Issues Concerning the Use of MTBE in Reformulated Gasoline: An Update.

Subcommittee on Oversight and Investigations
November 1, 2001
1:00 PM
2322 Rayburn House Office Building 

Mr. Bob Dineen
President and CEO
Renewable Fuels Association
1 Massachusetts Avenue, NW
Suite 820
Washington, DC, 20001

The Clean Air Act Amendments of 1990 established the oxygen requirement in the federal RFG program to achieve several important public policy goals, including environmental benefits from the reduction of vehicle emissions, rural economic benefits to be gained from increased use of agricultural commodities in the production of renewable fuels, and energy security with the increased use of domestically-produced fuels.  These public policy drivers remain critically important today.   

The federal RFG program, with its oxygen content requirement, has effectively improved air quality.  According to the Environmental Protection Agency (EPA), RFG is reducing ozone-forming hydrocarbon emissions by 41,000 tons and toxic pollutants such as benzene by 24,000 tons annually, the equivalent of taking 16 million vehicles off the road each year.  A study by the Northeast States for Coordinated Air Use Management (NESCAUM) demonstrates that RFG reduces the cancer risk from gasoline by about 20 percent.  These benefits significantly exceed the Clean Air Act's performance standards for hydrocarbons and toxics, at least in part because of the federal oxygen content requirement.    

However, the widespread use of MTBE to satisfy the oxygen requirement has had a negative impact on water quality.  As the Congress considers policies to address MTBE contamination and assure affordable and plentiful fuel supplies, the value of providing increased market opportunities for domestically produced renewable energy, such as ethanol, should be a top priority.  Recent tragic events and the war against terrorism in the Middle East underscore our nation's dangerous dependence upon unstable regions of the country for our energy supplies.  At the same time, American farmers continue to face record low commodity prices and depressed export markets.  The RFA supports policies that maintain the air quality benefits of the existing RFG program and recognize the laudable policy drivers behind the oxygen standard:  the environmental, rural economic and energy security benefits of renewable fuels such as ethanol.   

Protect the Environment: 

The RFG program assures air quality benefits through the combination of emissions performance standards and an oxygen requirement.  As a result, the RFG program has provided toxic reductions in excess of those required by the performance standards alone.  The oxygen standard has also provided reductions in carbon monoxide, fine particulates and polycyclic organic matter, for which there are no performance standards.   

Aromatic Content

The RFG program was initiated largely in response to environmental concerns about the rising levels of aromatics in gasoline.  To replace the lost octane associated with the lead phase-down of the late 70's, refiners dramatically increased aromatic levels.  By the mid-80's, some premium gasolines had BTX levels as high as 50 percent.  Seeing this, Congress created the RFG program in 1990, including a specific cap on aromatic levels.  EPA forfeited that cap in the regulations implementing the RFG program in favor of a complex model, with the understanding that the use of oxygenates in RFG would supply the octane and volume provided by aromatics.   

Indeed, the RFG program has been successful in large part because of the significant reduction in aromatics in gasoline that results from oxygenate blending.  It has long been recognized that adding high octane oxygenates to the gasoline pool has resulted in a substantial decrease in the use of aromatics.  While conventional gasoline contains more than 30% aromatics, EPA's 2000 RFG survey found that MTBE gasoline contained about 19.2% aromatics while ethanol RFG contained 17.5% aromatics.   

If the octane loss due to the likely phase out of MTBE is not replaced with ethanol, the use of aromatics will most certainly increase.  In testimony before the MTBE Blue Ribbon panel, one major refiner suggested that if MTBE were banned and the oxygen requirement was removed, refiners would replace the lost octane with aromatics such as toluene.  Many aromatics, such as benzene, toluene and xylene (BTX), are now listed by EPA as "Mobile Source Air Toxics, MSATs."  Increasing aromatics in fuels increases both hydrocarbon and carbon monoxide emissions.  Aromatics exhausted from motor vehicles are potent ozone formers that also photochemically react in the atmosphere to produce fine particulate aerosols composed of diesel-like particulate matter.  They also dealkylate in the exhaust to yield cancer-forming benzene.   

Congress should assure that as MTBE use is reduced, the cap on aromatics originally included as an RFG specification is re-established.  

Nitrogen Oxide Emissions:

Nitrogen oxides react in the atmosphere to produce ozone, acid rain and fine particulate.  Just this month, the Automobile Manufacturers released a study that examined oxygen and sulfur effects on NO_X emissions from production prototypes of low and ultra low emitting vehicles that are expected to produce more than half of the exhaust NO_X from the automobile fleet in 2005.  The data demonstrates that the non-oxygenated fuels produce more NO_X than fuels with oxygen contents of 2% from MTBE and 4% from ethanol.  If California was to update its model to account for high emitting vehicles and use the newest vehicle emission data, oxygenates would not increase NO_X above NO_X emissions from non-oxygenated gasoline.  

Hydrocarbon and Carbon Monoxide Emissions:

Hydrocarbons and carbon monoxide are responsible for ozone formation.  In fact, the National Academy of Sciences concluded last year that CO is responsible for as much as 20% of the ozone coming from automobiles.  EPA and the California Air Resources Board (CARB) have recognized the benefit of carbon monoxide reduction by high oxygen fuels through a gasoline vapor pressure allowance.  

Motor vehicles emit hydrocarbons in the form of exhaust and evaporative emissions.  If the hydrocarbons are aromatics, they will also make particulates in the atmosphere.  Data collected in a large number of investigations shows conclusively that adding oxygenate to gasoline reduces exhaust hydrocarbon and CO emissions from both normal and higher emitting vehicles regardless of their model year.  Importantly, data collected by the Auto Industry on new and prototype LEV and ULEV vehicles in California shows that hydrocarbon and carbon monoxide emissions from these vehicles are decreased by a similar percentage through the addition of oxygen to gasoline as compared to the in-use fleet.

Particulate Matter:

Cars and pickup trucks in the existing fleet are significant contributors of fine particulate emissions.  While cars and trucks emit smaller amounts of particulate than large diesel trucks, they represent 95% or more of the vehicles on the road and may be responsible for up to half of the exhaust particulate emissions from cars, buses and trucks.  Fine particulate is responsible for chronic respiratory problems.  Diesel particulate has been also linked to cancer; in terms of particulate size and chemistry, diesel particulate and automobile particulate are similar.   

Oxygenates dramatically reduce particulate emissions.  Because the RFG program includes no performance standards for PM, these benefits would be lost if the oxygen standard is repealed. 

Polycyclic Organic Matter in Motor Vehicle Exhaust:

POM's are heavy aromatics that are similar to compounds found in diesel exhaust, coal tar and cigarette smoke, and are estimated to be 7 times more carcinogenic than benzene.  The mass of POM found in motor vehicle exhaust is small compared to other air toxics.  However, when potency is considered, POM's are nearly as important as benzene and 1,3 butadiene emissions in terms of their cancer risk.  Raising the aromatic content of gasoline could further increase the POM risk.  EPA's complex model does not consider specific fuel affects such as oxygenates and aromatics on POM emissions. 

Recent studies have shown that the addition of oxygenates reduces POM emissions substantially, an average of 33% with 3.5 wt.% oxygen fuels compared to non-oxygenated fuel.  Thus, we would expect that decreasing the use of oxygenate and increasing aromatics would further raise the risk of increased POM in the environment.   

Cancer-Effects:

The EPA year 2000 RFG survey was analyzed to compare toxic emissions for ethanol and MTBE gasoline.  On a mass basis toxics were reduced by 31.4% for MTBE gasoline compared to the baseline fuel.  For ethanol fuels, the reduction was 27.5%.  The difference is attributed to the greater degree of benzene removal from gasoline manufactured on the gulf coast because of strong markets for chemical grade benzene. The average concentration of benzene in MTBE gasoline was 0.60% in 2000 and 0.66% in 1999 while it was 0.77% in 2000 and 0.92% in 1999 in ethanol gasoline.   

According to the survey, MTBE gasoline contains more aromatics and olefins than ethanol gasoline. The average aromatics and olefins for MTBE gasoline were 19.15% and 10.50% respectively. For ethanol gasoline the averages were 17.49% and 6.72%. When considering potency weighted toxics, MTBE gasoline reduced the cancer risk by 28.9% while ethanol gasoline reduced the risk by 34.8%.    

 Any policies considered by Congress to address MTBE contamination should ensure that the emissions reductions benefits of oxygenates outlined above are maintained, and that there is no backsliding on emissions of aromatics, NOx, hydrocarbon, carbon monoxide, particulate matter and polycyclic organic matter.  In addition, EPA should conduct a rigorous analysis of the Areal world@ emissions benefits of oxygen, including the impact on higher emitting vehicles, off-road vehicles and off-cycle driving (areas where the impact of oxygen is more critical) to assure there is no backsliding from these effects.   

Enhance Energy Security: 

"We will not have homeland security until we have energy independence."

- President George Bush, October, 2001   

The need for domestically produced energy supplies has never been greater. Recent tragic events showcase the danger of our growing dependence on imported petroleum, which continues to threaten our national energy security.  Today we are more reliant than ever before on foreign nations to supply our insatiable and growing appetite for oil, importing 57% of our petroleum. At the same time, U.S. oil production has fallen to the lowest point in 30 years.  By importing more refined petroleum products than ever before, the U.S. is sending value-added refining jobs overseas. Meanwhile, demand for refined products will continue to grow.

Refineries are operating at historically high rates of utilization, exceeding 95% on an annual basis.  Refiners have limited investment in recent years, using much of their existing refining capacity cushion to meet increased gasoline demand.  Meanwhile, no new refineries have been built in 25 years.

According to the National Petrochemical & Refiners Association, "The U.S. is gravitating toward a situation in which demand for refined products is overtaking the capability of traditional supply sources.. With existing refining capacity essentially full, the U.S. will have to find additional sources to cover the incremental demand." As a domestic, renewable source of energy, ethanol can increase fuel supplies, reduce our dependence on foreign oil and increase the United States' ability to control its own security and economic future.

Blending of oxygenates like ethanol directly increases the supply of gasoline.  Ethanol can and should be a more consistent partner with domestic oil companies to provide the incremental additional supplies that are obviously needed.  Ethanol is blended with gasoline after the refinery process. Therefore, blending ethanol adds additional volume to the transportation fuel market and helps ease the burden on the refinery sector that has no hope for quick expansion. The ethanol industry is producing at a record pace.  In 2001 we will again shatter all previous production records.  And the ethanol industry can double production within two years to meet new demand created by a phase out of MTBE. We are prepared to meet the challenge of providing increased fuel supplies -- today.                                               

In light of recent events, Congress must tread cautiously with regard to fuel supply and availability.  MTBE currently represents about 3% of the nation=s transportation fuel supply.  If it is precipitously eliminated without providing for a replacement of that supply, gasoline prices will clearly rise.  Indeed, a recent memo by the Department of Energy concluded that eliminating MTBE use without replacing it with a renewable fuel such as ethanol would reduce our gasoline supply by between 500,000 and one million barrels per day, or 6-12% of current gasoline consumption.   

Economic Development: 

The processing of grains and other agricultural biomass for ethanol production provides an important value added market for American farmers, helping to raise the value of commodities they produce.  As the third largest use of corn behind feed and exports, ethanol production utilizes nearly seven percent of the U.S. corn crop, or over 600 million bushels of corn, adding $4.5 billion in farm revenue annually.  The U.S. Department of Agriculture (USDA) has determined that ethanol production adds 25 - 30¢ to every bushel of corn.  

Ethanol production facilities provide much-needed economic stimulus and new capital investment to rural communities faced with record low commodity prices and shrinking export markets.  There has not been an oil refinery built in this country in 25 years.  But during that time there have been 57 ethanol refineries built, stimulating rural economies and creating jobs.  Industry growth offers enormous potential for overall economic growth and additional employment in local communities throughout the country.  According to a Midwestern Governors' Conference report, the economic impact of the demand for ethanol: 

• Adds $4.5 billion to farm revenue annually
• Boosts total employment by 195,200 jobs
• Increases state tax receipts by $450 million
• Improves the U.S. balance of trade by $2 billion
• Results in $3.6 billion in annual savings to the Federal Treasury

Rising Ethanol Production Capacity: 

The U.S. ethanol industry is expanding rapidly to meet new market demand created as states phase out the use of MTBE.  In addition to the over 2 billion gallons of current production capacity, 34 existing ethanol plants are undergoing expansion, adding an additional 235 million gallons of capacity, and another 13 plants with a combined capacity of nearly 300 million gallons are currently under construction.  Projects planned for 2002/2003 will result in an additional one billion gallons of production capacity, for a total of 3.5 billion gallons by the end of 2003.  A recent industry survey conducted by the California Energy Commission concluded there would be two billion gallons of new ethanol production capacity on line by 2003, more than enough to meet the 580 million gallons of oxygenate demand created in California and the 800 million gallons in the northeast. 

U.S. Ethanol Production

(Million gallons/year) 

Source:  California Energy Commission Survey, August, 2001

 There is ample grain to greatly expand ethanol capacity.  USDA has estimated that, in the shorter term, corn could be used to produce about 6 billion gallons per year of ethanol without disrupting commodity markets. The Department of Energy has projected that 10 billion or more gallons per year of ethanol could be produced from crop residues (rice straw, sugarcane bagasse) and dedicated biomass crops produced on idled land by 2025. 

Boutique Fuels 

Last week, U.S. EPA released a staff "White Paper" on boutique fuels that looks at changes that could be made to the Clean Air Act to reduce the number of fuels nationwide over the long term. Many of the options outlined would require legislative and regulatory action.  The analysis includes four main fuel options that are meant to capture a wide range of possible future fuel programs in terms of economic and environmental impacts and the degree to which they simplify the current fuel system.  As for the RFG oxygen requirement, EPA recommends that if it is removed it should be replaced by a nationwide renewable fuel program.  The Agency correctly notes the Congressional objectives of the oxygen mandate.  "When Congress authorized the RFG program and its mandated oxygen content requirement, they did so with the intent of enhancing agricultural markets through the demand for ethanol that would result, enhancing energy security and improving air quality," the report states.   

The Agency acknowledges the air quality benefits of oxygenates generally, and the additional greenhouse gas emissions benefits of renewable ethanol, specifically.  "It is our belief that any changes to the CAA oxygen requirement in RFG, including the mandate's role in cleaner fuels, should be carefully studied and, if adopted, should be coupled with an alternative requirement for a national renewable fuel program."   

The Agency concludes there will be no additional costs, and possible cost savings, associated with an RFS in lieu of the RFG oxygen mandate.  In terms of impact on production capacity, EPA concludes eliminating the oxygen standard with no nationwide renewable fuel requirement to replace it would result in an "overall decrease in gasoline production capacity."   

 Legislation: 

The members of the Renewable Fuels Association understand that the Congress is faced with a daunting challenge of determining how best to protect water supplies by reducing the use of MTBE without sacrificing air quality or increasing fuel prices.  I believe the framework of the Chairman's bill, H.R. 20, provides a good starting point for discussion.  But by eliminating the RFG oxygen requirement, without protecting against backsliding in the areas discussed above for which there are no performance standards, the bill fails to adequately protect air quality.  H.R. 608, legislation introduced by Rep. Greg Ganske, addresses the source of the problem, MTBE use, without forfeiting the environmental benefits of oxygenates.  The RFA believes this bill would be a more appropriate vehicle to address MTBE water contamination. 

But there are other energy issues that the Congress needs to consider in light of recent events.  The Committee has also sought to address the issue of boutique fuels.  Representatives Roy Blunt (R-MO) and Bobby Rush (D-IL) have introduced bi-partisan legislation, H.R. 2249, to reduce the number of boutique fuels while preserving air quality.  The legislation would reduce the number of fuel formulations in the U.S. from 15 down to 3, including California RFG, federal RFG and conventional gasoline.  The RFA supports this effort as a means to improve gasoline fungibility and reduce consumer costs.  Congress should look at this issue closely, and remove states' authority to further balkanize gasoline markets.   

As for enacting a comprehensive national energy policy, renewable, domestically produced fuels can and should play a larger role in meeting our nation's energy needs.  H.R. 2423, the Renewable Fuels for Energy Security Act of 2001, would expand domestic liquid fuel production by requiring that renewable fuels like ethanol and biodiesel supply an increasing percentage of the U.S. motor gasoline market to facilitate a movement away from greater and greater imports of oil.  When fully implemented in 2016, renewable fuels would comprise 5% of the fuel market, an eight-fold increase from today's use. 

 As the country attempts to grapple with a lack of refining capacity and increased reliance on imported oil, this legislation provides a positive roadmap for increasing energy security and stimulating rural economies by harnessing America's renewable energy potential.  America has the resources to address our long-term energy needs without having to rely on the benevolence of OPEC.  We should be investing here at home, not overseas, to build a sustainable energy future for our children.  America=s farmers are willing and able to help us with our energy crisis.  The federal government should be willing to help them by promoting increased value-added market opportunities.  It=s a win-win situation.  

Conclusion: 

We see ethanol as a solution.  Farmers are prepared to be the foot soldiers in the battle for energy independence.  Increasing ethanol use will allow MTBE to be reduced cost-effectively while protecting precious water resources and air quality.  Stimulating rural economies by increasing the demand for grain used in ethanol production will help American farmers.  Encouraging new ethanol production from cellulose feedstocks will provide additional economic and environmental benefits as ethanol production is expanded beyond the grain belt.  The bottom line is that we need to protect both air quality and water quality.  With ethanol, we can. 

Thank you.

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