton, one quick question. The—how much of this problem is caused by boats, Jet Skis—you know, like you mentioned South Lake Tahoe. I mean, I know that you got a lot of fuel leaving some of these boats sometimes. How much of a problem is that?
Mr. GREENBAUM. I think that is you. I am sorry. Were you asking me or——
Chairman CALVERT. Mr. Beuhler would probably——
Mr. GREENBAUM. Yes. That is what I thought. That is right.
Mr. BEUHLER. It is a separate problem and it has got its own unique difficulties. The problems we have been discussing with underground tanks are primarily ground water. Two-cycle engines exhaust about a 1/4 of their fuel into the body of water.
And so in the case of Lake Tahoe, they have got two MTBE issues on their hands. They have got the ground water and leakage from gas stations and then they have got their lake and leakage from these two-cycle engines.
Chairman CALVERT. And is it a problem, say, in some of your other reservoirs, like Lake Perris?
Mr. BEUHLER. Absolutely. Absolutely. In fact, Perris exceeds the new California standards regularly.
Chairman CALVERT. Thanks. Mr. Barton.
MTBE PRODUCTION IN TEXAS, TRANSPORT THROUGH GROUNDWATER, BIODEGRADATION AND PLACEMENT OF STORAGE TANKS NEAR WATER SUPPLIES
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Mr. BARTON. Thank you, Mr. Chairman. And I want to thank you for holding this hearing. It is a very important hearing and I am glad that you are going to hold two days of hearings on it. Does this distinguished Panel know what state I represent? Do you all want to tell me? Texas.
Do you know the two states that produce the majority of MTBE? Is Texas one of those states? That is a simple yes or no answer. Everybody is nodding yes. Do you think that if you were a Congressman representing one of the states where softly into the night gently if a Panel came up and recommended that MTBE be banned? That is a yes or no answer.
Do you think, would you do that? Well, I am not going to do that. Now, I thought Congressman Ehlers, who is the king of LUST, had a pretty prescient observation. And that was, you can prevent an underground storage tank from leaking.
Now, my understanding is, just as Congressman Ehlers pointed out and as Ms. Oge indicated, MTBE, because it is an oxygen, it does greater mobility and it does rapidly immigrate once it is out of the storage tank. But my understanding is also that all the other elements do too. Is that true or not true? I mean, is it not true that MTBE is just a precursor of the other elements that are to come? Is that true or not true?
Mr. GREENBAUM. That is actually not true. We have data that shows that despite the fact that all the other elements of gasoline have been in tanks leaking for 50 to 100 years, the USGS looked at 500 tanks in high-use areas and found 21 percent of those water supplies—I am sorry. They looked at 500 water supplies in high-use areas. Twenty-one percent of those had MTBE in them. Only 4 percent had benzene, toulene, xylene and the other parts of gasoline.
So, in fact, in many, many cases, the other parts of gasoline never get to the water supply.
Mr. BARTON. What is the—what is the decay rate of the other elements? Is it possible that they simply didn't measure within a significant elapsed time interval or is their life cycle such that they decay before they get to the water supply?
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Mr. GREENBAUM. They biodegrade before they get to the water supply. That is the major difference. That is also true of the ethanol as an oxygenate, that it biodegrades——
Mr. BARTON. Okay.
Mr. GREENBAUM [continuing]. Better than any of the other components of gasoline.
Mr. BARTON. I would be happy to yield to my good friend from Michigan.
Mr. EHLERS. Okay. The question then is if that is true, why did we engage in this multi-billion dollar underground storage tank removal and cleanup if you are saying that virtually all of them biodegrade anyway? That is not my experience, at least, not in Michigan.
Mr. GREENBAUM. Well, one of the issues is that we have, over the years, placed tanks quite close to drinking water supplies. In Massachusetts I had one town's drinking water supply with four tanks immediately on top of it. And biodegradation for benzene was not adequate to protect those drinking water supplies.
So we have places where we absolutely have to upgrade the tanks to protect the water supplies under any circumstance. But the difference is that with MTBE you are going to see the contamination occur at much further distance from the tank than you would with the other components of gasoline.
USING ''TRACERS'' TO DETECT LEAKS IN UNDERGROUND TANKS
Mr. BARTON. Well, my question would be instead of this eminent Panel recommending that MTBE be phased out or the oxygenate requirement be relieved in some way, why wouldn't we put our thinking caps on and come up with some trace elements, to require that each of the trace elements that are—be put in different storage tanks at different times, when you have probable cause to think they may be leaking, and identify the storage tanks that are leaking and then fix them?
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Because you wouldn't have to fix all 4 million. There is probably a small percentage that are leaking. And I just bet that there are some pretty smart people that can come up with some trace elements that will—can identify the leaking tank. And I also bet there are some good engineers from institutions, oh, like Georgia Tech, maybe, that might be able to develop a cost-effective mechanism of fixing the tanks.
And I would also further speculate that you might just, in certain areas, require that if it is an overflow problem, that you not put quite as much product into the tank to begin with. How does that sound?
Mr. GREENBAUM. Well, all of those things actually—under any recommendation and any action, we are going to need all of those things because we are continuing to use MTBE and will continue to use it for some time to come. And I think the data suggests very clearly that we will—and not all the tanks are upgraded—that we will see growing numbers of detections of MTBE in wells. So the sooner we get out and do the kinds of things that you suggest, and we have recommended that as part of the Panel, the better off we are.
I think having said that, the fundamental nature of MTBE means that some of the techniques for bioremediation, for example, and trying to identify and clean up the stuff ahead of time, are more difficult to develop, although they are being developed.
I think probably more importantly the concern on our part was that there was a growing level of—there would be a growing level of this contamination continuing to build and build for many years to come because we probably have not seen all of the migration from all of the underground tanks with all the MTBEs yet that haven't even had——
Mr. BARTON. Well, Mr. Chairman, my time has expired. And I want to thank you again for holding this hearing. I think it is eminently responsible, on behalf of the Congress, to address this problem because I think it is a problem.
But I think it is eminently irresponsible to—I believe Mr. Miller indicated—adopt some knee-jerk response that is an outright ban or just a revocation of what we have been attempting to do, because MTBE does improve air quality and many of the companies in this country that manufacture it have invested billions of dollars and there are thousands of people who are working to produce this product. And we need to very, very carefully examine all options before we decide on some legislative remedy. But I thank you for holding these hearings.
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FINANCIAL AND TECHNICAL IMPEDIMENTS TO TREATING MTBE-CONTAMINATED WATER SUPPLIES
Chairman CALVERT. I thank the gentleman. Mr. Beuhler, I have a couple of other quick questions and I think Mr. Costello may also. What are the financial and technical impediments to removing MTBE from drinking water? And how does that differ from oxygenated fuel with ethanol or non-oxygenated fuel removal?
Mr. BEUHLER. MTBE is not an easy compound to remove from drinking water. The technology of choice right now is air stripping, which means you blow air through and strip it out. The problem with that is, what do you do with what you just stripped out? And in any case, whatever technology is used, it will be expensive.
The two other technologies of choice would be activated carbon or oxidation with something like ozone. But all of those technologies are expensive. Typically, they will cost a family, on the low end, $25, $30 a year per family. And that is in an ideal situation. If it is a small well, the cost will go up quite a bit higher. The City of Santa Monica had to raise its rates 25 percent to pay for the cost of alternative water supplies.
AVAILABILITY OF DATA ON MTBE AND WATER CONTAMINATION PRIOR TO INTRODUCTION OF EPA'S RFG PROGRAM
Chairman CALVERT. Mr. Greenbaum, what studies did your Panel review coming to determination that MTBE was spreading rapidly through the groundwater and was slow to biodegrade? And do you believe that EPA would have been aware of this information when MTBE went into widespread use under the RFG program?
Mr. GREENBAUM. We reviewed a wide range of studies, including laboratory studies, to comparing the behavior in laboratory settings of MTBE versus other components of gasoline. And probably most importantly, however, for us, were a set of studies done in Maine, in California, and by the United States Geological Survey over the last year in which they actually surveyed water supplies of a variety of sorts and identified what the levels and preponderance of MTBE was in those water supplies; to some extent, what the sources might be.
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There was information available in the early part of this decade on the laboratory behavior of MTBE. It is not a secret to a chemist what the—how MTBE behaves versus—as in ether, versus the other components of gasoline. It was never known until relatively recently exactly how that would play out in soil and different soils. So that it wasn't totally predictable.
But I think it is fair to say that at the time the assumption was that even if there was—that the leakage rate would be going down because of the requirement that went into place in 1988 for—by EPA, mandated by Congress—for the upgrade of tanks. Unfortunately, I think what happened was we saw a substantial increase in the uses in MTBE in 1992 with wintertime fuel and then again in 1995 with RFG.
And as we saw the tanks themselves, many of them did not get upgraded until 1996, '97, '98, as the ten-year deadline approached. And some percentage, about 10 to 15 percent, maybe as many as 20 percent, are still not upgraded. So that was where the problem occurred.
But I think in good measure a number of people, including Congress when it approved the mandate knowing that it required 2 percent and some MTBE would be used, as well as EPA, were aware that there was this possible problem, but that the tanking improvements would solve it.
Chairman CALVERT. Well, I was, I guess, to carry on with what Mr. Barton was saying, we may disagree about the MTBE element, but on the—certainly on the issue of whether or not we tend to impose regulations before we understand exactly what we are regulating or how to regulate it, I absolutely do agree to and that we have a history that Members of Congress are not scientists.
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And unfortunately EPA also has a history of imposing regulations prior to understanding how to impose those regulations. And that is one of the reasons why we are having these hearings.
STATUS OF CALIFORNIA'S REQUEST FOR WAIVER FROM THE OXYGENATE REQUIREMENT
Ms. Oge, based on your July 9, 1999, letter from the California Air Resources Board, requesting a waiver of the oxygen requirement, what do you know about the air and quality—what you do know about the air and quality in California, air and water—do you believe that the request is justified?
Ms. OGE. Mr. Chairman, we definitely know that the State of California is working very hard to identify air quality control strategies. And they are looking right now to address cleaner air quality through revising a number of characteristics of fuel.
Chairman CALVERT. Right. And we have asked, as you know, for a waiver. Are you going to respond to this waiver request shortly?
Ms. OGE. Yes. We are, Mr. Chairman. We have said——
Chairman CALVERT. When do you think we could look forward to that waiver being implemented?
Ms. OGE. We have asked the State of California a number of questions based on the submission that they have given us. We are on a constant dialogue with the state. We have not received the answers from the state office. As soon as we do that, we will work very hard to evaluate the information and respond to the California request.
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Chairman CALVERT. Thank you, gentlelady. Mr. Costello.
BLUE RIBBON PANEL'S POSITION ON UPGRADING UNDERGROUND STORAGE TANKS AND CONCERN OVER CONTINUED LEAKS
Mr. COSTELLO. Mr. Chairman, thank you. As you pointed out, Members of Congress are not scientists, however, we are fortunate to have a scientist on our——
Chairman CALVERT. With the exception——
Mr. COSTELLO [continuing]. On our Panel here today. And Mr.—Dr. Ehlers made a point that I would like to follow up on with Mr. Greenbaum. And, as I understand it, I am trying to—I think Congressman Ehlers made the point about underground tanks. That if, in fact, we corrected the problem, then maybe we would address the problem with MTBE.
Now, I am not asking you personally, but I am asking you for the Panel's findings. The Panel found otherwise. Is that correct? In other words, you—the Panel recommended an integrated approach to this whole issue.
Mr. GREENBAUM. Right. The Panel did not—felt that we absolutely needed to complete the process of upgrading the tanks, but the time it has taken us to do that and the fact that some percentage of the tanks that have been upgraded, have continued to leak. And I should be real clear here.
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We are not necessarily talking about the tank itself. In many cases, the leak is not the tank. The tank—the leak, it may be because of an improperly installed pipe leading to the tank or to spillage and improper spillage control.
But the Panel felt that those improvements to that tank program, (A), would probably not be sufficient, and, (B), would probably, certainly in a time—would not happen on a time table that was sufficient to ensure that we would not be significantly compounding the MTBE concern.
Mr. COSTELLO. Let me try and help my colleague, Mr. Barton, out here for a second. Did any—you indicate in your testimony that the Panel agreed broadly that the use of MTBE should be reduced substantially. Was there any one member of your Panel that did not agree that we should reduce the use of MTBE?
Mr. GREENBAUM. Yes, there was. Actually, first of all, I wanted to clarify that we did not, as a Panel, call for the phase-out and the ban of MTBE. That is an important distinction. There were members of the Panel who felt that, but we thought, at lower levels, based on the data we had, it could be used with less concern.
But the—as I noted in my testimony, the representative of the—on the Panel representing the MTBE industry, indicated that they—she felt that, in fact, fixing the tanks would be adequate. And that was a dissenting opinion that was reported with the Panel's report.
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Mr. COSTELLO. Were there other members of the Panel that agreed with her?
Mr. GREENBAUM. There were no other ones who indicated an agreement with that.
TIMEFRAME FOR PHASEOUT OR BAN OF MTBE
Mr. COSTELLO. Okay. Let us talk for a moment about the time frame for a phase-down or a phase-out if, in fact, we proceed in that direction. If, in fact, we are going to phase out or completely eliminate MTBE, what type of a time period are we talking and what disruption to reformulated fuel supplies would we be seeing?
Mr. GREENBAUM. We looked at two analyses that have been done of this question. One, by the California Energy Commission, specific to California, and the second by the United States Department of Energy for the whole eastern United States.
And based on the data they had and how long it would take and what impacts would be, made the recommendation that we thought the—a substantial reduction should occur over a 4-year period. And we felt that we could make that recommendation with some assurance that that would give adequate time for the creation of infrastructure or actually the conversion of some MTBE plants to make alkylates, which is another—an alternative source of octane and for the increase in the availability of ethanol in order to provide a minimal impact on either fuel supply or cost.
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Mr. COSTELLO. And when you talk about the Panel talks about a substantial reduction, what are we talking about when we talk about substantial?
Mr. GREENBAUM. As only a Member of Congress can understand, the crafting of agreed-upon language can sometimes be challenging. And we did not come up with a specific number. We did use an example which would be a substantial reduction to levels, historical levels, of MTBE use. MTBE has been used for over 20 years, starting in the late '70s, to replace lead and was used in about 1 to 2 percent of the fuel as opposed—on average—as opposed to the 11 percent that is used in RFG.
MORE ON COSTS OF TREATING MTBE IN DRINKING WATER
Mr. COSTELLO. Mr. Beuhler, you talked about cost and I was interested in a comment that you made to—and I would like you to state it again. Did I understand you right that to some families it would cost $25 a year? That doesn't sound like a substantial cost to a family. Can you elaborate on the cost, one, of, in fact, treating and trying to remove MTBE from the water to eliminate the taste and odor, both for residential use and commercial, as well?
Mr. BEUHLER. Yes. That is the best case that it will ever be in terms of removing MTBE if it gets into the water. If it is in surface water, it is nearly impossible to remove economically because surface plants don't remove it at all.
Ground water is not usually treated unless there is a separate contamination problem. And so if there is room, if the local community agrees, then a technology like air stripping may well end up with a cost of $25 or $30 per year per family in perpetuity.
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However, the difficulty comes in when either, one, a well doesn't have room to put in new facilities or, if it is a smaller or private well, those costs escalate substantially. And in the case of Santa Monica, they chose—rather to put in treatment right away, they chose to buy an alternative water source. They are looking at a treatment, but they know it will be expensive.
Mr. COSTELLO. Well, I wanted to clarify the point. I didn't want to see a headline read that the average cost will be $25 a year per family.
Mr. BEUHLER. You are absolutely correct. That is the best case it could ever be.
Mr. COSTELLO. And I would like to give Mr. Skinner the opportunity. I think he wanted to make a point.
Mr. SKINNER. Well, it sounds as though we are coming down awfully hard on MTBE and I am not sure that is what we all intended. It is not that MTBE can't be regulated. We regulate much more toxic substances than that. It is that it is not necessary. There are alternatives, whether it is ethanol or something else, that can be substituted for MTBE. And therefore, you avoid the whole problem.
Maybe you—yes, you can clean water supplies if you need to, but there is a cost to it. It is just alternatives do exist.
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Mr. COSTELLO. Mr. Chairman, thank you. And, again, I would like to thank Mr. Skinner and all of the witnesses here today.
Chairman CALVERT. I also would like to thank all of the witnesses and the members who—oh, excuse me. Oh. Yes. I am sorry. Okay. Mr. Ehlers.
POTENTIAL HEALTH EFFECTS OF MTBE
Mr. EHLERS. Thank you. I just wanted to clarify a couple of quick points. Just, first of all, the comments to Mr. Beuhler. If 25 percent of the fuel and the boats and Jet Skis and so forth, in Lake Tahoe is being exhausted into the water and it is hard to clean up surface water, I am amazed you are still allowing those vehicles on the surface of Lake Tahoe, one of the world's most beautiful lakes. And just—that is just a comment.
But my question was, I have heard a lot about the taste and the odor of MTBE. But during the time I have been here, I haven't heard anything about toxicity. Is it a toxic substance, and, if so, on what levels? Is it carcinogenic, teratogenic—any of the other problems?
Mr. GREENBAUM. Perhaps I could speak to that. Actually, my institute conducted a complete review of MTBE in 1996 and of the literature on that. And we did look at ours and other reviews as part of the Blue Ribbon Panel's efforts. It is—the principal concern that has been raised about MTBE is that it does cause cancer in several species of rodents.
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There are questions which both the International Agency for Research on Cancer and the National Toxicology Program here have raised about the relevance of those rat experiments to humans. So it is currently classified as a Class III carcinogen, i.e., not a known or probable, but a possible one along with many of the other——
Mr. EHLERS. And how does that compare to benzene or toulene or some of the other compounds?
Mr. GREENBAUM. Well, benzene is a known human carcinogen. Butadiene is a probable human carcinogen, which is one of the byproducts——
Mr. EHLERS. Yes.
Mr. GREENBAUM [continuing]. Of gasoline combustion. In addition, even if it is a carcinogen, every estimate of its potency, how strong a carcinogen is, places it below those other compounds in its potency. So that it is—in terms of causing an immediate public health threat, it clearly doesn't do it in quite the same way. It is just that we did have—we have cases in Santa Monica where it went to 600 parts per billion, in private wells, where it is in the 100s of parts per billion, where even the best health scientist would say I am nervous about the potential health threats.
Mr. EHLERS. Well, Santa Monica usually leads the world in trends of various sorts. Yeah. Thank you very much.
Chairman CALVERT. Now, we know what the problem in Santa Monica is. I would like to thank the witnesses and certainly the members for attending this hearing. And we are adjourned.
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[Whereupon, at 12:00 p.m., the committee was adjourned]
HEARING ON REFORMULATED GASOLINE (RFG)—PART II
THURSDAY, SEPTEMBER 30, 1999
House of Representatives,
Subcommittee on Energy and Environment,
Committee on Science,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 2318, Rayburn House Office Building, Hon. Ken Calvert (Chairman of the Subcommittee) presiding.
Present: Representatives Calvert, Miller, Biggert, and Costello.
Chairman CALVERT. We will now convene the hearing. The hearing will come to order.
Today's panel is the second part of a hearing that the Subcommittee convened on September 14th on reformulated gas or RFG. The panel on the 14th was composed of witnesses from various federal and state government agencies and two witnesses that shared government studies on oxygenates.
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Today's panel is composed of RFG stakeholders. Unfortunately, a little storm called Floyd blew through here, so this panel which was originally scheduled for the 16th, had to be postponed. So I thank the witnesses for their patience. I am happy that we are here today, safe and dry, to hear your testimony.
For the sake of brevity, and to give members and witnesses as much time as possible for questions, I would ask that at this point in the record a reference be made to my opening statement from the panel on September 14th. Copies of my statement from the 14th are also available just outside the hearing room and on the Science Committee website.
I will, however, summarize some of the points I heard during the first hearing. There is some question about whether oxygenates are required to achieve clean air goals, but the Clean Air Act Amendments of 1990 prevent alternatives from being explored in EPA non-attainment areas.
The Blue Ribbon Panel recommended that the oxygenate mandate be lifted without backsliding on emissions requirements. The Blue Ribbon Panel found significant and increasing contamination of drinking water supplies from a number of sources, but primarily from leaking storage tanks. The cost of removing MTBE from drinking water is significant and could increase with the continued use of MTBE.
Ethanol may be suitable for wintertime use in the Midwest; however, it could be problematic if put into widespread use in California because of supply, cost, and transportation issues, and because of its higher evaporative emissions.
Today we will hear from Dr. Edward Murphy, the Director of Downstream for the American Petroleum Institute; Dr. Al Jessel, Principal Consultant for Fuels Regulation and Emissions Technology at Chevron Products Company, from my home State of California; Mr. Jason Grumet, the Executive Director of the Northeast States for Coordinated Air Use Management, or NESCAUM; Mr. Nick Economides, the Director of Technical Programs at the Oxygenated Fuels Association; and Mr. Eric Vaughn, President of the Renewable Fuels Association.
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These witnesses are here today not only to comment on some of the points I made earlier, but also to discuss the future of the reformulated gas program and its effect on air and water quality also in this country.
I look forward to today's hearings, testimony, and pursuing the subjects in greater detail. But before we get started, I would like to remind the members of the Subcommittee, and our witnesses, that this hearing is being broadcast live on the internet. So please keep that in mind during today's proceedings.
I would also ask for unanimous consent that all members who wish have their opening statements entered into the record. Without objection, so ordered.
I now turn to my distinguished Ranking Minority Member, my good friend, Mr. Costello, for his opening remarks.
Mr. COSTELLO. Mr. Chairman, thank you. And, Mr. Chairman, I want to welcome our witnesses here today for our second hearing on the reformulated gas program and the problems we have encountered with drinking water sources due to the expanded use of the fuel additive MTBE.
At our earlier hearing, we had the opportunity to hear the reports of two independent panels that have recently completed their work on examining aspects of the RFG program. The Blue Ribbon Panel convened at the request of the EPA has provided us with a package of recommendations intended to maintain the air quality benefits we have gained through the RFG program, and to address the water quality concerns that are associated with the increased use of MTBE.
The RFG program has provided us with air quality benefits that have exceeded our expectations. It has also provided us with another significant benefit: the opportunity to develop and expand our use of an alternative fuel, ethanol.
In Illinois, the RFG program has been a success in terms of air quality, and in provided—providing expanded economic opportunities for the agriculture community. I have urged the Illinois General Assembly to work with the EPA on an ethanol-only policy for Illinois' RFGP—RFG program, to benefit the environment and the Illinois farm community.
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At present, we have adequate affordable supplies of petroleum. However, we would be foolish to ignore the long-term situation we face with respect to this critical resource. We do not have sufficient reserves to meet our demand for oil. We must rely on imports that contribute to our trade deficit and which sometimes results in disruptions in supply.
We also must acknowledge that ultimately this resource is not renewable. Therefore, it seems prudent that we invest now to be prepared for a future time when petroleum products may not be as available or affordable as they are today. The maintenance of a market for ethanol through the RFG program allows us to do that. It is a small price to pay for expanding our future energy supplies.
As we examine our options for addressing the water quality problem that has arisen, I want to ensure that we do not sacrifice any of the benefits that we have achieved with the RFG program.
Again, Mr. Chairman, I want to thank all of the witnesses for appearing here today, and thank you for calling this second hearing on the RFG program.
Chairman CALVERT. Thank the gentleman.
Ladies and gentlemen, it is our policy to swear in all of the witnesses, so if you will stand and raise your right hand. Do you swear to tell the truth, the whole truth, and nothing but the truth, so help you God? Thank you. You may be seated.
Let the record show that all of the witnesses answered in the affirmative.
Without objection, the full written testimony of all of the witnesses will be entered into the record. However, I would like to ask you to summarize your testimony in 5 minutes, so we will have plenty of time for questions. So without further delay, Dr. Murphy, you may begin.
Dr. MURPHY. Thank you very much. My name is Edward Murphy. I manage Downstream activities for the——
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Chairman CALVERT. Doctor, would you please turn on your microphone.
STATEMENT OF DR. EDWARD MURPHY, MANAGER, DIRECTOR DOWNSTREAM INDUSTRIES SEGMENT, AMERICAN PETROLEUM INSTITUTE
Dr. MURPHY. My name is Edward Murphy. I manage Downstream activities for the American Petroleum Institute, a trade association with more than 400 companies of all sizes.
MTBE has been widely used in gasoline for about 20 years; first, in limited quantities to enhance octane as lead was removed, and, more recently, in far greater quantities to add oxygen to cleaner burning fuels, especially reformulated gasoline.
It is important to be clear on one important fact: oxygen is not added to reformulated gasoline because it is necessary to reduce smog. It is added because the Clean Air Act Amendments of 1990 require it. Before the legislation was passed, refiners stressed that the mandate for oxygen wasn't necessary and urged setting a simple performance standard instead, but their advice was not taken.
This, therefore, should not be a debate about MTBE or other oxygenates. It should be a debate about mandates for a gasoline formula and how they hinder our common objective of working for an even cleaner environment at the lowest possible cost to the economy and to the consumer.
In other words, we need to focus first on the oxygenate mandate in addressing MTBE, a strategy that NESCAUM, the State of California, and EPA's Blue Ribbon Panel have all endorsed. Specifically, the panel recommended that MTBE use be phased down to lower levels, provided the phase down is gradual and provided it is preceded by repeal of the mandate.
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This strategy would give refiners time to make needed changes as cost effectively as possible and maximize their options for making cleaner burning gasoline that meets environmental performance standards set forth in the Clean Air Act. This would be in the best interest of the environment, the consumer, and the economy.
By contrast, phasing down or banning use of MTBE without repealing the federal oxygenate mandate would create new problems. Leaving the mandate in place would mean substituting another oxygenate, almost certainly ethanol, for the volume of MTBE now used.
But ethanol is not an environmental panacea. Both EPA's Blue Ribbon Panel and the State of California have called for more research on the impact of increased use of ethanol on groundwater. Very little is now known. Also, blending of ethanol in gasoline tends to boost emissions by increasing the evaporation rate of gasoline, and it can increase the overall toxicity of emissions.
Air quality regulators are well aware of these shortcomings, and they, in part, explain why refiners today mostly use MTBE to make reformulated gasoline.
Massive use of ethanol would also present distribution problems potentially raising costs. That is because ethanol can't be added to gasoline and then shipped through pipelines, as most fuel is transported. Because of its propensity to mix with water, which is found in small quantities in pipelines, ethanol has to be blended close to the site where it is marketed.
Moreover, expanded use of ethanol would reduce revenues to the Highway Trust Fund by about $ 3/4 billion more each year, owing to a tax break of 54 cents for every gallon of ethanol used. This is in addition to the roughly $1 billion per year in current government supports to ethanol. Less revenue to the trust fund means less resources available to build and maintain our highways and bridges, or higher taxes to make up for the shortfall.
Many of our companies use ethanol today, and they will continue to use it to meet their customers' needs. However, banning or phasing down MTBE use without repealing the federal oxygenate mandate would be extremely short-sighted and not in the national interest.
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We also believe that if federal action is taken to address MTBE, it should be handled in a two-track manner. California, which faces unique environmental problems, possesses unique legal authority, and constitutes a gasoline market all by itself, has already begun a phaseout of MTBE. It has developed a board consensus as to how this phaseout should be handled, and federal legislation is needed quickly to remove the overlapping federal oxygenate mandate in time for refiners of California gasoline to meet Governor Davis' order smoothly and efficiently.
We urge Congress this year to pass H.R. 11, which is supported by almost all of the entire—almost all of the California delegation.
Other states may try to follow through on their phaseout of MTBE, although a strong argument can be made that they lack the legal authority to do so. However, if the states act, the result could be a hodgepodge of requirements that would likely raise costs and reduce flexibility in the fuel distribution system.
Congress should carefully evaluate the primary recommendations put forth by the Blue Ribbon Panel and NESCAUM for addressing this issue in the northeast and elsewhere.
In conclusion, we look forward to working with this Committee and other stakeholders to address concerns about MTBE in a practical, effective manner. Once again, the first step must be repeal of the federal oxygenate mandate.
Thank you.
[The prepared statement, biography, and financial disclosure of Dr. Murphy follow:]
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Chairman CALVERT. Thank you for your testimony.
Dr. Jessel.
STATEMENT OF DR. ALFRED J. JESSEL, PRINCIPAL CONSULTANT, FUELS REGULATION AND EMISSIONS TECHNOLOGY, CHEVRON PRODUCTS CO.
Dr. JESSEL. Thank you very much, Mr. Chairman. It is my pleasure to be here talking before the Committee today.
Chairman CALVERT. Mr. Jessel, please turn on your microphone.
Dr. JESSEL. I am not used to this technology. I am going to use a little bit here in a second; see if that works.
My name is Al Jessel. I am a Senior Fuels Regulatory Specialist with Chevron Products Company. To our knowledge, we are the largest manufacturer—Chevron, that is—of California cleaner-burning gasoline, although with the way mergers are occurring these days things can change almost overnight.
Our customers in the State have said that they want MTBE out of their gasoline, and so do we. In California, over the last 2 years, Chevron has produced and sold over 900 million gallons of California cleaner-burning gasoline, which I am going to call CBG here for short, with either reduced amounts or no MTBE in it added at all.
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However, because of federal law, Mr. Chairman, we are not allowed to sell a drop of that gasoline in your district. Changing that requires Congress to pass H.R. 11, sponsored by Congressman Bilbray, which you and 50 other members of the California delegation are co-sponsoring. H.R. 11, which applies only to California, would remove the unneeded, yet overlapping, federal reformulated gasoline requirements.
The diagrams I am about to show you depict the refinery blender's view of the world of gasoline specifications. And you can bring the first one up now, if you want.
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As one progresses across the range of gasoline reformulations for emissions control from conventional gasoline to federal reformulated gasoline to California reformulated gasoline, more specifications are added and others become tighter. This produces a blending bull's-eye which shrinks with each added constraint.
This first diagram you see here is kind of the way we view conventional gasoline. There is no numbers associated with this. It is a graphic to illustrate the way we look at gasoline blending.
This conventional gasoline makes up most of the gasoline sold in the United States, and we can hit that target pretty easily. It is pretty big.
In 1990, however, when Congress reauthorized the Clean Air Act, they established a recipe for federal reformulated gasoline—RFG for short—including a minimum oxygen content. Well, what happened—the bull's-eye we had to hit became smaller.
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However, the story doesn't end there. In the 1977 Clean Air Act Amendments, Congress allowed California alone among the states the express authority to establish its own fuel regulations to help tackle the state's unique air quality problems. In 1996, California CBG was required for sale by state law.
The next chart shows how the specifications tightened for current California CBG. Today, you have to be a pretty good marksman to consistently hit that bull's-eye in California. The story doesn't end with CBG. As you know, the Governor of California has ordered MTBE out of gasoline, effective December 31, 2002.
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The fourth diagram shows that our bull's-eye will shrink yet again, even without a specification change. Why? Because MTBE is a great component for making CBG. Without it, blending gasoline becomes more constrained.
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Since we can't sell gasoline that misses the target, removing MTBE has implications for the reliable supply of gasoline to the California consumer. To smooth the transition to MTBE-free gasoline, refiners need flexibility to reexpand that bull's-eye. Removing the overlapping federal RFG oxygen mandate would be a big step in the right direction.
Practically speaking, 70 percent of gasoline sold in California falls under both the federal reformulated gasoline rules and the more stringent state rules. The overlapping federal rules needlessly complicate gasoline blending in California and should be removed by passing H.R. 11.
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This next chart shows that California CBG is better than federal RFG in reducing nitrogen oxides and volatile organic compounds, the emissions that lead to ozone formation. CBG is also better at reducing air toxics.
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Since state law sets the emissions performance of CBG, the overlapping federal requirements do not change this relationship, but they do complicate and constrain blending. Most important among the several areas of overlap, federal reformulated gasoline rules require year-round oxygen as mandated in the 1990 Clean Air Act Amendments, but California rules do not.
This requirement reduces the size of the bull's-eye without providing a direct benefit for ozone control. In contrast to the other specifications for California CBG, the oxygen content is prescriptive; that is, it mandates a recipe for how gasoline should be made rather than how it should perform.
And it is the performance specifications, not the oxygen, that drive CBG's exceptional emissions performance. Let me repeat this key point. It is the combination of the seven other specifications that are responsible for the emissions reductions of CBG, not the oxygen content.
Remember, Chevron has made almost a billion gallons of CBG with little or no oxygenate meeting all state requirements for sale to consumers in the parts of California where the overlap doesn't exist. Unfortunately, Mr. Chairman, this does not include your constituents, since they live in a federal RFG area.
We are often asked why we don't simply switch from MTBE to ethanol. The answer is that we will, to some degree, regardless of whether H.R. 11 passes or not. But the switch is likely to be quite a bit bumpier for consumers if Congress does not, at the same time, provide relief from the oxygen mandate to the State of California.
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Why? Because adding ethanol to gasoline increases the volatility of the mixture roughly 15 percent. Dr. Murphy explained that well, so I will skip over that piece to try to keep on the clock, which I guess I am not going to anyway. But I just have one more moment.
If the current rules don't change, all this means that the use of ethanol year-round will add significantly to the cost of producing California CBG. On the other hand, the Energy Commission—California Energy Commission—in a followup study sponsored by Chevron, showed that should the oxygen mandate be lifted, refiners would still use plenty of ethanol and the cost impacts of MTBE removal would be half.
Why? Because refiners will use the economic amounts of ethanol, utilizing its advantageous blending properties, such as high octane, while working around its volatility problems. That is what we mean by flexibility.
We know that this is an ongoing debate in the national impact—on the national impact of these issues that will likely take Congress some time to resolve. But California needs a solution now. California needs the passage of H.R. 11 this year, so refiners can make the right investment decisions now for removing MTBE by Governor Davis' deadline.
Along the way, we can begin to sell the gasolines of the future to your constituents today, Mr. Chairman.
Thank you for this opportunity to testify.
[The prepared statement, biography, and financial disclosure of Dr. Jessel follow:]
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Chairman CALVERT. Thank you.
Next, Mr. Grumet.
STATEMENT OF JASON S. GRUMET, EXECUTIVE DIRECTOR, NORTHEAST STATES FOR COORDINATED AIR USE MANAGEMENT (NESCAUM)
Mr. GRUMET. Thank you, Mr. Chairman. My name is Jason Grumet, and I am the Executive Director of NESCAUM, which for about 30 years has been providing the states of the northeast with regional solutions to their shared environmental and economic issues.
I appreciate the opportunity to be here today. I hope that my role is more than just serving as a buffer between my friends in the oxygenate and oil industry. But I would like to share with you a few things.
And before I get into a summary of my testimony, there are really two principles that I have distilled during the past year, the better part of which I spent either on the Blue Ribbon Panel or doing a study on RFG for the northeast states requested by Governor Shaheen. And the first of those principles is essentially states' rights, that states must be granted the measured authority to protect their natural environment.
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And I think it is a surprise to many people, certainly many people in our state legislatures, that our states simply do not have clear authority to regulate MTBE, which they believe is posing a threat to the water resource.
Secondly, no matter what we do, we can't make air quality any dirtier. Already we have just witnessed the end of a reasonably bad ozone season in most of the northeast in the Nation.
In addition, several toxic pollutants that are offset by MTBE, known carcinogens like benzene and butadiene, are already exceeding health thresholds throughout not only our region but most of the Nation. So, obviously, we need to find a solution that at least holds the line, if not, in fact, moves things further.
What I would like to do is just touch on our present situation, say a few things about MTBE, and then talk about what we hope is a legislative prescription that you will be willing to entertain. Our region has much at stake. MTBE and RFG have been one of the more important environmental programs that we have put in place in the last year to protect air quality.
And, clearly, we also have much at stake because we are finding that the unique properties of MTBE are posing a disproportionate risk to water resources in our region. This tension requires the ability of states to balance the benefits of RFG and MTBE against these risks. But when we try to do that, what we run into is very inflexible federal mandates.
What we find is that we are forced to use an oxygenate, and, more importantly, that statutory obstacles exist which prevent our states from regulating MTBE. This one size fits all federal prescription gives our states a very unfortunate choice between either perpetuating the RFG program and perpetuating the risks that MTBE is posing to our water resources, or sacrificing that program and abandoning very real health benefits. Obviously, that is not a choice that any of our governors are happy with.
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With regard to MTBE, in particular, one has to think about MTBE in the context of gasoline. MTBE is not good stuff. If you found it in your milk, you should be very upset. Gasoline, however, is a mixture of dozens of toxic and several known human carcinogens, such as benzene.
And when you look at MTBE in that context, you realize that we need to be quite careful before we move to ban a substance, because in the Northeast we fear that the only immediately available substitutes to MTBE will be more of these toxic chemicals like benzene or the aromatic compounds.
Over the long term, we think it is very possible that ethanol or alkylates or other compounds will be brought to the fore, which could replace MTBE, but we want to be cautious. And it is towards that end that we would like to suggest a few legislative ideas.
The first is, of course, to lift this mandate or waive the mandate in states that can demonstrate that their water resources are at risk. What is critical for us, obviously, is that this is a national solution. We certainly understand and recognize that California has some unique air quality problems, and toward that end have supported California's unique authority as it relates to regulating vehicles and fuels.
This is not a unique problem for California. This is a problem which is absolutely shared by every state which has been part of the federal reformulated gasoline program or wants to be part of that program. So we think a California solution would really be bad policy for the Nation.
Secondly, states have to have the ability to regulate. As is often the case, the pendulum in this debate swings between the polemic of a mandate on one side or a ban of MTBE on the other. Neither, we believe, are responsible policies. The truth is, it often does lie somewhere in the middle. A ban on MTBE, we think, would be as inflexible and intrusive as the mandate that we are all striving to have lifted.
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And, finally, an issue which is probably one that we will raise more than most, is the question of no backsliding. Reformulated gasoline is achieving 75 percent more toxic benefits than the Clean Air Act will require in the year 2000. If we are going to create the flexibility, as Mr. Jessel and others have asked for, to create a bigger bull's-eye for them to refine to, we need to make sure that that does not happen at the cost of the environment or public health.
Thank you.
[The prepared statement biography and financial disclosure of Mr. Grumet follow:]
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Chairman CALVERT. Thank you.
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Mr. Economides.
STATEMENT OF NICHOLAS L. ECONOMIDES, DIRECTOR OF TECHNICAL PROGRAMS, OXYGENATED FUELS ASSOCIATION
Mr. ECONOMIDES. Good morning.
Chairman CALVERT. Try to get that mike. Push that button again.
Mr. ECONOMIDES. Is it on now?
Chairman CALVERT. Yes.
Mr. ECONOMIDES. Okay. Good morning, Mr. Chairman. We, too, appreciate the opportunity today to comment on the present and future outlook for the reformulated gasoline regulations.
I will skip over the recommendations of the Blue Ribbon Panel. We are all aware of what is contained there.
From our industry's perspective, there are three major considerations that have been largely lost in the rush to judge MTBE. The first is that there really hasn't been any rigorous assessment of the benefits and risks associated with its use. The second is that its air quality benefits and gasoline market stability contribution has been substantially undervalued. And the third is that MTBE replacement scenarios seem to be overly optimistic in assessing the suitability and availability of alternative gasoline—clean gasoline burning blend stocks.
As a result, scientific reviewers have felt compelled to adopt a posture of prudent avoidance as it concerns MTBE. But the two key questions I had of you today are the following: first, is phasing down MTBE necessary to protect the Nation's groundwater resources? Or is it merely a convenient band-aid to hide the ugly truth about the status of our gasoline leak prevention programs?
The second question is: can we produce a replacement fuel of comparable environmental quality, in sufficient quantity and at a reasonable cost, without MTBE?
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The challenge is to replace politics and emotion with a careful consideration of the scientific facts as you consider these questions. Remember, there may simply not be enough degrees of freedom to simultaneously satisfy the environmental, health, and economic considerations overlaid in the MTBE puzzle.
The absence of a proper risk assessment on MTBE is perhaps the easiest to understand. The task is extremely complex. It involves both air and water impacts and has been widely depicted as both a health and an environmental concern. Although isolated reports of health concerns still arise, it now seems well understood that at the levels detected in groundwater, MTBE does not pose a health risk. Thus, the issue of risk with MTBE lies squarely on groundwater impacts.
Inaccurate claims regarding widespread drinking water contamination and fears that it will only get worse in the future abound. What is missing is a clear definition of what is considered acceptable risk and a scientific demonstration that reduced MTBE use is necessary to get us there.
Closer inspection of the contamination data reveals that there has been no appreciable contamination of public water systems. And when we remove monitoring wells from the list of contaminated wells, the perceived threat to groundwater resources is greatly reduced. This is before we even consider that most of this data was gathered before the deadline for upgrading underground storage tanks in December 1998.
MTBE has been detected in less than 1 percent of California's drinking water, and we expect that after full implementation of tank upgrades this figure will decrease to negligible levels.
Yes, compliance with underground storage tank regulations is still lagging. But the risk posed by gasoline components to groundwater should be assessed on a going-forward basis. The conclusion that the recently implemented tank upgrades will not be sufficient to contain the risk in the future is not supportable.
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The University of California MTBE shows that complying tanks reduced leaks by nearly 97 percent. We believe that with a combination of enforcement improvements and enhanced gasoline handling practices the balance can be effectively addressed. It is simply premature to advocate reduced MTBE use without adequate quantification of the positive impacts of these programs.
Let us move on to the benefit side of MTBE, and there are benefits, despite reports to the contrary. Throughout the process, it has been convenient to ignore them, downplay them, ascribe them to other fuel parameters, or to automotive technology advances.
They include impacts such as improved combustion before a vehicle's catalytic converter kicks on, the leaning out benefit for offroad engines without catalytic converters, lower combustion deposits and associated decreases in particulates, dilution of gasoline undesirables, such as aromatics, benzene, olefins, and sulphur, and, of course, the favorable drivability impacts associated with improved mid-range volatility.
There can be debate on how to quantify this. There can be no argument on how these have impacted the overall RFG program that was built with oxygenates at its cornerstone. It appears that refiners have clearly misrepresented the degree of difficulty associated with replacing MTBE.
In California, they are already asking for relief as they try to provide an equally performing clean-burning gasoline without MTBE. Ultimately, it is true, the marketplace will reflect the wisdom of whatever decision we make on MTBE.
There can be no doubt that oxygenates help extend the Nation's fuel supply. This helps keep prices in check and helps overcome spot shortages when they do occur. But remember, more MTBE was used in California recently to help overcome gasoline shortages brought about by refinery hardware problems.
MTBE reduction scenarios should be carefully reviewed to evaluate the variability and implications of replacement blend stocks. Such replacement blend stocks should be exposed to the same degree of scrutiny through fate and transport analysis, health and environmental impacts, that MTBE has.
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In summary, we expect that America's leading oxygenate of today will continue to play a major role in the future of clean fuel programs. We believe that the worst of our contamination problems is already behind us, and that MTBE used in gasoline does not preclude us from having both clean air and clean water simultaneously.
We are confident that you will recognize the contribution of oxygenates in the Nation's fuel supply, and the ongoing fight for clean air, and will protect the best interests of both the environment and the American motoring public.
Thank you, and forgive me for being a little long.
[The prepared statement, biography and financial disclosure of Mr. Economides follow:]
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Chairman CALVERT. Thank you.
Mr. Vaughn.
STATEMENT OF W.H. ERIC VAUGHN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, RENEWABLE FUELS ASSOCIATION
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Mr. VAUGHN. Mr. Chairman, Mr. Costello, I appreciate the opportunity to be here. And while I know Hurricane Floyd disrupted many lives, certainly in a devastating way in the south, it actually provided us with a unique opportunity, because when you had this hearing scheduled originally, I was asked to testify before the City Council of Chicago, and the State legislature in Illinois, and the State legislature in Iowa, all in the same day. And we got it in and took care of it.
It was a unique opportunity to be this far away from Washington—to be that far away from Washington to testify about this controversial reformulated gasoline program, and how awful it has become, and how outraged consumers are about the reformulated gasoline program. However, I was in the Midwest, in Chicago, Milwaukee, and northern Indiana, the areas of the country that are all ethanol reformulated gasoline.
There is no controversy involving the role of ethanol in the reformulated gasoline program, except for the concern, the fear, the problem that Californiafication will happen in the Midwest. They don't want your MTBE in the Midwest. They want the reformulated gasoline program they have.
There is absolutely nothing that prevents people in the Midwest from stating their very strong belief from the Governors—Governor Thompson and Governor Ryan—right on down through their administrations. But you have never seen an angry and a frustrated and an upset mayor like Mayor Richard Daley when he begins to calculate the implications of an MTBE program, the possibility of water contamination, but the certainty of displacement of ethanol blended fuels in this marketplace. Let us say he is livid, and we will leave it at that.
The point is we have a program that works. It works very effectively. This Congress, in 1990, worked aggressively, and, quite frankly, Mr. Chairman, effectively trying to bring together oil, ethanol, agriculture, chemical, clean air, autos, NESCAUM-like organizations, all of us coming together to pass and approve historic Clean Air Act Amendments.
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The oxygenate requirement didn't come out of the sky. It came out of the front range of Colorado, where 5 years earlier it had been used as a way to get CO levels down. It became in the Senate the Clean Octane Amendment. It was the only amendment approved in the Senate floor that year, and it had 67 U.S. Senators from both sides of the aisle, and all over the country supporting it.
Dare I say the American agriculture—farmers—we have got farmers in this audience today—work their butts off to get that Clean Air Act Amendment passed, not just theirs, the entire package. They thought you cut a deal with them. They thought you encouraged them to invest in ethanol production. Guess what? They did.
We have doubled the size of our industry in the last 9 years. We have added $3 billion in investment to it, and I know almost everyone in the country thinks all of this is ADM. I am here to tell you there are 67 ethanol producers, and all of that expansion was farmer-owned co-ops.
They are the largest single producing element in our industry today, and they are sitting out there with surplus production because they can't get into the California market, and frustrated as all get out because somebody might try to slip in an amendment just to let California slip out.
Well, there is one small flaw in that agenda, and it is the following. We don't object to California's trying to protect your air quality and your water quality. We agree with that agenda, and you shouldn't have to sacrifice one for the other.
What are you going to do with all of that MTBE once it is phased out of your fuel? Where is it going to go? How is the rest of the country going to address its MTBE problem or fuel oxygenate problem? This is a national program and deserves a national solution, not a piecemeal or patchwork one.
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The ethanol industry agrees with much of what Jason Grumet and the Blue Ribbon Panel report suggested, but the fact of the matter is we need to adopt national solutions to address some national concerns and problems. The ethanol industry, on September 15th, had the best news it has had with the reformulated gasoline program in 5 years. And that is the following: 1,272 stations have converted out of MTBE and into ethanol, along the eastern seaboard from Philadelphia to just south of Boston.
Sixty-one gasoline terminals, as of today, offer ethanol blends. And ethanol blends will meet all performance, all emissions, and all consumer expectations for high quality, high impact, low emissions fuel in the reformulated gasoline markets in six of the most congested states in the country.
We think this is only the beginning, we hope the beginning of a very positive opportunity to use the reformulated gasoline model that Chicago, Milwaukee, and northern Indiana, 27 midwestern counties in total, have followed to the letter, your law, ethanol, to meet high performance standards, high performance standards for consumers, and greatly reduced emissions, meeting and exceeding clean air goals and objectives.
Mr. Calvert, thank you very much for the opportunity to be here, and I look forward to questions.
[The prepared statement, biography and financial disclosure of Mr. Vaughn follow:]
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Panel Discussion
Chairman CALVERT. Well, we will have some.
INCREASED REID VAPOR PRESSURE (RVP) CONCERNS WITH THE USE OF ETHANOL
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This question is for the entire panel. In its report, the Blue Ribbon Panel views ethanol as an effective fuel blending component, but it raised several air quality concerns. Specifically, the report notes that the increased use of ethanol could raise the possibility of increased ozone precursor emissions as a result of commingling in tanks if ethanol is not present in the majority of the fuels.
The first question is: are you aware of any research to evaluate the air quality impact of increasing the use of ethanol in non-attainment areas? This is for the entire panel. Dr. Jessel.
Dr. JESSEL. I would be happy to take that—start at that from the technical aspect of it. It is an indisputable fact that when you take ethanol and add it to gasoline the measure of volatility, called the Reid Vapor Pressure—goes up by about 1 pound. And we are typically regulated between 7 and 10 pounds across the country, and adding that 1 pound you can see makes a big, big difference.
One of the things that we face in California is that we have very, very strict volatility controls. We are controlled at the lowest level of any area in the country at 7 pounds. Many of the northeast areas meeting the federal RFG requirements are allowed to go much higher than that in RVP. So, in fact, under the current federal gasoline rules, ethanol is a whole lot easier to use in the northern tier of the country under federal gasoline rules.
But, in California, we have very, very strict RVP controls. So the use of ethanol and having to meet that strict RVP standard is very difficult for a refiner, since we are already at 7, the ethanol, if we put it into gasoline, is going to push us up above 7. So we have to do something to gasoline to take it down below 7, so that when you add the ethanol you are back where you started from.
And that is very costly for a refiner. It also takes blend stock which is perfectly good gasoline blend stock and essentially makes it a waste product. And we have to move it out of gasoline somewhere. That has supply implications.
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So what I wanted to do is draw the distinction between what you see going on in the Northeast, as Mr. Vaughn talked about, and what our situation is in California.
Chairman CALVERT. Any other comments? Mr. Grumet.
Mr. GRUMET. If I can add from a northeast perspective, I don't think it is quite as disparate as Dr. Jessel would suggest. We agree entirely with his suggestion that while the volatility of gasoline is critical to our ozone problem, when we do things to reduce ozone, usually it is hard to find a cause and effect because there are so many different factors in terms of meteorology and under different control programs.
The one time that our regulatory community believes with real certainty that they saw an immediate result was when we reduced volatility back in the late 1980s in the Northeast. So we are very concerned about increases in volatility, and I would add that that concern is most acute during the summer months. And this is something that I think may be important to an ultimate resolution here.
We recognize that in order for legislation to move, that gives us the flexibility from the mandate we need, there has to be some consideration for ethanol. We think that Senator Daschle has created an interesting notion of a renewable fuel standard, which lets the ethanol be used where it is most economical, and would hopefully allow us to segregate it outside the 5 summer months when our ozone problem is most severe. And so we think that there may be ways to navigate these concerns, but they cannot be avoided.
Chairman CALVERT. Mr. Vaughn.
COMMINGLING OF ETHANOL AND OTHER OXYGENATED FUELS
Mr. VAUGHN. Mr. Chairman, I thought your question was specific to commingling, so let me try to answer your question on commingling. There are many factors involved in the commingling of fuels—fuels that may contain MTBE, may contain ethanol, and may contain neither of the above. And it depends on where the commingling occurs—in the gasoline storage tank at the service station, or in the vehicle itself.
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There is an enormous amount of database on the vehicles that the auto manufacturers have put together, quite extensive and very impressive. And much of the commingling effect depends on factors such as, do you purchase your gasoline at the same service station? How often do you purchase? Do you purchase when your tank is 3/4 full? My wife waits until it is completely empty, for example—in fact, more than empty. But it depends on when you make those decisions—has an impact on commingling.
It is important, though, to point out, Mr. Chairman, that Dr. Jessel is correct. I hate to agree with someone as sharp as Dr. Jessel all the way from Chevron, but I have to agree completely that it is an indisputable fact that you do increase fuel volatility by blending ethanol in that fuel. It is also an indisputable fact of law that you cannot offer such a product in the marketplace.
Chicago marketers are not offering a 1 pound vapor pressure increased fuel. Neither could you in California. The reality is we need to meet those objectives, those requirements, and the fuel manufacturers in the Northeast and Midwest are. And I think they would also dispute Chevron's contention that their fuel issue and situation is a far more complex one.
Next year, in the summer of the year 2000, the entire country will have a southern-based standard and/or a California-based RVP requirement standard in their fuel.
NATURE OF RVP INCREASE WITH THE USE OF ETHANOL
Mr. ECONOMIDES. Mr. Chairman, there are a couple of things that need to be pointed out. Dr. Jessel is correct. What Dr. Jessel probably forgot to say is that that bump in RVP of nearly a pound occurs after the first 1 percent of ethanol is added in the fuel. You don't need to put 7 or 10 percent in the fuel. The presence of a tiny amount of ethanol is sufficient to move the vapor pressure of the entire fuel up almost instantly.
Second, the issue of, how do you protect the real world impact is a critical one here. When you are talking about releasing a refinery blend at a constant regulated RVP level, that does not offer protection against the commingling impacts that can occur in a customer's vehicle, in a tank. I mean, given the normal refueling patterns of the American public, studies have shown that we will have a 6/10 to 1 pound commingling RVP boost simply because people buy gas in different places at different times.
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And there is nothing about the current refinery standards of what can be released that will protect us from that, save pushing the RVP regulation even further down, which will make it even more costly than was described previously.
BIODEGRADATION AND MOVEMENT OF ETHANOL AND GASOLINE IN GROUNDWATER
Chairman CALVERT. The report—I am going to just carry this through and turn it over to the gentleman from Illinois. The report also notes that the ethanol may retard biodegradation and increase movement of benzene and other hydrocarbons around leaking tanks.
Should this make EPA stop and consider carefully potential unattended consequences before preserving ''all of the opportunities that exist for ethanol''?
Go ahead.
Dr. JESSEL. Start again. The State of California is concerned about the impacts of ethanol in the environment—I mean, after all, seeing what has happened with MTBE leads you to be very, very cautious about replacing it with something else. The State of California is studying very carefully what impact the substitution of ethanol for MTBE is going to have. And so they are examining a wide range of potential effects, and the one that you just mentioned is one of them.
But the science isn't really in yet. We don't really know whether this is going to be a problem or not. But just to explain for a second what the issue is here, it is that ethanol is highly biodegradable, which makes it better in environmental terms in that aspect than MTBE, which is generally not considered to be biodegradable.
So when ethanol is spilled into the ground—the bugs actually love it. They go after the ethanol and can clean it up very, very quickly, before any ethanol has a chance to move very far with the groundwater.
Now, what the theory is—and I want to stress that it is theory and it is unproven yet but needs to be examined, and the State of California is doing this—is that because the bugs like the ethanol so much they leave the other gasoline components alone, which they do also normally go after when they don't have a better meal, such as ethanol, around.
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So, in fact, the theory is is that plumes of other gasoline components can actually be extended a little bit farther because the bugs have gone after the ethanol and have left the other stuff alone. That, again, I need to reiterate, remains yet to be proven. But it is an example of one of the issues that California is very concerned about, in a wholesale replacement of MTBE with ethanol.
Chairman CALVERT. Dr. Murphy, and then we will just kind of move along.
Turn your mike on, Doctor.
POSSIBLE UNINTENDED CONSEQUENCES OF SWITCHING TO A MANDATE FOR ETHANOL
Dr. MURPHY. Just building on what Dr. Jessel had to say, I think that is—what we are concerned about here is, in effect, a removal of MTBE from the market without removal of the mandate and the effective, if you will, mandating then of ethanol, and the unintended consequences that might result.
I think what has happened with MTBE is illustrative of what can happen when we, in effect, mandate fuel composition without having a full and adequate understanding of what is involved there. What we have said is let us know what performance characteristics you want, and we will bring the fuel to the market. And you need not dictate chemical formulas here in the halls of Congress.
Chairman CALVERT. Mr. Vaughn.
RESEARCH ON ETHANOL AND LEGISLATIVE CHANGES IN THE CLEAN AIR ACT AMENDMENTS OF 1990
Mr. VAUGHN. I guess I am stunned by the last comment, but let me get back to your remediation question with ethanol. Not only is California interested in this issue—and I think Al Jessel nailed it perfectly; it is theoretical, but it is being studied and evaluated. The 27 State Governors Ethanol Coalition is using its own resources, some $100,000 University of Oklahoma, to study the same analysis, to turn it over to the State of California to address the issue.
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I would point out that in 52 years of U.S. Geological Survey analysis of water throughout the country, ethanol has never once been found. It won't be found. In that same timeframe, however, in a very short—last several years, MTBE has become the second most commonly found substance that USGS—and I understand the USGS is completing an analysis of MTBE sites and looking at ethanol as well from around the country, and will be reporting to Congress.
On the very last point that was made, though, by the American Petroleum institute, the ethanol industry is not at all shy, nor do we want to avoid an open debate on the Clean Air Act Amendments. And we would consider using the last 9 years of experience not to just look at one fuel component—the oxygen standard—but at several.
For example, and just two examples, if we were writing the Clean Air Act—excuse me, if you were rewriting the Clean Air Act Amendments today, you would probably establish an olefin content standard. You would probably establish a pentane fraction requirement. You would certainly go after some of the heavy aromatics.
You would write things into this, and you wouldn't simply write a blank check and ask the international oil companies to come up with the best fuel formula. We would encourage that debate, and we would like to participate in it.
Chairman CALVERT. All right.
Mr. Costello.
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DISSENTING OPINIONS ON THE EPA'S BLUE RIBBON PANEL
Mr. COSTELLO. Mr. Grumet, you, I take it, were the only witness here today that was a member of the Blue Ribbon Panel. Is that correct? Let me ask you——
Mr. GRUMET. Yes, I believe I was.
Mr. COSTELLO [continuing].—In the first hearing that we had, I asked a question and I am going to ask you the same question. Were there any members of the Blue Ribbon Panel that did not agree that we should reduce the use of MTBEs?
Mr. GRUMET. I believe that the representative from Lyondell Chemical, which is one of the larger makers of MTBE, wrote a dissenting opinion challenging that assumption.
Mr. COSTELLO. And that was the only member, to your recollection, that disagreed?
Mr. GRUMET. That is correct, sir.
Mr. COSTELLO. That is consistent with the earlier testimony from the previous panel.
CIRCUMSTANCES OF MAINE AND NEW HAMPSHIRE'S WITHDRAWAL FROM THE FEDERL RFG PROGRAM
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Now, let me ask you, in your testimony, you said that the States of Maine and New Hampshire have now opted out of the RFG program. What type of fuels are they using now?
Mr. GRUMET. I should say at the outset that they opted out with—there is, you know, great stress. Both the Governor of Maine, Governor King, and Governor Shaheen had fought hard to put those programs in place and maintain them. They opted out under the unfortunate reality that they were told by EPA that they really had no other choice. They wanted to regulate MTBE and stay in the program. They were told they couldn't do that.
The fuels they are getting now are mixed. They are still getting some reformulated gasoline with MTBE, because while they have opted out of the program, the interlinking nature of fuel supply continues to bring reformulated gasoline into the State of Maine. And Maine believes that through a small number of samples of fuel they are getting about half as much MTBE now, having abandoned the program, as they were getting when they were in the program.
New Hampshire has petitioned and indicated that they want to opt out of the program and want a waiver. At the moment, they are wrestling with EPA about whether they, in fact, have the authority to even opt out. There was a regulation which required people to kind of speak now or forever hold their peace. And if you didn't opt out by December of last year, you were committed to be in the program for another 4 years.
NESCAUM STUDY ON THE FEASIBILITY OF SUBSTITUTING ETHANOL FOR MTBE IN THE NORTHEAST
Mr. COSTELLO. Has your consortium undertaken studies to examine the feasibility of substituting ethanol or other oxygenates for MTBE in the time period required for a smooth transition that would prevent disruptions of supplies?
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Mr. GRUMET. We have begun that analysis, and I would like to submit for the record the study that we conducted on behalf of the New England Governors Conference, which raises those issues.
[Study can be found in Appendix 2.]
I think that we are optimistic that over the long-term there is the opportunity to integrate ethanol into the northeast fuel supply, as I said, in the winter. There is also some real optimism that we might over time create a biomass-driven ethanol industry which we think would have profound benefits for the environment, particularly as it relates to energy security and energy savings.
There is a question that your question begs, which is, how long will it take to phase out MTBE carefully? What we have proposed in our recommendations to the northeast governors is that we should have a 3-year phasedown of ethanol and couple that with improvements to the underground tanks program. And we believe that that will adequately mitigate the risk.
We fear that a phaseout in a 3-year timeframe would not provide enough time to bring ethanol or alkylates or something else that was not considerably more toxic than MTBE into the system.
ETHANOL SUPPLY AND THE CALIFORNIA MARKET
Mr. COSTELLO. Mr. Vaughn, how do you respond to those who maintain that there is not enough ethanol to supply the California market, and there are other logistical constraints in the distribution of ethanol?
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Mr. VAUGHN. Mr. Costello, the ethanol industry production base today is just slightly over 1.8 billion gallons. Clearly, on a gallon-for-gallon basis, that is insufficient to meet the entire gallon-for-gallon requirement in the State of California for MTBEs. It is a little over approximately 1.6 billion gallons.
The California Energy Commission itself has done the calculation on the minimum oxygen standard requirement, and that is what is minimally required. Since ethanol has twice the oxygen content approximately of MTBE, it would take, according to the California energy officials—in fact, Governor Gray Davis said it in a meeting in late August himself—approximately 583 million gallons of ethanol will be required, and we can supply that production base today.
Secondly, there is no plan to have that demand met this afternoon. Would that we could have it, Mr. Costello, the impact on our farmers and corn prices would be enormously positive in this difficult time. But they are doing it over the next 3 years and 3 months, plenty of time to phase in 580 million gallons of ethanol.
And lastly, on the issue of logistics, there was a time when we did supply a tremendous amount of ethanol to California. And, today, we have the states surrounded. Every major metropolitan area around the State of California is dominated by ethanol blends required in the wintertime for carbon monoxide control, but in many cases used year-round for performance in octane and consumer preference. So we are already there. We just need to get back into the State of California.
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REFINER FLEXIBILITY, THE OXYGEN REQUIREMENT AND THE CLEAN AIR ACT AMENDMENTS OF 1990
Mr. COSTELLO. Refiners are very clear that they need flexibility in order to meet the RFG requirements. Do you believe that there are other means to provide refiners with flexibility without opening the Clean Air Act and/or eliminating the oxygen requirement?
Mr. VAUGHN. Absolutely. Mr. Costello, absolutely. In fact, some of the suggestions have actually come from some of the major—the more progressive companies, including Chevron on the west coast, as ways to address this. For example, the Clean Air Act Amendments require oxygen content, 2 percent weight oxygen content, on average. The regulation that was implemented by the federal EPA requires that be done on a per gallon basis.
Now, we have suggested that the federal EPA, and I know many oil companies have agreed with this, let us establish an annual average in a covered area. We would suggest that that would be a way of moving MTBE levels down and out very, very quickly, ethanol in very effectively, and would provide, for 5 to 6 months of the year at a minimum, an oxygenate-free reformulated gasoline that some of the oil companies on the west coast claim that they can make today and put in place today.
That could be done without reopening the Clean Air Act, would effectively address the concerns that have been expressed, and do it in a very time-sensitive fashion.
CHEVRON CBG COMPARED TO ETHANOL-BASED GASOLINE
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Mr. COSTELLO. Dr. Jessel, I think I have one more question before we have to leave for a vote. You indicated in your testimony that the cleaner-burning gasoline that your company refines in California outperforms the federal reformulated gasoline with respect to both air toxics and—let me just ask you, how do carbon monoxide emissions associated with CDB—CBG compare with those from ethanol-based reformulated fuels?
In other words, the fuel that you refine now, the cleaner-burning fuel in California, how do carbon monoxide emissions associated with this cleaner fuel compare with those from ethanol-based reformulated fuels?
Dr. JESSEL. Okay. I will take a stab at that.
Mr. COSTELLO. Yes.
Dr. JESSEL. But, first, let me say that carbon monoxide is not considered to be a problem in California in the summertime, because in California cleaner-burning gasolines and federal reformulated gasoline were designed to be used for summertime ozone control. Carbon monoxide is generally a wintertime issue, and the Clean Air Act does mandate a specific oxygen requirement for wintertime gasoline in many areas of the country.
And Mr. Vaughn just pointed out that a number of states outside California do use ethanol in the wintertime, and that is generally to satisfy that particular requirement. So there is that requirement, and that is not being—there is no implication on that program with H.R. 11. H.R. 11 strictly removes the year-round requirement for ozone control gasoline, so wintertime programs would remain in place.
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Mr. COSTELLO. Since we are short of time here——
Dr. JESSEL. Yes.
Mr. COSTELLO [continuing]. Let me just ask the question again. In comparison, how do carbon monoxide emissions associated with the cleaner fuel—forget about the regulations——
Dr. JESSEL. Okay.
Mr. COSTELLO [continuing]. How does that compare to ethanol?
Dr. JESSEL. It is clear that when you add oxygen, whether it is ethanol, MTBE, or any other oxygenate, that you reduce the carbon monoxide emissions from motor vehicles. If you make a cleaner-burning gasoline without oxygen, it is possible that carbon monoxide reduction is not as big, but it may be because when you take MTBE out of gasoline, for instance, you have to make up hydrocarbon reduction somewhere in that formulation.
And that may mean reducing sulphur, reducing some of the other 7 parameters, and, in doing that, you also reduce carbon monoxide. So it is not clear that taking the oxygen out, whether it is MTBE or ethanol, really changes the carbon monoxide performance.
Chairman CALVERT. We are going to suspend. We have a vote. We will be right back in about 10 minutes. We are recessed.
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[Recess.]
Chairman CALVERT. The hearing will come to order.
H.R. 11 AND ETHANOL IN CALIFORNIA
I have a question for Dr. Jessel and Mr. Vaughn. MTBE is being phased out of California. That is going to happen, whether it is under H.R. 11 or a waiver applied for the State of California. But if we do not lift the mandate on oxygenates under H.R. 11, and we move ahead to ban MTBE in California, as we presently are doing, doesn't that, in effect, create a mandate for ethanol and reduce refiner flexibility? And could that raise prices or disrupt supply?
Dr. Jessel and Mr. Vaughn, you can both comment on that, or anyone else, if you would like.
Dr. JESSEL. Yes. With the oxygen mandate that is required by the Federal Government, roughly 70 percent of the gasoline in California falls under that mandate as being in federal RFG areas. There is no practical alternative to MTBE, other than ethanol.
There are a number of other ethers that are talked about that could be used in gasoline and have been from time to time. But they all exhibit the same kinds of properties that MTBE does, both for cleaner air and the impact on the groundwater.
So refiners have no choice but to turn to ethanol. And with the mandate there, we would be using the required amount of ethanol in that 70 percent of California gasoline, at a minimum. Because of logistics, because of the way that gasoline is distributed in the State, and, in fact, ethanol may end up being used in a lot more than just that 70 percent of the gasoline—and the fact is the requirements are that it be added to every gallon of gasoline at a specific level year-round.
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The major element of flexibility that we get with H.R. 11 is that we can decide when and where the ethanol goes based on its economic value. Ethanol has some very, very good blending properties for California gasoline. The RVP is the big problem, and we would very much like the flexibility to be able to blend ethanol to our needs and blend around those RVP problems.
Chairman CALVERT. So you are saying that under H.R. 11 is not precluding the—I mean, we are going to be using ethanol in California. It is just that you want the flexibility to use it when it is unnecessary, not when it is necessary.
Dr. JESSEL. That is correct, Mr. Chairman.
Chairman CALVERT. Mr. Vaughn, any comment about that?
Mr. VAUGHN. Yes, Mr. Chairman. It is interesting that we are discussing H.R. 11. A couple of floors below us may be the first—the first skirmish in the—in what may be a protracted war in this is taking place. And it is unfortunate that it is taking place without debate and discussion on the consequences of this action.
Back up to your very first point, though. The new Governor of the State of California, back in March, proposed under an Executive Order a ban on MTBE and a drop dead date in about 3 years, 3 months from now. MTBE levels have not moved down since that March announcement. In fact, the overall volume of MTBE used in California has risen.
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There is no movement in the State of California, since that March announcement, to move out of MTBE in any of those markets. And the reality is that right now today, as you prepare to leave the summer months, you could be moving ethanol in. There are attainment areas where ethanol could be moving in, and you could be moving it in in a gradual phased-in fashion.
And the reality is that today you do have an MTBE mandate that oil companies have adopted, the California Resources Board put in place for California. And that is true. Under the current Clean Air Act Amendments, while a range of oxygenates could be used, if MTBE goes out, ethanol is likely to come in and be the mandated—under the law—fuel that is used, just as it is used in Chicago and in 37 states all across the country.
Chairman CALVERT. Just to clear up one issue here. Dr. Jessel, MTBE usage is up, but isn't it because of the refiner issues that we are having in California at the present time?
Dr. JESSEL. That is the only explanation I can find, because MTBE has been used by almost every refiner, to the best of my knowledge, since the beginning of the program at about the 2 weight percent level, 11 percent level.
Now, that has dropped a little bit when Chevron started to make non-oxy gasoline. We are a very large supplier in northern California, so that came down a little bit. But it is true, and one of the problems with the ban on MTBE is that you can't then use it to make up for shortfalls in other supplies of gasoline.
Chairman CALVERT. And just one point that it is my prerogative to bring up. Obviously, H.R. 11 is up today, and this is a Committee based upon the science and on these types of things, and it is very important.
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California pays for gasoline anywhere from 30 to 50 cents more per gallon than any other state in the union on gasoline, and probably because we are a stranded market and have our own gasoline requirements in the State of California. So anything that raises or that has the potential of raising prices of gasoline in California—I have probably the biggest commuter district in America; trust me, I hear about it.
So this is a very, very important issue to us. And if there is going to be anything that is important to consumers in California, we want to have clean air. We want to make sure that the oil companies meet the requirements of the Clean Air Act. But we also want to make sure that we keep gas as inexpensive as possible.
So, yes, Mr. Vaughn.
GAS PRICES, ETHANOL SUPPLY AND THE CALIFORNIA MARKET UNDER A CONTINUED OXYGENATE MANDATE
Mr. VAUGHN. Mr. Chairman, the ethanol industry, while we produce 1.8 billion gallons of ethanol, we don't market a single gallon of ethanol to an individual customer. Those are oil customers—companies that do that marketing. And I realize the east and west coasts are different in many ways, but the gasoline product that Getty is making available to its customers in 7 east coast states today is by far and away a more competitive option than any other product with MTBE in that marketplace. And the same would result in your state.
In fact, the 76 stations that offer ethanol blends in the northern part of California are among the most cost competitive gasoline products sold in that marketplace. And we are indeed sensitive to that, but the citizens of California shouldn't have to sacrifice——
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Chairman CALVERT. Well——
Mr. VAUGHN [continuing]. Clean water for clean air.
Chairman CALVERT [continuing]. Let me ask this question, just to clear this up. We are not going to lower our clean air standards in California. All we are saying is we want the option of the oil companies, if the science is there, to allow them the flexibility to use or not use ethanol and still meet the clean air standard.
If ethanol is mandated—you made a comment earlier that there is—you can meet the California requirement. I don't—you know, people have—you understand this, but I don't know if the people in the audience understand it, or others, how huge the California gas market is.
If MTBE, if it is—not if, when MTBE is phased out of California, and if ethanol is required, Dr. Jessel, from your perspective, how much ethanol is going to be necessary in order to meet the California demand? And could that—just that huge amount of demand, what is that going to do to price?
Dr. JESSEL. I get in real soft territory when I talk about price. Let me talk a little bit about refiner cost. Price is set by this mixture of supply and demand, and maybe I should expand a little bit on what we view as being the west coast issue right now.
The west coast, in fact, with a great deal of new driving that is going on, has actually started to get close to outstripping its ability to produce gasoline. So the price issue, as you referred to it, is not just a California issue; it is an entire west coast issue, complicated, of course, by the California regulations.
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Now, as far as cost to refiners go, which in the long term at least does translate into price in the short term—and it is very hard to define those things in short-term prices, though—is determined in a large part by the flexibility we have with which to produce gasoline.
Every constraint, every added constraint that is placed on us as refiners does one thing: it drives up our cost because it takes away some flexibility, and also contributes to the possibility we won't be able to make a certain batch of gasoline, or we make one and it is off spec and then it cannot be shipped.
So, you know, ethanol by itself, if it were available in the California market at all times, you know, it poses a constraint because we have to put it in every gallon. You have to add to that also, though, not the fact that there isn't enough ethanol made to supply the California market, but the fact that it has to be transported from a long way away to get to California.
And one of the things that we are worried about, and one of the things that does contribute to short-term price volatility is the inability to produce the batch this afternoon or the batch tomorrow that needs to be shipped to get to our customers in the next couple of days.
If ethanol supply—if ethanol is required in every gallon of gasoline, and somebody misses a shipment—a rail shipment doesn't arrive, a boat shipment doesn't arrive, a truck shipment doesn't arrive, that gasoline can't move. That is one more way we have of not being able to send gasoline out of a refinery than we have today.
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Chairman CALVERT. I am going to let Mr. Economides comment, and, Mr. Vaughn, I am going to turn it on over to Mr. Costello.
Go ahead.
MTBE AND GASOLINE PRICES
Mr. ECONOMIDES. Mr. Chairman, the obvious answer here is that removing MTBE from California's gasoline or from the Nation's gasoline is not going to result in a price decrease, whether it is ethanol that moves in or doesn't move in. The market is at optimum as we are, and we are only talking about the worst of possible evils when it comes to supply and pricing in the marketplace.
I think that is an important consideration, given the fragility of the market, especially in California, where air quality constraints and other considerations involving hardware have pushed that envelope basically to the brink. I think it is very, very critical that this panel, or any other panel, as we move forward with options and replacement for MTBE, carefully consider the implications not only from a transport and environmental standpoint, but the supply and price implications because it is the motoring public, after all, that will bear the brunt of these impacts.
Chairman CALVERT. I understand that. That is why we need flexibility, because MTBE will be banned in California on December 31, 2002. That is going to happen.
Mr. Vaughn.
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ETHANOL TRANSPORTATION AND SUPPLY
Mr. VAUGHN. Mr. Chairman, the issue of ethanol supply and availability and our ability to supply this market is something that we take very, very seriously. And in 16 years, there has never been a terminal where ethanol has been committed that has not been supplied. We have worked acidulously to make certain that we are a consistent, high quality, available supply of fuel, including in California, all across the country.
We are supplying today the entire Alaskan market. We are all throughout Washington and Oregon, and we are actually producing a little bit of ethanol in the great State of California, and we want to produce more.
Chairman CALVERT. You know, I understand. I have got to turn this over to Mr. Costello, but the enormity of the California market, there is—Alaska probably uses as much fuel in a year as we use in a day in California. So I think we are at 20 percent of the consumption of the entire United States of America.
Mr. VAUGHN. The difference is going to be, where is this oxygenate today? You have a mandate to use an oxygenate requirement. Today it is being met by MTBE. Much of that is coming in in the form of imports from the Middle East.
And I guess what our industry and the agricultural community and the 67 ethanol producers are saying, ''The middle west is not that far. We can supply your market with high quality, high impact, U.S. high octane fuel. Give us the 3 years and 3 months to see if we can work with your industry out there to accomplish it, and keep the clean air and clean water goals and objectives very aggressively being enforced in the State of California.''
Chairman CALVERT. Mr. Costello.
Mr. COSTELLO. Thank you, Mr. Chairman.
Mr. Vaughn, I wonder if you might follow up more on Mr. Jessel's comments about the costs, the transportation costs involved in transporting ethanol, as well as the issue of that you talked about if a batch is not ready, you know, what do we do in California. Can you elaborate more on that?
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Mr. VAUGHN. Ethanol today is manufactured largely in the Midwest. It is largely located on the water-borne system. We are food, feed, fuel, fiber producers. So while we are processing some 680 million bushels of corn today, just to get the starch out we then have to move all of that food and feed and fiber, which is an awful lot more complicated than it is moving ethanol.
Much of that, by the way, is shipped to California in the form of cattle, dairy, and animal feed. The ethanol moves in a network, both supplied by barges and rail, ultimately tank trucks, to some 1,500 terminal locations all across the United States. This is a network that we have worked to build with the oil companies all across the country.
And as I said earlier, we have supplied product to California. We have actually gotten to the point with many of our companies—23 of them, in fact—in various forms of contract negotiations with oil companies in California—and while I am not privy to all of the specific details, the transportation costs are relatively easy to discern. It is approximately 8 to 9 cents a gallon water-borne shipments, anywhere from 11 to 13 cents a gallon rail shipments.
The fact is, we are in the entire border region of California today. Las Vegas uses more ethanol than the entire State of California does today. We ship it there easily, effectively, and cost competitively, both water-borne shipments, over land, coming across California, and direct rail shipments. So this market is being satisfied in a cost competitive and very effective fashion today.
Mr. COSTELLO. And when you responded to the Chairman—and, of course, if I were representing the district in California, I would have the same concerns that he has expressed—when you say, ''Give us 3 years and 3 months,'' you are confident that as an industry, and the ethanol industry, can, in fact, meet the demands of California?
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Mr. VAUGHN. Mr. Costello, we don't treat this lightly. We take it very seriously, and we believe with great confidence. But we can also prove it. There are 425 million gallons of new ethanol production capacity coming online right now today. There are new feed stock activities right now today.
In fact, the Governor of California has one of his studies underway looking at a range of biomass feed stocks. For example, the rice straw industry or the rice straw—excuse me—community and the consumption of that by fire. The conversion of that to ethanol would produce some 280 million gallons of ethanol alone. So, yes, is the answer, an emphatic yes.
Our corn farmers are producing—will this year—10.9—10.7 billion bushels. And one of the problems we have got in the market is that while our exports are falling, our domestic value-added industry is not keeping up. We need to expand that business. So while there were many goals and objectives of the Clean Air Act Amendments, one of them was finding a new range of value-added markets for farmers and for a range of biomass feed stocks.
And, yes, we are exceptionally confident that we can supply this market, and we have been given 3 years and 3 months by the Governor of California to accomplish that goal.
REFINERY DISRUPTIONS AND THE SHORT-TERM INCREASES IN THE USE OF MTBE IN CALIFORNIA
Mr. COSTELLO. Dr. Jessel, this past summer the gasoline supply in California was reduced by, I understand, about 7 percent because of a major fire at a refinery and some other problems. The prices skyrocketed in the State of California, as marketers sought to replace that lost volume.
I understand that Chevron responded to the supply constraint by increasing the MTBE use. Is that correct?
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Dr. JESSEL. That is correct. MTBE is one of the few ways we have right now in a situation like that to actually expand volume. And under the laws, we can expand that up to about 2.7 weight percent of MTBE. And given that our prime concern is to serve our customers, we had no choice but to do that.
At this point, however, we are back down to making almost 2/3 of our Richmond refinery output as non-oxy gasoline. So that situation existed only for a very short period of time.
Mr. COSTELLO. Is Chevron using MTBE in areas where they are not required to do so?
Dr. JESSEL. There are some areas where we are not required to do so. Our refineries—our Richmond refinery, for instance, makes, as I said, about 2/3 of its production as of today as non-oxy. But we are constrained by octane, and that is one of the things that refiners are going to have to spend money on to meet the Governor's goals, is to make up that octane.
If we had enough octane in that refinery, we could go beyond the 2/3 amount. So, yes, we are still using some MTBE in northern California to make up for that octane.
Mr. COSTELLO. If a 7-percent reduction in supply caused that type of disruption and the prices to skyrocket, what assurance do we have that eliminating 11 percent of the California gasoline supply by removing the oxygen requirement will not have even a larger impact?
Dr. JESSEL. Well, you know, we do have 3 years and 3 months, as Mr. Vaughn said. And California refiners, at least, you know, based on the experience in 1996 when we introduced California gasoline, which is a—was a bigger job in terms of reformulation than taking MTBE out—met consumer demand. And we have been meeting consumer demand, at least on an average basis, since 1996.
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So given the planning that is going to go on the next 3 years, recognizes that we are going to lose some volume because of taking MTBE out, has got to deal with that supply situation. And it can be made up by adding capacity in California. That is probably not the prime method.
But, certainly, supplies of California gasoline during the periods when prices were high came from a large number of different suppliers around the world. It came from the Gulf Coast, and it came as far away as Finland. So that may, indeed, turn out to be the way that California makes up for potential production loss.
And it is something that California and the whole west coast is faced with anyway, since consumer demand is beginning to outstrip the indigenous supply there.
Mr. COSTELLO. Mr. Grumet, would you like to comment?
Mr. GRUMET. Thank you, Mr. Costello. While the recent discussion has had kind of an understandable left coast twist to it, I wanted just to remind us all that the northeast states, some of the southeast states, are really in very much the same position, and all of the dynamics about flexibility and constraint obtained here as well.
I think it is important to think about the fact when we talk about the volume issues and the availability and price issues that we don't intend to be left out of this discussion in the northeast. And so the same challenges that Mr. Vaughn and his colleagues ambitiously hope to satisfy in California will also need to be satisfied at the very same time in the Northeast.
And it is for that reason that we think there are probably better ways to support renewable resources and ethanol than a summertime urban air quality mandate. The benefits of ethanol are significant, but they really don't pertain to the summertime ozone problem. And so to have the ethanol program contingent upon that rationale strikes me as being vulnerable and problematic in a number of ways.
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Mr. COSTELLO. Mr. Chairman, thank you.
Chairman CALVERT. I just wanted to point out also that we consider the Northeast the left coast, so——
[Laughter.]
One other point I wanted to bring up. By the way, the Governor of California is for H.R. 11, as are the two U.S. Senators from California and 51 of the 52 House members. There are people who say Californians don't get together on a lot of things, but they are certainly behind H.R. 11 unanimously. So there is a lot of support for that.
REFINERY CHANGES REQUIRED TO ACCOMMODATE WIDESPREAD USE OF ETHANOL
I am going to have another question here. Obviously, we have been talking about the phaseout of MTBE and how that is going to affect supply issues, since a significant amount of gasoline today is made up of MTBE, and how we are going to pick that up. If Congress acts to mandate a renewable fuels program, changes will be necessary, as you mentioned, at the refineries outside of the Midwest in order to use ethanol.
Besides ethanol supply and infrastructure for blending the terminals, what changes are necessary at the refinery in California? What changes are you going to have to make at the refineries? And we don't have many left because of all of this.
Dr. JESSEL. Yes.
Chairman CALVERT. But——
Dr. JESSEL. The bull's-eye gets a little smaller. Okay. So outside of the distribution system issues, inside a refinery the main thing you have to do to meet the California standards—again, you have got to be able to hit that volatility requirement, that 7 psi RVP standard. In order to do that and accommodate ethanol's RVP boost, one has to remove something from the gasoline so that you get the gasoline down low enough, so that when you add the ethanol you are back up to the standard but not exceeding the standard.
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That is the major thing that refineries have to do. They have got to go in and distill out a piece of the gasoline we make right now, and take it out of the refinery, dispose of it somewhere, convert it to something else, spend money converting it to something else, just so that we can accommodate the ethanol under the current RVP constraints.
One of the very nice things about H.R. 11, in giving us flexibility, is that we may be able to use the ethanol at times of the year and at places in the state, and in refineries where this capability already exists or is less expensive to introduce, if we had the flexibility to use it when we needed it instead of——
Chairman CALVERT. And that is a comment I want to make, because before everybody panics around here—my friends in the Midwest and other places—the demand for ethanol will significantly rise with the elimination of MTBE. Isn't that an accurate statement?
Dr. JESSEL. That is absolutely accurate. And for one reason only——
Chairman CALVERT. So if MTBE still—if, for whatever reason, MTBE continued to be used in California, which it—you know, I am sorry, it isn't going to be, it is being phased out in 2002—but if it was continued to be used, then ethanol would have a very small market in California because we would continue to use MTBE. Isn't that—so we are going to—with H.R. 11 and the flexibility, ethanol will still be sold at higher—in higher quantities than it would have been otherwise, if MTBE was continued to be used in California.
Dr. JESSEL. That is correct, not just small added quantities, vastly increased quantities.
Chairman CALVERT. I mean, huge, huge amounts.
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Dr. JESSEL. Yes. Mr. Vaughn knows very well that——
Chairman CALVERT. We just want the flexibility of our citizens in California to be able to get the best price on gasoline and without having to pay—with—you know, I guess the key here is we don't want a price increase without any benefit in the form of air quality.
If you could say that the air quality would improve with ethanol use, that is a whole different issue. But the science says today, and I think that you, Dr. Jessel, and Dr. Murphy, would say that you can meet the air quality standards in California, the most stringent air quality standards in the United States of America, with the flexibility that is allowed in H.R. 11. Is that correct?
Dr. MURPHY. That is correct.
Chairman CALVERT. Any other comment? Mr. Vaughn or Mr. Economides, both of you.
Mr. ECONOMIDES. I think from a national standpoint, what will happen—we keep talking about the necessity for ethanol. The necessity has been raised in the past for other clean blend stocks, such as alkylates, to be incorporated into scenarios as MTBE is backed out or begins to get backed out.
I think from a nationwide standpoint you need to take a very close look at where these barrels are going. You can't have the same barrel of ethanol in Mr. Grumet's district, in your district, Mr. Chairman, and still staying out in the Midwest where it is today. Alkylates cannot be produced, at least in a reasonable timeframe, in the quantities that would be necessary to produce the fuel.
You are not talking here, under any scenario, a price decrease. The issue is: how big will the price increase be? And how much can you tolerate? Given where you are in the State of California at this point in time, it may be really difficult to be able to support a price increase, especially in an ethanol monopoly environment.
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I think that pricing impacts need to be factored into this equation in a nationwide spectrum, rather than just what happens in California. When the Energy Commission in the State of California said it will cost 3 to 7 cents to remove MTBE in a 3-year or so timeframe, they did it under the assumption that the rest of the Nation stays where we are.
That whole ballgame changes the minute you start talking about the rest of the Nation not only moving to Phase II federal RFG, but driving down sulphur, removing MTBE. The rules of the game have changed. Those numbers could easy turn out to be double-digit numbers for the State of California, and that may be unacceptable from the motoring public's standpoint.
Chairman CALVERT. Mr. Vaughn.
POTENTIAL MARKET FOR ETHANOL IN CALIFORNIA UNDER H.R. 11
Mr. VAUGHN. Mr. Chairman, the comment made that no matter what happens in California today, if H.R. 11 begins to move, 3 years, 3 months from now, and the drop dead date takes effect, that the ethanol industry is going to benefit with expanded marketplace opportunities. I think that is very encouraging; I look forward to it. One way or the other, I would like to see Midwest ethanol, but also California ethanol, being used to help clean the air in a very cost-effective and beneficial fashion.
The problem that H.R. 11 brings to the table is that it is not a solution for California, and it is a horrible problem for the rest of the country. You cannot be part of a federal reformulated gasoline program, asked to opt out of one component of it and then expect the rest of the country to somehow absorb your problem.
Now, I don't mean you personally, Mr. Chairman, but 1.6 billion gallons—you just said it—is going to leave your market. Unless you have got an agreement with Bahrain and Saudi Arabia and Chile to keep it out, where is that—are the gallons going to go? Not only could ethanol suffer in California by not seeing any marketplace development growth, but the City Council of Chicago, the Mayor of Chicago, mayors all across the upper Midwest, and governors in 27 states, are livid that a regional or subregional solution to a national issue is moving; and that California is going to force your problem MTBE levels onto them, and they don't want any part of it.
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Chairman CALVERT. I would point out California already is its own market. We have a reformulated gasoline that no one else has in the United States. We have the cleanest gasoline of anybody in the United States, with or without ethanol.
Dr. Murphy.
Dr. MURPHY. I would just—I guess I am a little confused by Mr. Vaughn's comments here, because there is no question, while we support H.R. 11 and removal of the mandate in California, we also believe that we can continue to supply gasoline to the rest of the country, and that would not adversely affect gasoline supplies on the rest of the country.
We would rather see the mandate removed entirely. We think that is necessary and appropriate and would not have any adverse air quality impacts. But we will continue to supply gasoline to the rest of the country, if H.R. 11 passes.
Chairman CALVERT. Okay. Mr. Costello.
ETHANOL TAX SUBSIDIES AND THE HIGHWAY TRUST FUND
Okay. I have one other question. Based upon the testimony that we have heard today, say that H.R. 11 does not move forward, and the ethanol market in California—and, again, stressing that it probably—what, would it double the demand for ethanol in the United States? Is that an accurate statement?
Mr. VAUGHN. Thirty-five percent increase possibly.
Chairman CALVERT. Thirty-five percent increase of ethanol in 3 years. With that type of demand for ethanol, would that change the formula in which we subsidize ethanol here in the House? If you have that kind of demand for ethanol, and having California as a market, would that do away with the tax subsidy we provide ethanol today?
Mr. VAUGHN. Mr. Calvert, that is—I think that is an excellent question, and it is something I recognize is important not just in
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Next Hearing Segment(3)