[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
                         REFORMULATED GASOLINE

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                         HEALTH AND ENVIRONMENT

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

                                H.R. 11

                               __________

                              MAY 6, 1999

                               __________

                           Serial No. 106-18

                               __________

            Printed for the use of the Committee on Commerce





                      U.S. GOVERNMENT PRINTING OFFICE
56-609 CC                     WASHINGTON : 1999
                    ------------------------------  






                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Health and Environment

                  MICHAEL BILIRAKIS, Florida, Chairman

FRED UPTON, Michigan                 SHERROD BROWN, Ohio
CLIFF STEARNS, Florida               HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 PETER DEUTSCH, Florida
RICHARD BURR, North Carolina         BART STUPAK, Michigan
BRIAN P. BILBRAY, California         GENE GREEN, Texas
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia             THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma              LOIS CAPPS, California
  Vice Chairman                      RALPH M. HALL, Texas
RICK LAZIO, New York                 EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona             JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING,         (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bordvick, Duane B., Vice President, Environment and External 
      Affairs, Tosco Corporation.................................    68
    Beuhler, Mark, Director of Water Quality, Metropolitan Water 
      District of Southern California, on behalf of Association 
      of California Water Agencies...............................    84
    Feinstein, Hon. Dianne, a U.S. Senator from the State of 
      California.................................................    19
    Franks, Hon. Bob, a Representative in Congress from the State 
      of New Jersey..............................................    25
    Hickox, Winston H., Secretary for Environmental Protection, 
      California Environmental Protection Agency.................    60
    King, Gregory C., Vice President and General Counsel, Valero 
      Energy Corporation.........................................    70
    O'Connor, Hon. Pam, Mayor, City of Santa Monica..............    29
    Perciasepe, Robert, Assistant Administrator for Air and 
      Radiation, Environmental Protection Agency.................    40
    Robinson, Thomas L., President, Robinson Oil Company, Inc., 
      on behalf of Society of Independent Gasoline Marketers of 
      America, National Association of Convenience Stores, and 
      California Independent Oil Marketers Association...........    75
    Tauscher, Hon. Ellen O., a Representative in Congress from 
      the State of California....................................    27
    Vaughn, Eric, President and CEO, Renewable Fuels Association.    78
Material submitted for the record by:
    American Methanol Institute, Oxygenated Fuels Association, 
      Renewable Fuels Association, letter dated September 10, 
      1996, to Hon. Thomas Bliley................................   112
    ARCO:
        Letter dated February 18, 1999, to Hon. Brian Bilbray....   124
        Letter dated February 17, 1999, to Hon. Tom Daschle......   125
        Letter dated May 5, 1999, to Hon. Brian Bilbray..........   129
    Bluewater Network, legislative recommendation................    98
    California Air Pollution Control Officers Association, letter 
      dated March 4, 1999, to Hon. Brian Bilbray.................   113
    California Business Alliance, letter dated February 22, 1999, 
      to Hon. Brian Bilbray......................................   122
    California Chamber of Commerce, letter dated February 18, 
      1999, to Hon. Brian Bilbray................................   123
    California Environmental Protection Agency, letter dated July 
      31, 1996, to Hon. Thomas Bliley............................   110
    California Manufacturers Association, letter dated February 
      19, 1999, to Hon. Dianne Feinstein.........................   123
    Chevron Products Company:
        Letter dated May 4, 1999, to Eric Vaughn, President, 
          Renewable Fuels Association............................   114
        Letter dated April 29, 1999, to Hon. Dianne Feinstein....   117
        Letter dated February 10, 1999, to Hon. Tom Daschle......   126
    Contra Costa Water District, letter dated February 23, 1999, 
      to Hon. Brian Bilbray......................................   122
    Daschle, Hon. Tom, letter dated February 2, 1999, to Mike 
      Bowlin, Chairman, ARCO Corporation.........................   128

                                 (iii)

  
    Davis, Hon. Gray, Governor, State of California, letter dated 
      April 14, 1999, to Hon. Brian Bilbray......................   120
    Eastbay Municipal Utility District, letter dated February 16, 
      1999, to Hon. Brian Bilbray................................   125
    Henderson, Douglas F., Executive Director, Western States 
      Petroleum Association, et al., letter dated February 22, 
      1999, to Hon. Brian Bilbray................................   121
    Johanns, Hon. Mike, Governor, State of Nebraska, statement on 
      behalf of the Governors' Ethanol Coalition.................    96
    Natural Resources Defense Council, prepared statement of.....   102
    Renewable Fuels Association, letter dated April 9, 1999, to 
      Patricia Woertz, President, Chevron Products Company.......   116
    Sacramento Metropolitan Air Quality Management District, 
      letter dated February 24, 1999, to Hon. Brian Bilbray......   121
    South Coast Air Quality Management District, letter dated May 
      4, 1999, to Hon. Brian Bilbray.............................   110

                                  (iv)




                         REFORMULATED GASOLINE

                              ----------                              


                         THURSDAY, MAY 6, 1999

                  House of Representatives,
                             Committee on Commerce,
                    Subcommittee on Health and Environment,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m., in 
room 2322, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Bilbray, 
Ganske, Shadegg, Bryant, Bliley (ex officio), Brown, Waxman, 
Pallone, Green, DeGette, Capps, Hall, and Eshoo.
    Staff present: Bob Meyers, majority counsel; Anthony Habib, 
legislative clerk; and Alison Berkes, minority counsel.
    Mr. Bilirakis. The hearing will come to order. Before the 
Chair goes into its opening statement, I recognize the full 
chairman, Mr. Bliley, for his opening statement.
    Chairman Bliley. Thank you, Mr. Chairman. Today's hearing 
concerns H.R. 11, legislation introduced by our colleague Brian 
Bilbray to allow the application of California State 
regulations in areas within that State which are subject to the 
Federal reformulated gasoline program. Congressman Bilbray has 
worked long and hard to advance this legislation. He has gained 
the bipartisan support of nearly the entire California 
delegation, and Senator Feinstein has introduced his 
legislation in the other body. Therefore, I am glad that we 
were able to schedule today's hearing, and I look forward to 
receiving the testimony of our witnesses.
    While it is never possible to construct a perfect hearing, 
we have made every attempt to accommodate a variety of informed 
opinions regarding H.R. 11. Although we are unable to 
accommodate all requests to testify in person, we have included 
witnesses who are both in favor of and oppose the legislation.
    Therefore, our purpose today is simple. We need to examine 
this bill in detail and receive the benefit of testimony from 
the administration, the State of California, Members of 
Congress, and experts and interested parties in the private 
sector. In other words, this is an old-fashioned legislative 
hearing on the bill. Our purpose is to both educate the 
Commerce Committee concerning this legislation and establish a 
legislative record.
    Again, I want to thank our witnesses and congratulate Mr. 
Bilbray on his ceaseless energy and dedication with respect to 
this matter. I also want to thank Chairman Bilirakis for his 
effort in holding this hearing and in furthering the 
committee's review of H.R. 11. Thank you, Mr. Chairman.
    Mr. Bilirakis. Thank you, Mr. Chairman. The purpose of 
today's hearing is to receive testimony regarding H.R. 11, 
legislation introduced by my colleague, Representative Brian 
Bilbray, concerning the operation of the Federal reformulated 
gasoline program in California.
    This is the second hearing that this subcommittee has had 
held on this issue. On April 22 of last year, the subcommittee 
held a hearing on H.R. 630, legislation introduced by Mr. 
Bilbray which is identical to today's measure. During our 
hearing, the subcommittee received testimony from the EPA, from 
the Department of Energy, the California Air Resources Board 
and a panel of stakeholders.
    Today's hearing will receive further testimony from Members 
of Congress, the U.S. EPA, the California Environmental 
Protection Agency, and private stakeholders. And I am hopeful 
that this hearing can further illuminate the subcommittee's 
examination of this legislation as well as assist the 
subcommittee in reviewing events of the past year affecting the 
Federal RFG program and the separate California clean-burning 
gasoline program.
    Let me say at the outset that it wasn't possible to extend 
invitations to all interested witnesses. In some cases the 
subcommittee was unable to invite all parties that may be 
impacted by this legislation or the current operation of the 
Federal RFG or California CBG programs. As you may know, we 
already have four panels, but we still had to turn down a few 
people who wanted to testify in person.
    It is my intent, however, to have additional views and 
materials published in a final hearing record and we will work 
with members of the subcommittee on motions and requests to 
allow such material into the record. It is not my intent to 
limit any significant views in this legislation, but rather to 
conduct a hearing which can be completed in a timely and 
efficient manner. That being said, I believe today's witnesses 
will help the subcommittee gain an updated understanding of 
H.R. 11 and its impact on the operation of current RFG and CBG 
programs. Since Federal RFG currently represents about one-
third of the domestic gasoline market, legislation which would 
alter the operation of the current program must be thoroughly 
assessed.
    I must say, however, I am extremely disappointed that the 
Environmental Protection Agency has chosen to ignore or at 
least not have responded to a specific written request for 
legal opinion on its ability to waive or otherwise 
administratively alter the Federal 2 percent oxygenate 
requirement.
    While I appreciate that there are complexities involved, 
this issue is central to the issue of Federal legislation to 
amend the Clean Air Act. I believe that the EPA had sufficient 
verbal and written notice on this matter and yet its written 
testimony--and I might add that the verbal notice preceded the 
written notice--yet its written testimony indicates only that 
it is ``looking closely'' at the California waiver request.
    I would remind EPA that a request for a waiver from section 
211(k) requirements and an ongoing blue ribbon panel review of 
the use of oxygenates in RFG are separate and distinct issues. 
The letter of invitation did not ask for a policy analysis. It 
requested a legal analysis of the California waiver request as 
well as EPA's ability to waive or otherwise not enforce the 
requirements contained in section 211(k) of the Clean Air Act 
in California or any other State. This is a necessary request--
and I repeat a necessary request--of the subcommittee directly 
related to its legislative function. And we must insist that 
the EPA provide such an analysis in a timely fashion.
    Hopefully, quite frankly, legislation will not be necessary 
depending on what their response might be, but we need that 
response. Otherwise, I think the subcommittee can benefit from 
information concerning recent studies which have been completed 
in California as well as information regarding the 
environmental impact of the Federal RFG program. Testimony 
received by the committee provides some indication of the real-
world benefits of reformulated gasoline, and I am informed that 
more information may be available shortly in the form of a new 
National Academy of Sciences study.
    Altogether, I would like to thank the gentleman from 
California, Mr. Bilbray, for his efforts regarding H.R. 11.
    As I stated at last year's hearing, he has been a tireless 
advocate for this legislation. That statement is even more true 
today, and Mr. Bilbray has brought both the energy of youth as 
well as the wisdom of age together in his effort to address a 
most serious concern in his home State of California.
    I am therefore glad that we are able to move forward with 
today's hearing and I look forward to receiving the testimony 
of our witnesses. I ask for brevity from members of the 
subcommittee in their opening statement so that we can extend 
proper courtesy to all these members who have other things to 
do as we do, too. Mr. Brown.
    Mr. Brown. The wisdom of age, I understand. The energy of 
youth----
    Mr. Bilirakis. I sometimes wonder about the wisdom of age.
    Mr. Brown. First of all, Mr. Chairman, I would like to ask 
unanimous consent to enter into the record Mr. Dingell's 
opening statement, two other documents and other opening 
statements of members which I have.
    Mr. Bilirakis. Without objection.
    [Additional statement submitted for the record follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Mr. Chairman, I thank you for the opportunity to hear the divergent 
views of a variety of stakeholders, as well as our Congressional 
colleagues, the Environmental Protection Agency, the state of 
California, and Mayor O'Connor on H.R. 11. I know that our colleague, 
Mr. Bilbray, has had a keen interest in this subject, and this 
legislation, for some time. While my interest may not be as pronounced 
as his, particularly because the current version of H.R. 11 is a 
California-oriented bill, I am interested in proposals that pertain to 
the reformulated gasoline program, a largely successful national 
program which I support. Moreover, I believe that this Subcommittee 
must scrutinize any amendments to the Clean Air Act. We must exercise 
caution in reopening the Act for any reason--the threshold must be high 
and the proposal must be sound. With the possibility of Mr. Bilbray's 
proposal becoming more national in its scope, as I expect we will learn 
from our witnesses today, I fear that an objective of passing a 
narrowly-crafted amendment may fail. I trust that my colleagues share 
this concern, and I hope that we may commit to one another, should this 
bill gain momentum, that only by our mutual agreement will we expand 
its language or scope.
    Even as we consider this legislative proposal today, the EPA is 
fervently writing rules to implement the Clean Air Act. We have seen 
thousands of pages of regulatory activity in the past nine months, 
including such major actions as the NOX SIP call, the 
regional haze rule and now the Tier II proposal. These proposals, and 
other actions by the Agency, have not gone unnoticed by our 
Congressional colleagues, nor their constituents. They will be costly 
to the American public. I do not mean to diminish Mr. Bilbray's bill by 
comparison, but I do mean to warn that there are a number of agendas 
pertaining to the Clean Air Act, some of which I support. I am well 
aware that those agendas are in search of any vehicle at this time, and 
will be even more so as time passes in this Congress.
    I have heard opposition to this bill from my constituents who 
support the ethanol industry. For years, the Monroe County Corn 
Growers, Farm Bureau and Michigan Corn Growers Association have 
actively supported ethanol. There is concern in my district that the 
California Governor may support legislation that would prevent the use 
of ethanol as a replacement for MTBE--a decision viewed as having 
serious repercussions for our corn farmers. I do not know whether H.R. 
11 would prevent the use of ethanol in California or any other state, 
but I intend to answer this question.
    I have heard from others who worry about the continued use of MTBE 
in California, and who advocate banning MTBE. In addition to ethanol as 
an alternative to MTBE, there are other possibilities. But have we 
carefully examined the availability, the costs and the quality of these 
alternatives? We certainly must obtain the answers to these questions, 
and we must answer these questions for every state, not just 
California.
    I thank the Chairman for inviting witnesses who support H.R. 11, as 
well as witnesses who may oppose the bill. I look forward to hearing 
their views.

    Mr. Brown. Thank you, Mr. Chairman. I would like to thank 
Mr. Bilirakis for holding this hearing on H.R. 11. I also would 
like to welcome Senator Feinstein, Congressman Franks, 
Congresswoman Tauscher, and Mayor O'Connor. Thank you for 
joining us.
    Under the 1990 Clean Air Act Amendments, regions of the 
country with the worst ozone pollution are required to use 
reformulated gasoline which must include 2 percent of an 
oxygenate by weight. While the Clean Air Act does not specify 
the type of oxygen, gasoline refiners primarily use either 
ethanol or MTBE. Substantial improvements in air quality have 
been attributed to the use of oxygenates. Use of MTBE comes at 
a price.
    MTBE is highly soluble, biodegrades slowly, and is 
persistent in groundwater. Leaking underground storage tanks 
and other sources have released MTBE into groundwater, causing 
the concern that has led many of my colleagues from California 
to support H.R. 11. The Governor of California has signed an 
executive order phasing out MTBE over 3 years and asked the EPA 
for a waiver from the Clean Air Act oxygenate requirement. The 
State would prefer, instead, relying on the reformulated 
gasoline required under California's clean air law.
    Governor Gray's interest in protecting California citizens 
from contamination of drinking water by MTBE is laudable and 
understandable. I find this situation rather ironic, however, 
in light of another problem involving a gasoline additive with 
health and environmental drawbacks. The Ethyl Corporation, an 
American company, produces a fuel additive called MMT, a 
manganese-based compound that enhances octane and reduces 
engine knocking. Health experts believe the neurotoxins in the 
manganese in MMT pose a significant public health risk, and 
automobile manufacturers contend that MMT damages pollution 
control equipment in vehicles.
    When the Canadian Government banned the MMT, the Ethyl 
Corporation sued it under Chapter 11 of the North American Free 
Trade Agreement for exappropriation of property, loss of sales 
and profits, and harm to its reputation. Fearing it would lose 
the lawsuit, the Canadian Government settled with the Ethyl 
Corporation. Canadian taxpayers paid $13 million to this 
privately held U.S. company and the Canadians repealed their 
environmental law, lifting the ban on MMT. Interestingly, 
California, the only State in the country that could, has 
banned MMT for public health reasons.
    It is troubling that because of NAFTA, the Canadian 
Government, unlike the State of California, cannot protect its 
citizens from a problematic gasoline additive.
    Mr. Chairman, I believe everyone at today's hearing shares 
the goal of achieving cleaner air while avoiding further 
environmental or health complications from gasoline additives. 
We all know that development of the Federal reformulated 
gasoline program in the 1990 Clean Air Act Amendments required 
extensive negotiations. While I support State flexibility in 
meeting clean air requirements, any amendment to the Clean Air 
Act should be approached with caution.
    I am aware, Senator Feinstein, you have introduced a bill 
to waive the oxygen content requirement nationally and, 
Congressman Franks, you have introduced a bill to prohibit the 
use of MTBE in gasoline. I suggest to the subcommittee that it 
be extremely important to hear this thorough testimony on a 
national approach before any broad action is taken on the 
Federal reformulated gas program. I look forward, Mr. Chairman, 
to hearing the views of today's witnesses.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Bilbray for an opening statement.
    Mr. Bilbray. Thank you, Mr. Chairman. Let me echo my 
colleague's, the ranking member's comments about making sure 
that we address the issues specific before us, which is why my 
legislation, H.R. 11, has been designed in such a way to 
reflect the rifle-shot approach that this committee has proven 
so successfully in the past.
    I would just like to say, Mr. Chairman, I appreciate your 
support allowing this hearing to move forward and, Mr. Chairman 
Bliley, I am really grateful for the bipartisan willingness to 
work together on this issue. In California we are really sort 
of celebrating the fact that here is an issue that everyone has 
finally gotten together and gotten behind. Very seldom do you 
ever see a delegation the size of California where you have 52 
of the 54 elected representatives in the Federal Government not 
just supporting but strongly support the legislation, and I 
appreciate the fact that my colleagues from California have 
been willing to get behind this.
    You may ask why. Frankly, this is the third Congress in 
which I have introduced this bill. It was first introduced long 
before there was any discussion about additive concerns and 
everything else, and was based mostly on my experience working 
with the Air Resources Board in California who have some of the 
best toxicologists and air pollution strategists in the world. 
My bill is content neutral, outcome-based and California-
specific, and I think that the secret here is that we have 
focused it on being California-specific and outcome-based.
    I want to thank Senator Feinstein because her leadership in 
the Senate has been essential at getting the message across, 
not just across to the Senate but across this country, and I 
appreciate the Senator's leadership on this issue. She has 
supported this legislation for two Congresses now and has been 
way ahead on this issue, and I appreciate her understanding of 
air pollution issues--those of us who come from local 
government who have worked these environmental issues in 
California understand why we need this bill. We are basically 
talking about a public health issue and placing the public 
health above and supreme to other strategies and other economic 
and social concerns.
    I would also like to thank Congresswoman Tauscher for her 
leadership. She has a district that is well aware of this 
situation, and has taken a lead here. Subcommittee members 
Capps and Eshoo have both been strongly in support here and I 
want to thank them.
    Mr. Chairman, when I introduced this bill in 1976, some 
claimed that it was going to be used as a blanket approach----
    Mr. Bilirakis. Not in 1976.
    Mr. Bilbray. 1996, I am sorry. 1976 was the first year I 
was elected, about the time the Senator was involved. But I 
just want to point out that the issue at that time was the fact 
that the 2 percent oxygen approach was based on a concept that 
it was the best public health strategy that the Federal 
Government could initiate in the most polluted areas at that 
point in time. The Clean Air Act at that time--in fact going 
back to the original Clean Air Act--reflected the fact that 
California was way ahead of the Federal Government in many 
ways. That is why the original act back in the 1970's 
specifically isolated California's clean air strategies and 
gasoline fuel strategies in this regard from other States--in 
fact, California has a specific section in the act. That is why 
my bill is written specifically for California, because I am 
not talking about opening up the entire act. With H.R. 11, we 
are only talking about opening up that section that 
specifically has been earmarked for California's clean 
gasoline.
    The EPA has recognized again and again that California has 
developed and designed a ``better mousetrap'' when it comes to 
cleaner burning gasoline. The Federal EPA understands that, and 
has said it clearly, working with my--with my ex-colleague from 
California who has now gone back to California, Mary Nichols. 
Her frustration with the fact that the law did not foresee that 
Federal regulations may stand in the way of a clean air 
strategy led to my first introduction to this bill in 1996.
    Let me just say, though, that things have changed. Things 
have changed dramatically since I first introduced the bill. 
New scientific information reinforces the merits of H.R. 11. 
Some past opposition has actually evolved into thoughtful 
support for H.R. 11. Here I would ask that the statements of 
the American Methadol Institute and the Methanex Company be 
introduced into the record at the appropriate time.
    Mr. Bilirakis. Without objection.
    [The information referred to follows:]

                          Methanex Methanol Company
                                           Dallas, TX 75251
                                                        May 4, 1999
Honorable Brian Bilbray
U.S. House of Representatives
Washington, D.C. 20515-0549
    Dear Representative Bilbray: I am writing to express Methanex 
Methanol Company's conditional support for your legislation, H.R. 11, 
to provide flexibility to the state of California under the Clean Air 
Act's (CAA) reformulated gasoline (RFG) program. Would you please 
ensure that this letter is placed in the record for the May 6, 1999, 
Subcommittee on Health and Environment hearing on H.R. 11.
    As we have discussed previously, Methanex believes that the anti-
federalism aspects of the CAA's requirement for a minimum oxygen 
content in RFG make it very difficult to devise a rational and workable 
solution to the problem of methyl tertiary butyl ether (MTBE) in 
groundwater. A major provision of a rational and workable solution 
should provide refiners of RFG with maximum flexibility to meet 
stringent fuel performance standards that ensure continued progress in 
the reduction of air emissions from mobile sources. Within that 
flexibility, refiners should be allowed to use the type and amount of 
oxygenates, including MTBE, that make the most sense for their 
refineries.
    While Methanex disagrees with Governor Davis' decision to phase out 
the use of MTBE in California, we understand his desire to address the 
MTBE water contamination problem using the most effective means 
available. The lack of flexibility under the minimum oxygen requirement 
of the CAA limited the options available to the Governor and 
contributed significantly to his decision to phase out MTBE. At this 
point, a continuing requirement to add a minimum level of oxygen in RFG 
while simultaneously phasing out the use of MTBE will only force 
refiners to use other oxygenates that are more expensive, in short 
supply, and not as effective in reducing air emissions.
    Given this, Methanex supports the enactment of H.R. 11 provided 
that the bill is amended to ensure that the repeal of the oxygen 
standard and removal of oxygenates for gasoline will not result in 
backsliding on air quality benefits currently being achieved in 
California. In this regard, Methanex endorses the statement submitted 
by the American Methanol Institute in support of H.R. 11.
    I look forward to working with you as the debate on RFG and MTBE 
continues in the Congress.
            Sincerely,
                                           Fred T. Williams
                Methanex Methanol Company, Vice President Marketing
                                 ______
                                 
  Prepared Statement of John Lynn, President & CEO, American Methanol 
                               Institute
    Mr. Chairman and members of the Subcommittee, I appreciate the 
opportunity to provide you with testimony regarding H.R. 11. I am John 
Lynn, President and CEO of the American Methanol Institute, our 
industry's trade association here in Washington, D.C. The methanol 
industry is a principal partner in our nation's clean air programs. 
This year, over 1 billion gallons of methanol will be used to 
manufacture the oxygenate methyl tertiary butyl ether or ``MTBE'.'' 
Nearly one-third of all gasolines sold in the United States is cleaner-
burning reformulated gasoline, and MTBE is the oxygenate of choice. 
Further, about 70 percent of all gasoline sold in the country contains 
some MTBE.
    In the United States, there are 18 methanol plants located in eight 
states with total annual production capacity of over 2.6 billion 
gallons, about one-fourth of the worldwide capacity. Our industry 
creates over 18,000 jobs in the U.S., while generating nearly $3 
billion in economic activity each year. The methanol industry also is a 
major consumer of domestic natural gas--our basic feedstock--using 200 
trillion BTUs of natural gas each year.
    In the last decade, the methanol industry has undergone an enormous 
transformation. While methanol continues to be an important building 
block for hundreds of widely used products, the production of the 
gasoline additive MTBE now serves as the largest market for methanol in 
the U.S. The methanol and oxygenates industries, along with the 
gasoline refining industry, have spent billions of dollars developing 
the production capacity to meet the reformulated gasoline market 
directed by Congress in the Clean Air Act Amendments of 1990.
    The reformulated gasoline program has been one of the shining 
success stories of the Clean Air Act, dramatically improving air 
quality for 75 million Americans. RFG reduces smog precursor emissions 
by 36,000 tons per year, which is equal to removing over eight million 
cars from our streets and highways. According to the U.S. EPA, the 
actual emission reduction benefits of reformulated gasoline have 
greatly exceeded the mandated targets of the Clean Air Act for volatile 
organic compounds (VOCs), oxides of nitrogen (NOx), and air 
toxics. In just eight months, the second phase of the reformulated 
gasoline program will begin, with twice the smog-fighting benefits 
being achieved today. MTBE has been the refinery industry's oxygenate 
of choice in reformulated gasoline.
    This past weekend, President Clinton announced the Administration's 
Tier II proposal to set tougher standards for tailpipe emissions, and 
cut sulfur levels in gasoline by about 90 percent over the next five 
years. The EPA estimates that this cleaner gasoline will only cost 
between one and two cents per gallon more at the pump. One way refiners 
may choose to meet these fuel requirements would be to add MTBE to 
replace the octane lost by removing sulfur, and for its favorable 
dilution benefits.
    Just over a year ago, AMI Chairman Roger Seward testified to this 
Committee expressing concern about the legislation offered by 
Congressman Bilbray regarding California's participation on the federal 
RFG program. A lot has happened in the past year, most notably the 
Executive Order instituted by Governor Gray Davis of California.
    Today, the American Methanol Institute is prepared to offer its 
support for H.R. 11, if the bill is amended to ensure that the air 
quality benefits Californians now enjoy are not compromised. We 
recognize that the bill as drafted attempts to prevent backsliding on 
air emissions by requiring equivalency. However, we are concerned that 
``equivalency'' refers to the emission reduction requirements of the 
Clean Air Act, which fails to take into account the fact that actual 
air quality benefits being achieved through the use of reformulated 
gasoline have greatly exceeded the mandated targets. Based on 
discussions with the Oxygenated Fuel Association, we would like to 
offer the following language to provide greater definition on this 
critical point:
        Equivalent air quality shall be demonstrated for actual in-use 
        vehicle fleet mass emissions of Volatile Organic Compounds 
        (VOCs), Oxides of Nitrogen (NOx), and Air Toxics 
        (i.e., the reactivity adjusted sum of benzene, butadiene, 
        formaldehyde, acetaldehyde and ploynuclear organic matter), 
        using the California Air Resources Board's predictive model in 
        effect on December 31, 1998. The new gasoline formulation shall 
        also be shown to result in equivalent or lower mass emissions 
        of Carbon Monoxide (CO), and Particulate Matter smaller than 
        2.5 microns (PM 2.5), as well as equivalent reactivity-adjusted 
        ozone emissions.
    We believe that the addition of this or similar language will 
prevent air quality backsliding, and ensure that the actual air quality 
benefits that are provided citizens of California today are not lost or 
sacrificed by this change to the Clean Air Act. We also believe that 
this legislation, if amended, will provide the refining industry with 
the flexibility needed to meet California's gasoline demands. Without 
the language necessary to safeguard today's air quality benefits, the 
American Methanol Institute will be forced to oppose passage of H.R. 
11.
    AMI's insistence on protecting the air quality gains that have been 
achieved is consistent with the actions taken by Governor Davis. Keep 
in mind, that the actions taken in California were not instigated by 
any immediate concerns for human health. Rather, the Governor was 
reacting to incidences of groundwater contamination from MTBE. Our 
industry continues to be concerned about the lax response to state and 
federal requirements for the upgrading of underground storage tanks 
(USTs), and the uneven enforcement of existing law. Of the 892,000 
federally regulated USTs, the U.S. EPA estimated that only 56% were in 
compliance with federal upgrade standards when the December 22, 1998 
deadline was reached. As a nation, we must do more to ensure the proper 
handling and containment of gasoline products. Further, any new fuel 
formulations must be carefully evaluated for their potential to impact 
groundwater resources and to affect air quality.
    Finally, I'd like to close my remarks by looking ahead. In a few 
weeks, the U.S. EPA Blue Ribbon Panel on Oxygenates will be issuing its 
final report and recommendations. Likewise, the Northeast States for 
Coordinated Air Use Management (NESCAUM) will be issuing a set of 
policy recommendations to guide officials in the Northeast states. I 
would strongly urge the Congress not to take any precipitous action on 
the federal reformulated gasoline program until these reports have been 
made available, and given an ample opportunity for review and comment. 
The RFG program has been a huge air quality success, and there is no 
pressing health concern that would warrant premature action by Congress 
that may ultimately weaken this program.
    Thank you for providing the American Methanol Institute with this 
opportunity to express our thoughts.

    Mr. Bilbray. I believe that this evolution of thinking is 
reflecting the philosophy that the underlying bill, H.R. 11, 
needs to be passed.
    Mr. Bilirakis. Please finish up.
    Mr. Bilbray. I will, Mr. Chairman. I just want to close by 
saying the issue here is that H.R. 11 is content-neutral. We 
don't chase our tail trying to figure out what to allow or what 
to outlaw. We basically say that outcome is what is really 
important. MTBE contamination and other issues can be addressed 
locally with the California option if you provide that 
flexibility. And I want to remind you that the Senate has 
discussed the flexibility issue, along with the possibility of 
making it national.
    Mr. Franks has introduced a bill specifically to outlaw 
MTBE and now it is my understanding that my colleague, Mr. 
Pallone, is also contemplating a national approach to my 
California-specific bill. I think all of these approaches point 
out that there is strong support not just in California but 
across the country to allow California to go specific with this 
bill and to see exactly how much public benefit we can have by 
allowing the flexibility to allow the State of California to do 
the right thing for the people at the right time with this 
legislation, and I hope we gain your support.
    Mr. Bilirakis. The gentleman's time has expired.
    [The prepared statement of Hon. Brian P. Bilbray follows:]
   Prepared Statement of Hon. Brian P. Bilbray, a Representative in 
                 Congress from the State of California
    Mr. Chairman, thank you for holding this hearing today, and for 
your willingness to work with me on behalf of the State of California 
on this important issue. As you are well aware, this is an issue that 
I've been working on since the 104th Congress, and on which the State 
of California is united in support. I appreciate your ongoing support 
and that of our colleagues, as the circumstances surrounding H.R. 11 
have evolved into the higher profile landscape which we face today.
    We will hear witness testimony shortly, but I want to take this 
opportunity to specifically thank Senator Dianne Feinstein, who has 
been a champion on this issue in the Senate and has introduced 
companion legislation to H.R. 11 in the last two Congresses, for taking 
the time to be here today. I would also like to thank our House 
colleague Ellen Tauscher, who represents California's 10th District in 
the Pleasanton area, and has been a tireless advocate in support of 
this legislation among our delegation and the entire House.
    Mr. Winston Hickox, the new Secretary of the California EPA, is 
here on behalf of Governor Davis and H.R. 11, and I should say here 
that I am very grateful for the long and continuing history of support 
from CalEPA and the ARB on this legislation, which has been essential. 
We will also hear strong support for H.R. 11 from Mayor Pam O'Connor 
from the City of Santa Monica, part of California's 29th District which 
is represented by our Committee colleague Henry Waxman.
    Mr. Chairman, it has certainly been very interesting watching the 
landscape around H.R. 11 evolve. When I first introduced this content-
neutral, outcome-based and California-specific legislation back in 
1996, it came under fire by some stakeholders which characterized it as 
a ``camel's nose under the tent'', the ``real'' intention of which was 
to erode the national 2% oxygenate requirement, by allowing states 
other than California to take advantage of its flexibility. Well, Mr. 
Chairman, then as now, three years later, this bill is specific only to 
California, recognizing the facts that 1) Congress has already provided 
California with a unique and exclusive provision in the Clean Air Act 
that allows it to operate its own fuels program, and 2) since 1990, 
California has built the proverbial ``better mousetrap'' in that it has 
developed a cleaner-burning gasoline that meets or exceeds existing 
federal emissions standards.
    But despite the resounding stability of this message of regulatory 
flexibility for California throughout three Congresses, Mr. Chairman, 
there have been a number of developments, albeit separate from H.R. 11 
itself, which nonetheless have served to color the ongoing discussion 
of this issue. There is compelling new information which serves to 
further underscore the benefits of and need for the bill, and there is 
also new support of the bill from several stakeholders which have in 
the past expressed skepticism or been opposed to this legislation 
outright. Expanding on this, I have statements here from the American 
Methanol Institute, and a former member of the Oxygenated Fuels 
Association, the Methanex Company, which I would ask to be included in 
the record at their request. I strongly believe that this evolution is 
a result of a much-improved understanding of the intent and scope of 
this bill, and an acknowledgement of the strength and merits of the 
outcome-based philosophy which underlies H.R. 11. Also for the record, 
Mr. Chairman, I would also like to include with this the July 31, 1996 
letter to Chairman Bliley from then-Chairman of the Air Resources Board 
John Dunlap in support of this legislation, and the September 10, 1996 
letter to Chairman Bliley from AMI, OFA, and RFA. I think these letters 
help to show, respectively, the continuity of the argument on behalf of 
H.R. 11 since its introduction, and how the perception of it has 
evolved among specific stakeholders.
    At this point, Mr. Chairman, I think it would be helpful to 
reiterate two basic points--first, H.R. 11 is content-neutral, and 
because it is focused on outcome and not process, it neither requires 
nor bans the use of any particular ingredient which might be used to 
manufacture California's reformulated gasoline. Its purpose is to 
provide California-specific relief from the federal mandate which 
California's own fuel has outpaced, and it is written to give 
California that added flexibility by which to meet its already 
stringent emissions standards. Second, I want to emphasize that this 
legislation predates, and is not a direct reaction to, the separate 
issue of MTBE contamination, which since this bill was first introduced 
in 1996 has itself has developed into a public health concern of such 
magnitude in California that Governor Davis was recently compelled to 
issue an executive order to phase out its use.
    Clearly, in California, which, led by Governor Davis, continues to 
strongly support H.R. 11, the MTBE issue has reached new levels of 
concern. As a result, Governor Davis has taken decisive action, based 
on the findings of several comprehensive scientific studies, including 
by the University of California, to phase out the use of MTBE in 
California over the next three years.
    Several other states have begun to experience similar concerns and 
explore similar actions, and in the Senate legislation has been drafted 
which would seek to provide governors with the kind of flexibility 
which would be provided to California by H.R. 11. Our New Jersey 
colleague Mr. Franks, who has introduced legislation which deals solely 
with MTBE, will provide his state's perspective on H.R. 11, and it is 
my understanding that our Committee colleague Mr. Pallone may be 
contemplating taking up a broader bill on state flexibility similar to 
that now pending in the Senate. Some might find it rather ironic that 
there is now a growing discussion of whether the kind of flexibility 
that H.R. 11 would provide only to California should be available to 
other states. However, while these other initiatives may take differing 
perspectives from H.R. 11, they are part of an important ongoing 
dialogue on this broader issue, all of which I believe keeps circling 
back to H.R. 11 as the practical solution.
    Separately, Mr. Chairman, let me say that I appreciate your 
specific interest in requesting EPA to discuss whether it has the legal 
authority to waive the 2% minimum oxygen requirement in section 211(k) 
of the Clean Air Act, for California or any other state. As you are 
aware, this was a primary consideration which led to my initial 
introduction of this legislation in the 104th Congress. Prior to 
introduction of what was then H.R. 3518, I worked in close consultation 
with EPA, particularly Mary Nichols, who like myself is an alum of the 
California Air Resources Board, and who then served as EPA's 
Administrator for Air and Radiation. Based on these consultations, it 
was clear at that time that legislative action was in fact necessary to 
provide California with the legal ability to operate its own fuels 
program in lieu of the federal program established by the 1990 Clean 
Air Act Amendments, and I introduced legislation, now H.R. 11, as a 
result. Given this history, I am very interested in the views of Mr. 
Perciasepe on the State of California's question to this effect.
    Having touched on these more recent developments, Mr. Chairman, I 
would like to revisit the basic principles which underlay the bill and 
its high level of support. H.R. 11 would simply build on the existing 
California-specific provision in the Clean Air Act to allow California 
to meet its already tough standards without being mandated to follow a 
specific ``recipe''. In essence, the state's more stringent RFG program 
would operate in lieu of the overlapping and less stringent federal 
program, so long as the state program continues to demonstrate that it 
is achieving equal or better reductions in overall emissions of VOCs 
and air toxics. The U.S. EPA has recognized that the California program 
is more stringent, and has stated as much in several past federal 
register notices. This can be accomplished without sacrificing or 
``backsliding'' on any public health or environmental benefits that 
California now enjoys; indeed, the broad support of air quality and 
water districts around the state are testament to this fact, and I 
believe that our witnesses from the California EPA and the Association 
of California Water Agencies can address this in greater detail.
    More specifically, H.R. 11 has been carefully drafted to build 
exclusively on California's unique and preexisting ability under the 
existing Clean Air Act to operate its own fuels program. This is so for 
good reason, as California has historically had unique air pollution 
challenges which require innovation and creativity to address. 
Recognizing this, Congress singled it out for special status in Section 
211(c)(4)(b) of the Clean Air Act, which reads ``Any state for which 
application of section 209(a) has at any time been waived under section 
209(b) may at any time prescribe and enforce, for the purpose of motor 
vehicle emission control, a control or prohibition respecting any--fuel 
or fuel additive.'' Under Section 209(b)(1) a waiver may only be 
provided to ``any State which has adopted standards . . . for the 
control of emissions from new motor vehicles or new motor vehicles 
engines prior to March 30, 1966, if the State determines that the State 
standards will be, in the aggregate, at least as protective of public 
health and welfare as applicable Federal standards.'' California is the 
only state which has met this criteria; as a result H.R. 11 as it is 
written applies exclusively to California under the Clean Air Act, and 
is not applicable to any other states.
    I also want to reiterate to my colleagues that I continue to be 
sensitive to concerns which have been expressed about the potential for 
this legislation to ``open up the Clean Air Act'' or somehow serve as a 
``vehicle'' for other amendments which might be harmful to the Act. Let 
me again clarify that this is neither the intent nor effect of H.R. 
11--it is tailored to be applicable to California only, and to meet its 
specific needs by building on its unique status under the existing Act. 
This Committee has on several occasions in recent years demonstrated 
its ability to shepherd through the legislative process other 
bipartisan ``rifle-shot'' amendments to the Clean Air Act, without 
``opening it up'' in a harmful manner, and I have great confidence in 
the ability of Chairman Bilirakis and Chairman Bliley to manage the 
process accordingly to do so again. I appreciate their concern for the 
integrity of the public health and high standards of air quality, and 
look forward to working with them and our stakeholders to create a 
favorable environment for the passage of this bill.
    In conclusion, Mr. Chairman, ever since I first introduced this 
legislation, I have tried to be as plain as I can about my intent with 
H.R. 11, and my door has been open continuously to all interested 
parties. I believe that the broad support which it now enjoys, 
including new expressions of support from previously skeptical or 
opposed stakeholders, serves to reinforce the level of awareness and 
education that has gone into this process since I first introduced this 
legislation in 1996. I greatly appreciate the amount of time and energy 
which the Subcommittee and my colleagues have devoted to this important 
clean air issue, and their willingness to learn about and support a 
common-sense response to it.
    We are reaching, if we have not already, a ``critical mass'' for 
H.R. 11--the need for this bill has never been greater, or more evident 
to Members of both the House and Senate. What is boils down to is 
simple fact--California has different (and more difficult) air quality 
needs than the rest of the nation. The Clean Air Act already reflects 
this. California has used this unique authority under the Act to 
develop an advanced, cleaner-burning fuel which outpaces the federal 
standard--the proverbial ``better mousetrap''. H.R. 11 will maximize 
the State's ability under the Act to achieve and improve upon its more 
stringent air quality standards and respond appropriately to other 
public health concerns which may arise. This is the essence of the 
justification for and rationale behind this bill, and is what all our 
participants should be focused on today; I look forward to the 
testimony of our witnesses.
    Mr. Chairman, I have several letters of support for H.R. 11 which I 
would like to be added to the record, including letters from the 
California Air Pollution Control Officers Association, the California 
Chamber of Commerce, the California Manufacturers Association, the Los 
Angeles County Board of Supervisors, the Metropolitan Water District, 
and the California Business Alliance, to name just a few. I also have 
other supporting material which I would ask to be included in the 
record.
    Thank you, Mr. Chairman.

    Mr. Bilirakis. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. Mr. Chairman, I do 
not believe Congress should legislate a California-only bill. 
California's Governor has already signed an executive order 
waiving the State's oxygenate requirement and banning MTBE, and 
therefore I introduced a bill just last evening that would 
address reformulated gasoline nationally.
    My bill, which is H.R. 1705, would waive the 2 percent 
oxygenate requirement for the entire country essentially in the 
same manner as Senator Feinstein's bill and I want to commend 
the senator for moving toward a national initiative.
    The bill I have introduced phases out MTBE in 3 years, as 
is the case in California, as long as an adequate supply of 
gasoline remains available and Clean Air Act requirements 
continue to be met.
    My bill would not preclude or prohibit the use of ethanol. 
It would also require the National Academy of Sciences to 
conduct the study of all other oxygenates and their combustion 
byproducts to determine their health and environmental effects.
    The bill I have introduced is supported by groups such as 
Oxybusters, which originated in New Jersey and now exists 
nationwide. I would ask unanimous consent, Mr. Chairman, that 
testimony from this group be submitted as part of the formal 
record.
    Mr. Bilirakis. Without objection.
    [The information referred to follows:]
            Prepared Statement of Oxy-Busters of New Jersey
    Oxy-Busters of New Jersey supports Congressman Frank Pallone's bill 
to ban oxygenated fuel throughout the nation. The accomplishment of 
this feat would be the culmination of six years of tireless efforts to 
rid our country of these dangerous and useless fuel additives.
    When oxygenated fuel was introduced in New Jersey in November 1992, 
hundreds of unsuspecting victims experienced severe health problems 
that included pounding headaches, sinus problems and breathing 
difficulties. I, too, suffered from severe headaches, which prompted my 
formation of Oxy-Busters, a grassroots organization dedicated to the 
elimination of oxygenated gasoline.
    Our efforts to rid New Jersey of oxygenated fuel were stymied by 
the insensitivity of the state Department of Environmental Protection, 
which continued to assert that oxygenated fuel was cleaning the air. It 
was only recently that a University of California study proved what 
Oxy-Busters had asserted all along--that oxygenated fuel has little, if 
any, effect on cleaning the air. Even when Oxy-Busters presented 15,000 
signed petitions to Gov. Whitman calling for a ban on oxygenated fuel, 
our state government continued to do nothing to protect its citizens' 
health. Gov. Whitman claims she has been supportive of our movement, 
yet her token efforts pale in comparison to those of more progressive 
governors who have managed to ban some forms of oxygenated fuel from 
their states.
    Maine, North Caroline, Montana, Alaska and California have 
successfully fought against oxygenated fuel and have helped ensure the 
well-being of their states' citizens. With the assistance of Frank 
Pallone, the entire nation can be free from all oxygenates and all 
citizens will be able to breathe the air outside their homes again. We 
applaud Congressman Pallone's national leadership on this issue.
    Just as our air has been polluted by oxygenated fuel, so, too, has 
our water supply. Oxygenated fuel has been discovered in ground water 
in numerous places throughout the country, and because some oxygenates 
are suspected carcinogens, this water contamination should be a cause 
for great alarm.
    In New Jersey alone, Oxy-Busters has documented more than 800 cases 
of people suffering ill health effects from oxygenated fuel. Keep in 
mind that most of these people had never experienced any type of 
chemical sensitivity prior to the introduction of oxygenated fuel. We 
shudder to think of how many people throughout the United States are 
also suffering but are unaware of what is making them ill, or think 
they have nobody to turn to.
    Now, thanks to Congressman Pallone, they do.
                                             Barry Grossman
                                 Founder, Oxy-Busters of New Jersey
                                 ______
                                 
   Prepared Statement of Oxy-Busters of New Jersey, Southern Division
    Oxybusters of New Jersey is a grass roots organization that opposes 
the use of oxygenates in gasoline. We are part of a national movement 
that began in 1993 after thousands of people became ill from exposure 
to oxygenated fuel. Our group opposes the use of oxygenates for the 
following three reasons:
    1) Health Effects--oxygenates create harmful combustion byproducts 
when used in gasoline. These include formaldehyde, acetaldehyde, 
tertiary butyl alcohol, formic acid, isobutylene and nitrogen oxides. 
These toxic chemicals can cause severe respiratory irritation. We 
believe the dramatic increase in asthma in recent years is linked to 
these byproducts. The federal EPA has only recently begun to study 
these chemicals.
    2) Air Quality Effects--the purpose of oxygenates was supposed to 
be to reduce emissions of carbon monoxide (CO) and volatile organic 
compounds (VOCs). Oxygenates are unnecessary for either purpose, and in 
some respects, counterproductive. All cars built since the mid-1980's 
have oxygen sensors, which control the oxygen mixture. In these cars, 
oxygenates have no impact on CO--but they do result in increased 
nitrogen oxides emissions, which create smog. Generally speaking, CO is 
not the major problem of vehicle emissions that it was in the 1980's, 
because of the oxygen sensors.
    While oxygenates have replaced some VOCs in gasoline, refiners have 
acknowledged they can maintain these reductions without using 
oxygenates. Extensive studies done by the Auto and Oil industries, and 
also by the University of California, all concluded that oxygenates do 
not make gasoline burn cleaner.
    3) Water Contamination--MTBE has contaminated water supplies 
throughout the country. Because it is ether-based, it is highly soluble 
in water, unlike other components of gasoline. It also biodegrades very 
slowly, and is extremely costly to cleanup.
    For these reasons, our group believes that the oxygen requirement 
for reformulated gasoline should be eliminated. In addition, all ether-
based additives should be banned on a national level. We very much 
appreciate the interest Congressman Frank Pallone has taken in these 
issues. We would support any federal legislation that would accomplish 
these goals.
                                              Barry Dorfman
                                       Director of Special Projects

    Mr. Pallone. There are other groups such as the California 
chapter of the Sierra Club which support the policy concepts of 
this bill. The American Lung Association also has expressed 
support at least for lifting the oxygen caps nationally.
    I introduced this legislation because other parts of the 
country deserve to breathe clean air and experience the same 
health benefits as California. In my State of New Jersey and 
elsewhere as--I was going to say Senator Franks; better be 
careful, Bob--as Representative Franks and others will 
reiterate, groundwater problems and health problems from MTBE, 
which is used as an additive for reformulated gasoline, are 
cropping up.
    For example, the New Jersey State Department of 
Environmental Protection issued a 1998 report which indicated 
that approximately 400 private wells were contaminated with 
MTBE beyond the New Jersey safe drinking level of 70 parts per 
billion. And yet my home State is not considering banning MTBE 
and that is why we need national legislation.
    Let me just mention also the oxygenate requirement 
currently in law. Research efforts conducted separately by the 
University of California, Dr. Peter Joseph of the University of 
Pennsylvania, the American Petroleum Institute and others, 
indicate that the oxygenate requirement not only does not 
improve air quality, it actually increases nitrogen oxides 
which is a precurser to smog and can increase exhaust emissions 
of formaldehyde and other toxic compounds.
    The Sierra Club is on record opposing an oxygenate 
requirement and in arguing that such a mandate would increase 
the potential for smog and air toxins, and the research has now 
proven that added oxygenates reduces carbon monoxide. I have 
also been told some companies, which are represented here 
today, have market-ready alternative fuels that can meet clean 
air standards without using oxygenates. So it appears the 
oxygenate requirement doesn't necessarily reduce emissions and 
may cause harmful consequences as well.
    Last, Mr. Chairman, I just wanted to mention with regard to 
MTBE and the compounds used to meet the RFG oxygenate 
requirement, MTBE is highly soluble in water, biodegrades 
slowly and is costly to clean up. Like some of the witnesses 
here today, I do not believe we should wait for more 
groundwater contamination and more people to get sick before we 
take nationwide action. And the costs of removing MTBE upfront 
are far less than cleaning up contaminated groundwater supplies 
and paying for health expenses related to MTBE exposure.
    DOE estimates that removing MTBE in conjunction with 
lifting the oxygenate requirement would cost only a few pennies 
per gallon of gasoline. Since the EPA is already issuing 
regulations to remove sulfur from gasoline, which would already 
serve to reduce environmental impacts, the cost would probably 
be even lower than these estimates.
    Mr. Chairman, I am basically writing a letter to each of 
our witnesses, asking that comments on my bill be included in 
the record, and, ask unanimous consent that the record be kept 
open for this purpose, with your permission.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Bryant, for an opening statement.
    Mr. Bryant. Thank you, Mr. Chairman. I do want to express 
my gratitude to you and to Mr. Brown for holding this hearing 
today on legislation introduced by my colleague from 
California, Mr. Bilbray. Although this legislation specifically 
relates to the situation in California, several issues we will 
examine here this morning should concern us all. We are all 
affected or potentially affected by the Clean Air Act and the 
amendments of 1990. There isn't a congressional district in 
this country that isn't affected by the cost and supply of 
gasoline, and we are certainly all impacted by air and water 
quality.
    Not being an expert in environmental policy, I am looking 
forward to hearing and learning from the testimony of our 
witnesses today. I also want to thank all of you for taking the 
time to be with us and thank you, Mr. Chairman. I yield back.
    Mr. Bilirakis. Mrs. Capps, for an opening statement.
    Mrs. Capps. Thank you, Mr. Chairman, for holding this 
important hearing on H.R. 11. I welcome our witnesses today. I 
especially want to welcome my own Senator and good friend, 
Dianne Feinstein, and my California colleague, Ellen Tauscher, 
who have both been leaders on this issue along with Mr. Bilbray 
to help sponsor this legislation.
    I am very proud to be an original co-sponsor of this bill 
and pleased that an almost unanimous agreement exists among the 
California colleagues in the House to support this important 
legislation.
    H.R. 11 will provide my home State the flexibility it needs 
to keep our air clean without adversely affecting our drinking 
water supply. California leads the Nation in air pollution 
control programs. We already have the Nation's strongest 
cleaner burning gasoline standards, which are stronger than the 
Federal clean air standards. California has adopted a 
performance-based program that allows gasoline refiners to use 
innovative fuel formulas to meet clean air requirements without 
mandating potentially harmful additives such as MTBE.
    We all share the same goal here, to develop the cleanest 
burning fuel to reduce air pollution. However, clean air must 
not come at the expense of clean drinking water. With recent 
studies showing the harmful effects of MTBE to California's 
groundwater, it was no surprise that our new Governor ordered 
the elimination of that additive to California's gasoline 
within the next 3 years. A recent Federal survey indicates that 
69 percent of California's population relies on groundwater for 
their source of drinking water. Furthermore, the U.S. EPA has 
indicated that MTBE is an animal carcinogen and has a human 
carcinogenic hazard potential. The bottom line is that MTBE is 
not needed, and dangerous.
    California can meet Federal clean air standards by using 
their own State clean gas regulations. It simply does not make 
sense to continue using a chemical additive that is 
unnecessary, pollutes California's drinking water supply and 
threatens the public health.
    H.R. 11 will allow California the flexibility it needs to 
ensure clean air and clean water. I hope we can bring this bill 
to a vote soon. Thank you.
    Mr. Bilirakis. Thank you. Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman. I will be brief. There 
is ample evidence that oxygenates help fuel burn cleaner. We 
want clean air so we have oxygenates. We don't want 
contaminated water, so get rid of MTBE. But I am not in favor 
of exempting California from all oxygenates simply because 
there is an alternative called ethanol. I look forward to 
testimony by Eric Vaughn from the Renewable Fuels Association. 
Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for convening today's hearing on an issue of great 
importance to California and to our Nation and I am looking 
forward to getting the testimony. I know you are all looking 
forward to giving us the testimony from our witnesses that are 
sitting at the table and are going to follow them.
    I particularly want to welcome Mayor O'Connor from Santa 
Monica in my own district for being here, and my own State U.S. 
Senator, Dianne Feinstein.
    This bill would allow California's reformulated gasoline to 
substitute for Federal reformulated gasoline. The most 
significant impact of this change would be to exempt California 
from the congressionally mandated Federal oxygenate 
requirement.
    When this legislation was first introduced, its goal was to 
eliminate overlapping requirements between Federal and State 
law, now the center of a raging MTBE controversy in California 
and in other parts of the country.
    I would like to mention briefly the major problem 
associated with MTBE use and leaking underground fuel tanks of 
California. Nowhere has this created more of a crisis than in 
my own district of Santa Monica. MTBE has been detected at high 
levels in two of Santa Monica's drinking well water fields, the 
Arcadia and the Charnock well fields. The water from these 
wells smells and tastes like turpentine. Even if we were sure 
it was safe to drink, and we are not sure of that, the taste 
and odor problems render it undrinkable. Both of these drinking 
water wells have been closed down, forcing Santa Monica to 
secure alternative water supplies at a considerable loss of 
self-sufficiency.
    The U.S. EPA has initiated a Federal enforcement action to 
clean up the most significant of these well fields, but cleanup 
is proving more complicated, costly, and time-consuming than 
expected.
    I am concerned that Santa Monica's experience may become a 
reality in other areas. Preliminary studies, for example, 
indicate that MTBE is already showing up in groundwater 
supplies in the northeastern States. We would do well to gather 
what lessons we can from Santa Monica's experience to help 
address other areas where MTBE may be an emerging problem.
    As one of the few members of the California delegation who 
has yet to co-sponsor H.R. 11, I am interested in assuring that 
as we move forward, we do everything we can to fix California's 
problem and realize that this is a growing national problem. We 
have to ensure that other States can prevent harm.
    It is important to note that neither the Clean Air Act nor 
the California fuels program requires that any specific fuel 
additive be used to satisfy oxygenate requirements. Instead it 
was the oil companies' choice to use MTBE to satisfy Clean Air 
Act requirements.
    MTBE currently accounts for 76 percent of oxygenate used in 
the United States. Although the oil companies are the ones 
financially responsible. And they recognize that 
responsibility, we need to prevent contamination rather than 
try to clean it up after it has occurred. So I want to ensure 
that we prevent the widespread adoption of other fuel additives 
which may pose unsuspected risks to the public health or 
environment and put us in a similar situation 5 or 10 years 
from now.
    It is also essential, of course, that this subcommittee and 
our committee consider steps that directly deal with problems 
of leaking fuel tanks. It appears that previous legislation has 
not adequately addressed this serious issue. In addition as we 
mark up legislation, we need to make sure that any changes 
don't result in more emissions of toxic air pollutants and we 
need to also take into account potential impacts on global 
warming.
    Mr. Chairman and my colleagues, it would be easy to say 
let's deal with California alone, but this is a growing 
national problem and we have to look at the full consequences 
of this issue and any changes we make and how it is going to 
affect the whole country.
    I want to thank you again for holding today's hearing. I 
look forward to working with you and my colleagues on a 
bipartisan bill that protects our environment and adequately 
addresses the serious problems posed by MTBE.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Green?
    Mr. Green. Thank you, Mr. Chairman, for holding this 
hearing on H.R. 11. The Clean Air Act regulations on 
reformulated gasoline are clearly becoming not only in 
California but also in other States a point of contention. 
Because I was not here when the Clean Air Act Amendments were 
passed in 1990, I was not involved in the decision prescribed 
how to formulate reformulated gasoline. To be honest, I 
understand the need and reasoning behind mandating RFG 
performance levels, but I can't imagine why we would find the 
need to mandate the formula with which refineries meet these 
standards. Maybe someone who was around back then can explain 
that point during the hearing.
    Nevertheless, the Federal Government established the 
oxygenate standard as a major component of the Clean Air Act 
RFG standards. Whether you agree or disagree with that 
decision, the fact remains it was made, and companies in Texas 
have stepped up to meet the Nation's needs.
    While H.R. 11 does not go as far as Governor Davis' 
executive order to remove MTBE from RFG in California, nor does 
it go as far as some Federal bills that have been introduced 
into the House and Senate that would prohibit the use of MTBE 
in gasoline for the entire country, I do believe it starts us 
down a road that could simply not be ready for the traffic.
    Before we abandon the use of MTBE in reformulated gas, we 
need to make sure we have a viable alternative as safe as MTBE 
is, as effective in reducing volatile organic compounds, does 
not have other negative effects on the environment, is 
affordable and is accessible throughout the country. And I find 
that I agree with partial parts of all my colleagues' 
statements before me.
    Let me first address the public health issue. While it is 
well known and documented MTBE causes odor and taste problems 
in drinking water, it is not known at what levels the 
contamination becomes hazardous. Unfortunately the public 
health effects of the alternative of MTBE ethanol is also not 
known. We should not rush to use another oxygenating compound 
before we know more about it. Let's not make the same mistake 
again.
    Likewise, there is still very little known about non-
oxygenated gasoline. What we do know is that the product has 
more aromatics which will significantly increase the level of 
toxic emissions into the air.
    Finally, on the issue of affordability and accessibility, 
the simple fact is that ethanol, because it is so difficult to 
transport and more expensive to produce, cannot currently be 
counted on to meet the Nation's needs if MTBE was banned.
    Mr. Chairman, let me conclude by saying we all want to 
protect the quality of our drinking water, and Texas water is a 
scarce resource and we do all we can to protect it. However, 
the most direct approach in protecting water is to make sure 
our underground storage tanks are sound and to be careful when 
handling gasoline. The fact is many storage tanks do not meet 
Federal safety guidelines, so replacing MTBE with another type 
of gasoline will only mean different substances will leak into 
that ground. Some flexibility may be needed in the fuel 
oxygenate standard; however, no resulting policy should 
undermine air quality or reduce the accessibility of fuel for 
any Americans. We need to be cautious and thorough before we 
proceed. Thank you, Mr. Chairman.
    Mr. Bilirakis. Thank you.
    Ms. Eshoo.
    Ms. Eshoo. Yes, good morning, Mr. Chairman, and thank you 
for holding this important hearing. First I would like to 
welcome our very, very distinguished senior Senator of the 
State of California. She has distinguished herself in 
everything that she has done in public service, so we are very 
proud to have you here; and a special welcome to my Bay Area 
colleague, Ellen Tauscher.
    Mr. Chairman, there is a saying that as California goes, so 
goes the Nation. And I think an awful lot of that is built into 
this bill which I am very proud to be a co-sponsor of. We know 
that we have a problem with MTBE. We know that there are health 
risks. We know that there is contamination of over 10,000 
groundwater sites in California. California is not asking to be 
let out the back door on the Federal Clean Air Act. We are 
asking for flexibility; that we meet the Federal requirements, 
but that we do it in a different way.
    I think that we have established a clear case of the 
problems with MTBE, and I think that the solution we put 
forward would not only be good for California but also would be 
a model for other States in addressing similar problems. It 
wouldn't mandate that other States do that, but it would simply 
set up California as a major case in the country, and 
California is always a major case since we are the largest 
State in the Nation.
    So I am proud to co-sponsor the bill. I think it is 
sensible. I think that it asks for the right kind of 
flexibility, but it does not let California out from under the 
stringent standards which I have always supported relative to 
the Federal Clean Air Act.
    Last, Mr. Chairman, I would like to request unanimous 
consent that a statement from the Santa Clara Valley Water 
district be entered into the record.
    Mr. Bilirakis. Without objection.
    Ms. Eshoo. Thank you and I yield back.
    Mr. Bilirakis. Thank you. I think that completes our 
opening statements. Ms. DeGette was here but I am not sure she 
will be returning right off. Apparently not.
    I, too, want to add my welcome to the first panel and 
particularly to our colleagues and to Ms. O'Connor for having 
come so very far to testify here today.
    As per usual, your written statement, those of you who have 
provided one, is a part of the record. I will set the clock at 
5 minutes for each of you and hope that you could stay within 
that time. If not, as long as you are on a particular point, in 
the middle of a sentence, you can continue. We will kick off 
with the Honorable Senator Feinstein.

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman, I am 
really delighted to be here. I will put my written statement in 
the record.
    What is clear is the committee knows a lot about this. I am 
really heartened to see this. I would, just like to talk with 
you informally this morning. I want to begin by thanking 
Congressman Bilbray for his longstanding work in this effort. I 
have introduced his bill in the Senate, as well as three others 
which I will talk about in a moment.
    I also know that Representative Henry Waxman with his real 
expertise on health and environmental issues is playing a vital 
role in this, and I want to particularly thank Representatives 
Lois Capps and Anna Eshoo for their expertise. A good deal of 
what Mr. Pallone has said I strongly agree with. I am really 
very concerned about this because there are a number of Catch-
22s on the way to working out a solution.
    Congressman Bilbray is right. We really do need to work on 
a bipartisan basis and it is unacceptable to clean our air by 
polluting our groundwater. And let there be no doubt, MTBE is a 
serious pollutant.
    But it is not only in California. I think clearly you will 
see the extent in California. This map shows the sites of 
leaking underground fuel tanks and leaking public wells in 
California. You see the Los Angeles area. You see the San 
Francisco Bay area. You see the Central Valley area. It's a big 
problem.
    It is also a problem developing in other States as well, in 
at least 19 other States. The U.S. EPA survey in 1998 found 
MTBE in 251 of 422 public wells in 19 States. The U.S. 
Geological Survey and a 12-State survey of New England mid-
Atlantic States said that using MTBE in gasoline results in a 
four- to sixfold increase in its presence in water.
    MTBE to date has been detected in water in States such as 
Maine, Pennsylvania, Virginia, Texas, Kansas, New York, New 
Jersey, Georgia, Alabama, Colorado, New Hampshire, 
Massachusetts, Delaware, and Arizona. There is no question it 
is carcinogenic in animals. Now that has not been proved for 
humans, but there is strong scientific belief that when it 
happens in animals, everybody should be alerted.
    The Catch-22 is that there are those, including the EPA and 
environmentalists, who don't want to see the Clean Air Act 
opened up. There are those that don't want a California-only 
solution. We hear some of that on this committee. It exists in 
the Senate. I have worked with the Chairman of the Environment 
Committee, Senator Chafee, who has made clear that he doesn't 
want only a California solution.
    The other Catch-22, frankly, is the ethanol lobby, the 
Renewable Fuels Association. I have the pleasure of meeting 
with them this afternoon and I hope we can clean the air which 
is clouded, I think, by several misimpressions. They view any 
action as the camel's nose under the tent with respect to 
ethanol and they want to ratchet up the ethanol requirement in 
gasoline to 5 percent. Consequently, we have all of these 
conflicting things going on. At the same time, we have MTBE 
which spreads dramatically in groundwater.
    I first was brought into this when I was visited by the 
mayor of Santa Monica who spelled out with charts and graphs, 
and had her attorneys there, about the pollution of 50 percent 
of the groundwater of Santa Monica. Since that time and 
beginning this week, south Lake Tahoe's drinking water is being 
rationed. Tosco has moved very rapidly to pull MTBE out of the 
water that goes to Lake Tahoe, but there isn't enough clean 
water. Consequently, they are rationing water. In Santa Clara 
County it has infiltrated their groundwater; 52 out of 58 water 
districts, counties, have said, please help. I would like to 
put their resolutions and their statement in the record.
    Mr. Bilirakis. Without objection.
    Senator Feinstein. Chevron has indicated very clearly to 
me--and their representative is here today to answer any 
questions, Mr. Hopkins--that they can clearly, if they have 
flexibility, make gasoline that conforms with the California 
performance model, which is the strongest model anywhere in 
America for the cleanest gasoline anywhere in America without 
MTBE. They would have to use ethanol certain times of the year 
in the southern California market.
    I think what I am pleading for is to provide flexibility in 
whatever you do and allow us to work on a bipartisan basis. I 
will be very pleased to sit down with the Renewable Fuels 
Association. For some reason, they feel I am attacking them. I 
am not trying to attack them. I am just trying to find a way to 
be able to provide flexibility in the law.
    If it is a California waiver, that is just part of the 
problem. There has to be, I sincerely believe, a national 
solution to this because it is going to percolate through 
groundwater of other States and other States are going to be 
resentful if it is a California-only solution.
    So I think one of the keys is flexibility. I think allowing 
a situation whereby the EPA can grant a waiver to States who 
can show that they can meet the clean air guidelines without 
MTBE or without an oxygenate, that that should be allowable. I 
think it is a mistake for Federal policy to have a rigid 
percentage of anything if that anything isn't necessary to meet 
the Federal guidelines.
    So I am happy to really work in the Senate with the House, 
work with Republicans and Democrats, and see if we can't break 
through some of these Catch-22s and come up with a piece of 
legislation that really serves the purpose.
    [The prepared statement of Hon. Dianne Feinstein follows:]
 Prepared Statement of Hon. Dianne Feinstein, a U.S. Senator from the 
                          State of California
    Thank you for the opportunity to share with you my concerns about 
the contamination of drinking water by the gasoline additive, MTBE.
    My goal is narrow and simple: get MTBE out of California's water. 
MTBE smells like turpentine and tastes like paint thinner. Relatively 
low levels can simply make drinking water undrinkable.
    MTBE is a contaminant that is ``frequent'' and ``widespread,'' 
impacting at least 10,000 sites in California, according to a June 1998 
Lawrence Livermore study.
    I have with me here today a map of my state showing the extent of 
contamination all across California. The San Francisco Examiner on 
December 14, 1998 called it ``a ticking timebomb.''
                            the mtbe problem
    Why is MTBE so objectionable?
    Unlike other components of gasoline, MTBE does not biodegrade.
    MTBE is difficult and expensive to get out of the water. It costs 
around $1 million to clean up one well in California and $5 million to 
clean up a reservoir.
    MTBE has a bad taste and odor.
    MTBE travels quickly through soil and gravel. Lake Tahoe officials 
have told me that ``out-of-control'' MTBE plumes move one to nine feet 
per day, where it is now 1,000 feet from the lake.
    Where does it come from? MTBE comes from gasoline--from leaking 
underground storage tanks, from pipelines, from motorboat engine 
discharges and exhausts, from spills and leaks at gasoline stations, 
from automobile accidents, from stormwater runoff and sometimes from 
sources unknown.
    A June 13, 1997 Oakland Tribune article reported that MTBE levels 
in the air around the San Francisco Bay area ``have risen 
dramatically,'' quoting Bay Area Air Quality Management officials who 
said that MTBE detections in the air grew after MTBE was introduced in 
gasoline in the area. More recently (March 9, 1999), the Reno (NV) 
Gazette-Journal reported, ``Traces of methyl tertiary butyl ether were 
discovered last week in air samples taken by the South Tahoe Public 
Utility District.''
    A South Lake Tahoe official on February 5 told the Sacramento Bee 
that MTBE traveled through the sewer system, through the treatment 
system, through the export pipeline, across a stream and now into a 
reservoir 30 miles away.
    It is time to end it.
                        governor davis has acted
    California Governor Gray Davis on March 26 issued executive order 
D-5-99 taking 11 steps to stop MTBE contamination, which Secretary 
Winston Hickox will describe for you later this morning. Governor 
Davis's actions included the following:

(1) a phaseout of MTBE use in gasoline by December 31, 2002;
(2) a request to U.S. EPA for a waiver for California's cleaner-burning 
        gasoline from the federal requirement of oxygen in reformulated 
        gasoline;
(3) support for legislation to allow U.S. EPA to waive the federal 
        oxygenate requirement;
(4) labeling of gasoline pumps, indicating that gasoline contains MTBE;
(5) new guidelines for cleaning up MTBE contaminated areas;
(6) an evaluation, by December 31, 1999, of ethanol transport in air 
        and water; and
(7) a report on the potential for development of a California waste-
        based or other biomass ethanol industry.
                    studies raise serious questions
    Several authoritative studies have raised questions about MTBE in 
drinking water.
University of California
    A distinguished group of University of California scientists in 
November 1998 in a five-volume study recommended that MTBE be phased 
out over several years and that refiners be given flexibility in 
gasoline formulations to achieve air quality.
    Importantly, UC found that ``there is no significant additional air 
quality benefit to the use of oxygenates such as MTBE in reformulated 
gasoline, relative to'' California's reformulated gasoline formula. UC 
also found that ``there are significant risks and costs associated with 
water contamination due to the use of MTBE.''
Lawrence Livermore National Laboratory
    A June 1, 1998, Lawrence Livermore National Laboratory study 
reached five important conclusions:

    1. ``MTBE is a frequent and widespread contaminant in shallow 
groundwater throughout California. There are presently 32,409 leaking 
underground fuel tank sites recognized in the state, 13,278 at which 
hydrocarbons are known to have impacted groundwater. A minimum estimate 
of the number of NME-impacted sites in California is greater than 
10,000.''
2. ``MTBE plumes are more mobile than BTEX (benzene, toluene, 
        ethylbenzene, and xylenes) plumes.'' Thus, it moves quickly to 
        infiltrate groundwater.
3. ``The primary attenuation mechanism for MTBE is dispersion.''
4. ``MTBE has the potential to impact regional groundwater resources 
        and may present a cumulative contamination hazard.''
Association of California Water Agencies
    The Association of California Water Agencies has detected MTBE in 
shallow groundwater at over 10,000 sites in California. Some deeper 
drinking water wells have also been affected.
    ACWA's December 1998 study also documented MTBE contamination in 
many of the state's surface water reservoirs, concluding that motorized 
recreation is the biggest contributor of MTBE contamination and 
confirming other studies findings that MTBE tends to stay in the 
uppermost portion of the reservoir.
    A sampling dated April 22, 1999 detected MTBE in 44 groundwater 
sources and 28 surface water sources in California.
                         mtbe is not necessary
    California can meet federal clean air standards by using our state 
gasoline regulations, which Mr. Hickox can thoroughly discuss with you. 
California's reformulated gasoline rules provide about twice the air 
quality benefits of federal reformulated gasoline. California has the 
cleanest gasoline in the world.
    Clean gasoline without MTBE can be and is being manufactured by 
several refiners, including Chevron Products Company, who wrote me on 
September 11, 1998, ``We believe it is possible to replace gasoline, 
which currently contains MTBE with a combination of ethanol-blended 
gasoline and non-oxygenated gasolines, while maintaining the clean air 
benefits that the California Cleaner Burning Gasoline program has 
provided.''
                        a possible health hazard
    U.S. EPA has indicated that ``MTBE is an animal carcinogen and has 
a human carcinogenic hazard potential.'' The University of California 
study clearly concluded that we need more research to fully understand 
the human health impacts of MTBE, when the UC study called for a 
phaseout.
    Dr. John Froines, a University of California scientist, testified 
at a state hearing on February 23, 1999, as follows on their work:
    We in our report have concluded that cancer evidence in animals is 
relevant to humans. There are acute effects in occupationally-exposed 
workers, including headaches, dizziness, nausea, eye and respiratory 
irritation, vomiting, sensation of spaciness or disorientation and 
burning of the nose and throat.
    MTBE exposure was associated with excess cancers in rats and mice, 
therefore, multi-species. He cited ``multiple, endpoints, lymphoma, 
leukemia, testicular cancer, liver and kidney.''
    All four of the tumor sites observed in animals may be predictive 
of human cancer risk . . .
    The related question is whether there is evidence which 
demonstrates the animal cancers are not relevant to humans. The answer 
developed in detail in our report is no. There is no convincing 
evidence that the data is specific to animals. That is our conclusion. 
Nobody has come forward to tell us a basis to change that point of 
view.
    Many authorities believe that the human health effects of MTBE were 
not adequately known or considered when Congress last amended the Clear 
Air Act in 1990.
                   mtbe is spreading to other states
    While there is no comprehensive survey available, we do have some 
data to show that MTBE is contaminating the water in other states. A 
1998 U.S. EPA-funded survey by the University of Massachusetts found 
MTBE in 251 of 422 public wells in 19 states. A recent study of by the 
U.S. Geological Survey, reported April 29 to the EPA ``blue ribbon'' 
MTBE panel, found in a 12-state survey of New England-Mid-Atlantic 
states, that using MTBE in gasoline results in a four- to six-fold 
increase in detection frequency. Another USGS study found MTBE detected 
in 21 percent of 480 wells in community water systems in a sampling of 
wells nationwide.
    MTBE has been detected in water in states such as Maine, 
Pennsylvania, Virginia, Texas, Kansas, New York, New Jersey, Georgia, 
Alabama, Colorado, New Hampshire, Massachusetts, Delaware and Arizona.
                   legislative action needed promptly
    We need an all-out attack on MTBE. That is why I have introduced 4 
bills:
    My first bill, S. 266 (the companion to H.R. 11, introduced by Rep. 
Brian Bilbray), would provide that if a state's reformulated gasoline 
rules achieve equal or greater emissions reductions than federal 
regulations, a state's rules will take precedence. The bill would apply 
only to states which have received waivers under Section 209(b)(1) of 
the Clean Air Act, the provision of law that allows a state to 
establish its own reformulated gasoline rules. California is the only 
state that currently has established its own reformulated gasoline 
rules.
    My second bill (S. 267) requires U.S. EPA to make petroleum 
releases into drinking water the highest priority in the federal 
underground storage tank cleanup and enforcement program. Leaking 
underground petroleum storage tanks and their pipelines are a major 
source of MTBE in drinking water.
    My third bill, S. 268, addresses motorcraft engines and accelerates 
the federal emissions standards to make them effective by 2001, 
consistent with California's standards. This bill, which covers spark-
ignition outboard marine and personal watercraft engines, beginning in 
model year 2001, would speed up a complete fleet turnover by 2024.
    My fourth bill, S. 645, would authorize the U.S. Environmental 
Protection Agency to waive the two percent federal oxygenate 
requirement in any state if gasoline with less than two percent or with 
no oxygenates meets clean air standards.
    Here are four approaches. There may be others. In short, we need a 
legislative remedy that allows states to use gasoline rules that are 
performance based, achieve clean air goals and do not contaminate the 
drinking water. Current federal law prevents that kind of flexibility.
                               conclusion
    I have appended to my statement a list of the local governments, 
water agencies and others who support my MTBE legislation. You will see 
that there is broad support for ending the use of MTBE.
    Let me give you a clear message. We must get MTBE out of 
California's drinking water. Millions of Californians should not have 
to drink water contaminated with MTBE. Millions of Californians should 
not have to breathe MTBE in the air. I believe we can put in place a 
clean air policy using clean gasoline that does not contaminate our 
drinking water.
    I am not trying to wage a war for or against a particular 
oxygenate. If ethanol or another oxygenate achieves clean air goals in 
California and is safe for human health, for our air, water and natural 
resources, so be it.
    California's rules have shown we can make the cleanest gasoline in 
the world. I believe we can leave the formula for gasoline formulations 
to the experts and use an approach like California's predictive model 
which is performance based and does not rely on a prescriptive federal 
recipe for gasoline. We can have both clean air and clean water.
    I am not trying to ``open up the Clean Air Act'' or dismantle the 
Clean Air Act's protections. I am not trying to undo the reformulated 
gasoline program. The reformulated gasoline program has no doubt 
reduced unhealthy vehicle emissions.
    I am trying to get MTBE out of the drinking water. It is not needed 
for making clean-burning gasoline or for cleaning up the air.
    We should not contaminate our water to clean up our air. As CARB 
and other authorities have documented, we are poisoning our water by an 
indefensible policy that was intended to clean up our air. California 
has a better way. We should not continue to use MTBE when we have a 
sound alternative that keeps both our air and our water clean.
            Support for Eliminating MTBE--As of May 6, 1999
Local Governments and Air and Water Districts
    Alameda County Flood Control and Water Conservation District, 
Resolution No. 97-1850 (March 19, 1997); Alameda County Water District, 
Paul Piraino (October 2, 1998); Bella Vista Water District, Robert W. 
Dietz (September 30, 1998); Branham Homeowners' Association, Diane 
Delbridge (September 23, 1998); Casitas Municipal Water District, John 
J. Johnson/James W. Coultas (October 2, 1998; December 1, 1998); City 
of Azusa, Robert W. Bowcock (October 5, 1998); City of Campbell City 
Council, Resolution No. 9422 (September 1, 1998); City of Colfax City 
Council, Arturo de la Cerda, Resolution 35-98 (November 25, 1998); City 
of Costa Mesa City Council, Resolution No. 98-82 (September 21, 1998); 
City of Gilroy City Council, Resolution No. 98-41 (August 3, 1998); 
City of Los Altos City Council, Resolution No. 98-24 (August 18, 1998); 
City of Milpitas, Henry Manayan (September 3, 1998); City of Monte 
Sereno City Council, Resolution No. 1868 (July 21, 1998); City of 
Morgan Hill City Council, Resolution No. 5213 (August 5, 1998); City of 
Santa Clara, Judy Nadler (June 30, 1998); City of Santa Monica, Pam 
O'Connor (February 11, 1997; March 20, 1997); City of Sebastopol, Kathy 
Austin (October 8, 1998; November 17, 1998); City of South Lake Tahoe, 
Hal Cole (September 14, 1998; October 13, 1998); Clear Creek Community 
Services District, Richard K. McDonald (October 2, 1998); Coachella 
Valley Water District, Tom Levy (October 5, 1998); Contra Costa Water 
District, Joseph L. Campbell (October 6, 1998); County of Amador, 
Resolution No. 98-089 (March 10, 1998); County of Contra Costa, 
Resolution No. 98/484 (September 22, 1998); County of El Dorado, John 
Upton (September 29, 1998); County of Lake, Louise Talley (January 9, 
1998); County of Los Angeles, Joanne Sturges (August 19, 1998; December 
16, 1998); County of Placer Board of Supervisors, Resolution No. 98-283 
(December 1, 1998); County of San Diego, Roger F. Honberger/Thomas P. 
Walters (May 4, 1998,; January 26, 1999); County of Santa Clara Board 
of Supervisors, Donald F. Gage (July 20, 1998); County of Sonoma 
Mayors' and Councilmembers' Association, Resolution (November 12, 
1998); East Bay Municipal Utility District, Dennis M. Diemer, 
Resolution No. 33135-99; (April 15, 1998, February 10, 1999); El Dorado 
County Water Agency, Merv de Haas (October 9, 1998); Los Altos Hills 
City Council, Patricia Dowd (August 24, 1998); Los Gatos Town Council, 
Resolution No. 1998-139 (September 8, 1998); Los Gatos Village 
Association, Victor Acevedo (August 30, 1998); Marin Municipal Water 
District, Pamela J. Nicolai (October 1, 1998); Mesa Consolidated Water 
District Board of Directors, Resolution No. 1207 (August 27, 1998); 
Metropolitan Water District of Southern California, John R. Wodraska 
(October 5, 1998); Orange County Transportation Authority, Sarah L. 
Catz (July 27, 1998); Orange County Water District, William R. Mills, 
Jr./Ron Wildermuth (September 1, 1998; September 24, 1998); Placer 
County Agricultural Commission, Richard A. Johnson (November 12, 1998); 
Placer County Water Agency, David A. Breninger (September 30, 1998; 
November 12, 1998); San Diego Air Pollution Control District, R.J. 
Sommerville (April 17, 1998); San Diego County Board of Supervisors, 
Greg Cox (September 14, 1998; October 13, 1998); San Gabriel Valley 
Water Association, David D. De Jesus (September 30, 1998); San Joaquin 
Valley Unified Air Pollution Control District, David L. Crow (April; 1, 
1998); San Miguel Neighbors Association, Tim Giltz (October 6, 1998); 
Santa Clara Valley Water District, Robert W. Gross (February 17, 1998; 
July 10, 1998; September 1, 1998; September 15, 1998); Solano County 
Water Agency, David B. Okita (October 2, 1998); South Lake Tahoe 
Chamber of Commerce, Duane Wallace (August 25, 1998); South Tahoe 
Public Utility District, James R. Jones/Robert G. Baer (March 19, 1998; 
July 16, 1998; August 24, 1998; September 4, 1998; September 14, 1998; 
October 2, 1998; February 1, 1999); Town of Windsor, Lynn Morehouse 
(December 3, 1998); Tuolumne Utilities District, Judy Delbon (October 
5, 1998); United Water Conservation District, Sheldon Berger (October 
5, 1998); Ventura County Air Pollution Control Board, Susan K. Lacey 
(May 12, 1998); Walnut Valley Water District, Richard C. Engdahl 
(October 8, 1998); Water Advisory Committee of Orange County, Robert 
Hanson (October 2, 1998)
State Officials
    Governor Pete Wilson, California (August 7, 1998); California 
Environmental Protection Agency, John D. Dunlap (February 28, 1997); 
California Energy Commission, David A. Rohy (September 15, 1997); The 
Honorable K. Maurice Johannssen, California State Senate (October 2, 
1998); The Honorable Lynne C. Leach, California State Assembly 
(September 22, 1998); The Honorable Richard L. Mountjoy, California 
State Senate (September 14, 1998); The Honorable Richard K. Rainey, 
California State Senate (October 1, 1998).
Statewide Organizations and Other
    Arco and Arco Corporation, Mike Bowlin/Robert Healy (February 22, 
1999; February 24, 1999); Association of California Water Agencies, 
Stephen K. Hall (September 14, 1998); Association of Ground Water 
Agencies, William R. Mills, Jr. (October 2, 1998); Bluewater Network 
Coalition, Russell Long (February 18, 1999); California Audubon 
Society, John McCaull (February 8, 1999); California Chamber of 
Commerce (May 4, 1999); California Farm Bureau, George Gomes (February 
8, 1999); California Independent Oil Marketers Association, Evelyn 
Parker Gibson (October 23, 1997; March 6, 1998; February 22, 1999); 
California Independent Petroleum Association, David Gilbert (January 
23, 1998; February 11, 1998); California Manufacturers Association 
(February 19, 1999); Californians Against Waste, Mark Murray (February 
8, 1999); Chevron Corporation, Philip T. Cavanaugh (March 6, 1998); 
Chevron Products Company, David J. O'Reilly (September 11, 1998, 
February 9, 1999; February 22, 1999; April 16, 1999); Clean Water 
Action, Marguerite Young (February 8, 1999); Ecoworks, Francesca Vietor 
(February 3, 1999); Exxon Corporation, James J. Rouse (March 6, 1998); 
Gasoline Marketers of America, R. Timothy Columbus (March 6, 1998); 
Mobil Corporation, Sandra G. Swirski (March 6, 1998); National Marine 
Manufacturers Association, Testimony (September 16, 1998); Parsons 
Engineering Science, Inc., Richard W. Bentwood (October 2, 1998); Shell 
Oil Company, Steve Ward (March 6, 1998); Texaco, Inc., James C. Pruitt 
(March 6, 1998); Tosco Corporation, Duane B. Bordvick/Ann Farner Miller 
(October 11, 1997; March 6, 1998); Western States Petroleum 
Association, Doug Henderson (March 6, 1998).

    Mr. Bilirakis. Thank you, Senator.
    Senator Feinstein. I thank you.
    Mr. Bilirakis. Will you be able to stay?
    Senator Feinstein. I would like to stay for a little bit. 
Yes, thank you.
    Mr. Bilirakis. Mr. Franks. Bob Franks is from our side of 
the Capitol and represents a portion of the State of New Jersey 
and as far as this subject is concerned, I suspect the entire 
State of New Jersey. Bob.

STATEMENT OF HON. BOB FRANKS, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF NEW JERSEY

    Mr. Franks. Mr. Chairman, thank you very much for the 
opportunity to testify today. I am here to lend my support to 
H.R. 11, a bill that would allow the State of California to opt 
out of the 2 percent requirement of the Clean Air Act and to 
urge the committee to go one step further. There is compelling 
evidence that this requirement, which was designed to reduce 
carbon monoxide emissions in 10 areas of the country has led to 
another serious risk to the public health. A University of 
California study into MTBE, which was released last November 
12, concluded and I quote, ``Within a relatively short period 
of time, MTBE has become one of the most highly publicized and 
widely released contaminants of surface and groundwaters. 
Introduced as a gasoline additive without adequate 
investigation of its fate, transport, and toxicity, it is now 
potentially a major threat to human health.''
    As Mr. Pallone noted, in our State of New Jersey, the State 
Department of Environmental Protection reports that 400 private 
wells and 65 public wells have now been contaminated with MTBE. 
This contamination has been found in wells providing drinking 
water to homes and businesses throughout our State. One 
particularly serious threat is to the Kirkwood-Cohansey 
Aquifer, a massive storehouse of drinking water for southern 
New Jersey where wells have been found to have unacceptably 
high levels of MTBE.
    Mr. Chairman, I think it is important for the committee to 
note that many States are not waiting for the EPA to take more 
definitive action. Growing evidence and concern about the 
health and environmental impact has prompted Alaska, North 
Carolina, Missouri, Montana, and Maine to stop the use of MTBE. 
And as Senator Feinstein has said so articulately, back in 
March Governor Gray Davis of California ordered MTBE be 
eliminated from the gasoline supply of that State by 2003 and 
called the chemical, ``a serious significant risk to 
California's environment.''
    I urge this committee, Mr. Chairman, to follow the lead of 
these States and to put an end to the use of MTBE in gasoline 
across the United States. Legislation that I am sponsoring, 
H.R. 1367, would ban the use of MTBE as a fuel additive over 
the next 3 years. By banning MTBE, we can prevent the spread of 
this chemical to other sources of drinking water.
    But phasing out the use of MTBE does not mean that we have 
to sacrifice our commitment to clean air. Several refineries 
have announced that they are already developing new additives 
that will produce the same clean-burning effect without the use 
of MTBE.
    It is time for the Federal Government to admit that MTBE 
was a mistake and to look for better, safer ways to clean our 
air that do not endanger our safe drinking water. I applaud Mr. 
Bilbray for his efforts and I encourage this committee to go 
beyond Mr. Bilbray's legislation and ban MTBE nationwide.
    [The prepared statement of Hon. Bob Franks follows:]
  Prepared Statement of Hon. Bob Franks, a Representative in Congress 
                      from the State of New Jersey
    Thank you, Mr. Chairman, for the opportunity to testify today.I'm 
here to lend my support to H.R. 11, a bill that would allow the State 
of California to opt out of the 2% oxygenate requirement of the Clean 
Air Act . . . and to urge you to go one step further.
    There is compelling evidence that this requirement--which was 
designed to reduce carbon monoxide emissions in 10 areas of the 
country--has led to another risk to the public health.
    It comes from Methyl Tertiary-Butyl Ether, or MTBE, the fuel 
additive of choice in many areas of the country because it was the 
least expensive way of meeting the two percent oxygenate requirement.
    MTBE has been found to have contaminated the water supply in 
California and in other areas across the country--including in my home 
state of New Jersey.
    A University of California study into MTBE, released on November 
12, 1998, concluded: ``Within a relatively short period of time, MTBE 
has become one of the most highly publicized and widely released 
contaminants of surface and ground waters. Introduced as a gasoline 
additive without adequate investigation of its fate, transport and 
toxicity, it is now potentially a major threat to human health.''
    As we mark Safe Drinking Water Week--in recognition of 25 years of 
the Safe Drinking Water Act--it is only appropriate that Congress act 
to curb this risk to our national water supply.
    In New Jersey, the state Department of Environmental Protection 
reports that 400 private wells and 65 public wells have been 
contaminated with MTBE. The contamination has been found in wells 
providing drinking water to homes and businesses throughout the state. 
One particularly serious treat is to the Kirkwood-Cohansey aquifer--a 
massive storehouse of drinking water in South Jersey--where wells have 
been found to have unacceptably high levels of MTBE.
    The EPA is currently in the process of conducting additional 
research into the health effects of MTBE on humans. In the meantime, it 
has proposed that the chemical be included in the list of drinking 
water contaminates that are regulated under the Safe Drinking Water 
Act.
    Many states are not waiting for the EPA to take more definitive 
action. Growing concern about the potential health and environmental 
impact has prompted Alaska, North Carolina, Missouri, Montana and Maine 
to stop the use of MTBE.
    And in March, Governor Gray Davis of California ordered that MTBE 
be eliminated from the gasoline supply in California by 2003, calling 
the chemical ``a significant risk to California's environment.''
    I urge this committee to follow the lead of these states and put an 
end to the use of MTBE in gasoline--across the United States.
    Legislation I am sponsoring--H.R. 1367--would ban the use of MTBE 
as a fuel additive over the next three years. By banning MTBE, we can 
prevent the spread of this chemical to other sources of drinking water.
    Phasing out the use of MTBE does not mean that we have to sacrifice 
our commitment to clean air. Several refineries have announced that 
they are already developing new products that will produce the same 
clean-burning effect without the use of MTBE.
    It's time for the federal government to admit that MTBE was a 
mistake and to look for better, safer ways to clean our air that do not 
endanger our safe drinking water.
    I applaud Mr. Bilbray for his efforts. And I encourage this 
committee to go beyond Bilbray's legislation and ban MTBE nationwide.

    Mr. Bilirakis. Thank you, Bob.
    Next, also from our side of the Capitol, The Honorable 
Ellen Tauscher from the State of California. Ellen, please 
proceed.

   STATEMENT OF HON. ELLEN O. TAUSCHER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mrs. Tauscher. Thank you, Mr. Chairman, for calling this 
hearing. Mr. Brown, thank you very much for your leadership. I 
want to applaud my colleague, Mr. Bilbray, and certainly 
Senator Feinstein for her leadership in the Senate, and I want 
to thank my colleagues both from California and throughout the 
country for their support for H.R. 11 and efforts to remove 
MTBE from California's gasoline.
    As you know, I testified last year before this panel on the 
need to move quickly to provide California the flexibility 
necessary to maintain its clean air while protecting the 
State's water resources. By requiring California to blend an 
oxygenate such as MTBE into two-thirds of the State's gasoline, 
the Congress is unnecessarily putting our environment at risk. 
It makes little sense to continue using a chemical additive 
that is polluting the general drinking water supply in 
California and is both difficult and expensive to remediate.
    Furthermore, many experts believe, as Senator Feinstein has 
said, that MTBE may be a human carcinogen. H.R. 11 is a 
bipartisan, performance-based, and environmentally sound bill 
which enjoys the support of 50 members of the California 
delegation. And as others have said, perhaps most importantly, 
California Governor Gray Davis issued an executive order on 
March 25 in which he prudently and appropriately established a 
timeline for the elimination of MTBE from California's 
gasoline. We in Congress must act now to ensure a seamless 
transition for the State's refiners and the families who depend 
on gasoline on a daily basis, and I urge the committee to 
swiftly consider this vital legislation.
    Mr. Chairman, our State already suffers from very tight 
gasoline supplies. California's air pollution problems require 
that we use a cleaner blend of gasoline than is even required 
by the Federal law, making our gasoline market an island that 
is difficult and expensive to serve. If this bill fails to 
pass, studies conclude that California families could see their 
gasoline prices jump even higher than they are.
    H.R. 11 will significantly mitigate any price increases 
associated with removing MTBE from gasoline by ensuring that a 
competitive market remains in place in California. Quite 
frankly, I fear a full-scale backlash against our State's clean 
air strategies if that comes to pass.
    In sum, H.R. 11 will restore to California the flexibility 
it traditionally has had in this area. It will enable 
California to set fuel standards based on performance standards 
that set a required level of emissions reductions from the tail 
pipe and then leave it to the refiners to figure out how best 
to achieve those reductions. These are exactly the type of 
environmental strategies I support: Set a level and let the 
States achieve it in their own way. Put simply, we should be 
about results, not about process.
    I want to thank you again, Mr. Chairman, and ranking member 
Brown and the members of the subcommittee for hearing this 
testimony, and I urge you to support this important measure. 
And I yield back the balance of my time.
    [The prepared statement of Hon. Ellen O. Tauscher follows:]
   Prepared Statement of Hon. Ellen O. Tauscher, a Representative in 
                 Congress from the State of California
    I thank the Subcommittee for allowing me to testify today to 
express my support for H.R. 11 and efforts to remove MTBE from 
California's gasoline.
    As you know, I testified last year before this panel on the need to 
move quickly to provide California the flexibility necessary to 
maintain its clean air while protecting the State's water resources. By 
requiring California and other states to blend an oxygenate such as 
MTBE into two-thirds of the state's gasoline, the Congress is 
unnecessarily putting our environment at risk.
    It makes little sense to continue using a chemical additive that is 
polluting the general drinking water supply in California and is both 
difficult and expensive to remediate. Furthermore, many experts believe 
MTBE may be a human carcinogen.
    H.R. 11 is a bipartisan, performance-based and environmentally 
sound bill which enjoys the support of 50 members of the California 
delegation. Perhaps most importantly, California Governor Gray Davis 
issued an Executive Order on March 25 in which he prudently and 
appropriately established a timeline for elimination of MTBE from 
California's gasoline. We in Congress must act now to ensure a seamless 
transition for the State's refiners and the families who depend on 
gasoline on a daily basis, and I urge the Committee to swiftly consider 
this vital legislation.
    We must not lose sight of the fact that the important issue at hand 
is ensuring that our air is clean and that pollution is reduced--not 
how we get there. By federally mandating particular chemical additives 
to gasoline, it takes away the local flexibility that could achieve the 
same or better results.
    By clearing away this federal mandate, this bill will greatly 
benefit existing clean air strategies throughout California. Residents, 
industries, and air quality watchdogs in California--from the 
California Air Resources Board and the oil and auto industries, to 
environmental groups and ordinary citizens--support the California 
Cleaner Burning Gasoline (CBG) program. The CBG initiative already has 
shown dramatic improvements in air quality and is certain to succeed if 
given a full opportunity. It has proven to exceed the emissions 
reductions achieved by Federal RFG because of the performance-based 
nature of California's fuel program.
    What's more, this bill was narrowly drafted to apply only to the 
State of California, so as to avoid a controversial re-opening of the 
Clean Air Act; and as I said, almost every California Member has 
cosponsored it. It presents an excellent opportunity to demonstrate to 
America's working families that Congress has the ability to work 
together and lead in a bipartisan fashion on an important environmental 
and public health issue. Most importantly, H.R. 11 is an example of 
exactly the type of second generation laws and rules governing 
environmental protection that we should promote. Our national approach 
to environmental stewardship should be modernized to improve the 
environment through performance standards rather than ``command and 
control'' approaches, thus increasing public and private sector 
efficiency, and instilling more fairness and accountability.
    Unfortunately, without the passage of H.R. 11, California residents 
stand to suffer dramatically higher prices at the gas pump because the 
oxygenate mandate will cripple the ability of refiners to supply clean-
burning gasoline in a cost-effective manner. We will be left in 
California with no option but to use ethanol in every gallon of federal 
RFG. In effect, in the nation's largest gasoline market, federal law 
would give the ethanol industry a legally-mandated monopoly for a 
taxpayer-subsidized product, controlled by an oligopoly in which three 
companies own almost 60 percent of the market and one company owns 
about 45 percent. That is a very unhealthy economic prospect.
    Mr. Chairman, our state already suffers from very tight gasoline 
supplies. California's extreme air pollution problems require that we 
use a cleaner blend of gasoline than is required even by federal law, 
making our gasoline market an island that is difficult and expensive to 
serve. If this bill fails to pass, studies by the California Energy 
Commission conclude that California families could see their gasoline 
prices jump even higher than they are today. H.R. 11 will significantly 
mitigate any price increases associated with removing MTBE from 
gasoline by ensuring that a competitive market remains in place in 
California. Quite frankly, I fear a full-scale backlash against our 
state's clean air strategies if that comes to pass.
    In sum, H.R. 11 will restore to California the flexibility it 
traditionally had in this area and that it lost in the 1990 Clean Air 
Act Amendments due, as best as we can tell, to an oversight or 
technical glitch. It will enable California to set fuel standards 
based, not on a federal mandate or on the filing of a mound of 
paperwork with the Federal EPA, but rather based on performance 
standards that set a required level of emissions reductions from the 
tailpipe and then leave it to the refiners to figure out how best to 
achieve those reductions. Cal EPA and CARB can then follow with 
necessary state law changes. These are exactly the type of 
environmental strategies I support--set a level, and let states achieve 
it in their own way.
    Put simply, we should be about results, not about process.
    I thank you, Chairman Bilirakis and Ranking Member Brown, and the 
members of the Subcommittee for hearing my testimony and I urge you to 
support this important measure.
    Thank you.

    Mr. Bilirakis. Thank you. And from the city of Santa 
Monica, its Mayor, The Honorable Pam O'Connor. Please proceed, 
Ma'am.

  STATEMENT OF HON. PAM O'CONNOR, MAYOR, CITY OF SANTA MONICA

    Ms. O'Connor. Good morning, I am Pam O'Connor, Mayor of 
Santa Monica, California. I want to thank you, Mr. Chairman, 
and members of the subcommittee, for the opportunity you give 
me to testify before you today. I would also like to thank 
Congressman Waxman and Senator Feinstein for all their efforts 
on behalf of the people of Santa Monica.
    My entire statement has been submitted to you so I will go 
into the highlights here.
    Yes, H.R. 1 takes a step back from oxygenates. But what 
H.R. 11 does is to allow us a time to get it right, to plan the 
safest and most responsible course to eliminate contaminants 
like MTBE from the water we drink while finding long-term 
solutions to air pollution.
    While removing oxygenates is a requirement for cleaner 
gasoline, it is not enough. We need your help. We need the 
Federal Government to embark on a plan to aggressively clean up 
MTBE that has leaked. Each day that MTBE is allowed to travel 
in soil, it gets closer to destroying more of our Nation's 
limited water resources.
    It happened in Santa Monica, and I am here to share with 
you the key lessons we learned from our experience with MTBE. 
Santa Monica depends heavily on groundwater for its drinking 
supply. Before MTBE contamination, the city produced 70 percent 
of its water from our own wells. However, now after the MTBE 
contamination, the city imports more than 80 percent of its 
drinking water.
    MTBE has handed Santa Monica our greatest environmental 
disaster. MTBE caused rapid and near complete loss of drinking 
water supplies. It has an uncanny ability to find its way to 
water systems. It attacks suddenly.
    MTBE strikes at the heart of public confidence in the 
safety of drinking water. People are not going to drink water 
that smells and tastes like turpentine. For 3 years now, Santa 
Monica has been searching for a solution to this pollution 
problem. No end is in sight. The projected costs of cleanup are 
between 100 and $150 million. Think of these costs replicated 
nationwide. We need the Federal Government to see to it that 
other drinking water supplies are not gambled away, that more 
good money is not thrown after MTBE and that groundwater that 
has been polluted is restored.
    Any future attempt to introduce a new chemical to the 
Nation's fuel supply must first be accompanied by a complete 
and interdisciplinary assessment of its impacts, its health, 
safety, and environmental impacts. MTBE fell through the 
cracks, the regulatory cracks, and they were far too wide. That 
is why H.R. 11 is important.
    I am not a scientist and I certainly don't have all the 
answers to the problems caused by MTBE. I can't predict how 
long it will take to clean up the MTBE pollution problem or how 
much it will cost overall, but let me tell you what I do know. 
Gasoline tanks, especially underground storage tanks, leak. And 
once tanks leak, their contents can cause unexpected problems.
    Whether there is H.R. 11 or some other legislation, we need 
to move away from MTBE and from any untested oxygenates or 
chemicals that take its place. For the past 3 years, many oil 
companies and their trade groups called MTBE the most studied 
chemical ever. I suspect some similar votes will be made about 
other oxygenates touted as better than MTBE or miraculously 
able to clean the air with no downsides. But let's not repeat 
the mistakes of the past. Let's create better options. That is 
what H.R. 11 is about.
    Coming from southern California, I know all too well that 
we need to rapidly clean up our air, but the last 3 years has 
reminded me that we need clean air and clean water. We should 
never again sacrifice one for the other.
    From California to Connecticut, people know you don't clean 
air by polluting drinking water. By looking to clean air goals 
instead of chemical formulas for gasoline additives, H.R. 11 
allows us to refocus the simple wisdom of the Clean Air Act to 
clean up our air and in doing so not make things worse.
    Thank you for your time and attention today and thank you 
all for all the hard work you do for us.
    [The prepared statement of Hon. Pam O'Connor follows:]
  Prepared Statement of Hon. Pam O,Connor, Mayor, City of Santa Monica
    Thank you members of The Subcommittee on Health and the Environment 
for the opportunity to testify before you today on H.R. 11 and MtBE. By 
taking a step back from oxygenates, H.R. 11 allows us all the necessary 
time to plan the safest and most responsible course to eliminate 
contaminants like MtBE from drinking water while finding long-term 
solutions to air pollution. Yet removing oxygenates as a requirement 
for cleaner gasoline is not enough. The Federal Government must also 
embark on a plan to aggressively cleanup the MtBE that has leaked. Each 
day that MtBE is allowed to travel in soil, it gets closer to 
destroying more of the nation's limited water resources. I would like 
to share with you today the key lessons we have learned from our 
experience with MtBE in Santa Monica.
    Santa Monica is a city of 92,000 permanent residents. Over one 
hundred thousand additional persons visit and work in the City daily. 
The City depends heavily on groundwater for its drinking water supply. 
In this regard, MtBE's impact on Santa Monica could not be more cruelly 
ironic. Prior to the MtBE catastrophe, Santa Monica strove to maximize 
the use of local groundwater supplies, in an effort to build self-
sustainability and to reduce its reliance on water imported from 
Northern California and the Colorado River. Before MtBE contamination 
the City produced locally 70 percent of its water supply. Now after 
MtBE contamination the City imports more than 80 percent of its 
drinking water. This is a dramatic turn of events. MtBE contamination 
has forced the City to further tax the State's water system. In doing 
so, MtBE contamination has all but destroyed any notion that the City 
could sustain itself in an emergency.
    MtBE has handed Santa Monica the City's gravest environmental 
disaster and Santa Monica has learned that the ``real world'' impacts 
of MtBE the hard way:

 MtBE causes rapid and near complete loss of drinking water 
        supplies. MtBE travels quickly and combines readily with water 
        like no other gasoline additive;
 MtBE manifests aberrant characteristics. The City found MtBE 
        in its water supply shortly after MtBE was introduced into fuel 
        supplies. In contrast, other fuel constituents have been in 
        gasoline supplies much longer without the same catastrophic 
        contamination events. MtBE has an uncanny ability to find its 
        way into water systems through natural or human pathways not 
        taken by other contaminants;
 MtBE attacks suddenly. Once discovered, MtBE levels in the 
        City's wells rose quickly. If not for extreme City vigilance, 
        water heavily laden with MtBE may have been delivered to the 
        public;
 MtBE strikes at the heart of public confidence in the safety 
        of drinking water supplies. Although the full extent of the 
        health impacts of MtBE may not yet be completely known, people 
        will not drink water laced with MtBE because of its turpentine-
        like odor and taste. In effect, water containing even low 
        levels of MtBE becomes unusable as a drinking water supply.
    For three years now the City has been searching for a solution to 
its pollution problem. No end is yet in sight. The City cannot use a 
majority of its drinking water supplies. The cleanup costs of MtBE are 
staggering. The projected cost to clean up the City's Charnock well 
field is currently estimated at between $100 to $150 million. The cost 
to clean up the City's Arcadia well field will exceed $5 million. 
Cleanup at these sites may take ten years or more. Replicated 
nationwide, these costs are unacceptable. Yet, without any concerted 
state and nationwide MtBE cleanup underway, the future costs may be 
even greater. It is far wiser to enact policies that seek to end this 
kind of expenditure now. The Federal Government must see to it that 
other drinking water supplies are not gambled away, that more good 
money is not thrown after MtBE and that ground water that has been 
polluted is restored.
    Like water agencies throughout the nation, Santa Monica has over 
the years spent tens, if not hundreds, of millions of dollars to secure 
and to protect its water supplies. Yet, as our experience has proven 
too clearly, this investment is fragile at best and can be lost by the 
near silent action of one gasoline additive. What happened to Santa 
Monica should be more than a cautionary tale. What happened to Santa 
Monica should never be repeated. Any future attempt to introduce a new 
chemical to the nation's fuel supply must be first accompanied by a 
complete and interdisciplinary assessment of its health, safety and 
environmental impacts. MtBE fell through regulatory cracks that were 
embarrassingly far too wide, which is why H.R. 11 is important.
    I don't pretend to be a scientist. I certainly don't pretend to 
have all the answers to the problems caused by MtBE pollution. I can't 
predict how long it will take to clean up MtBE pollution or how much it 
will cost. But I do know some things. First, gasoline tanks, especially 
underground storage tanks,leak. It makes almost no difference who owns 
them and when they were put in. Whether they belong to oil companies, 
to churches or to the federal government, whether they were installed 
10 years ago or last year, storage tanks leak. Second, I also know that 
once tanks leak, their contents can cause unexpected problems. Once out 
of the tanks, unpredictability reigns with alarming regularity. 
Pollution results with sometimes dire consequences.
    Whether it is H.R. 11 or some other piece of legislation, we need 
to devise an exit strategy away from MtBE and away from any like 
oxygenates or other chemicals that may take its place. MtBE has caused 
us to relearn a simple truth that all too often all of us forget--we 
are not as smart as we think we are. Our best intentions can go awry. 
And what we think we know, but don't, can hurt us more than we care to 
imagine.
    For the last three years many oil companies and their trade groups 
have called MtBE ``the most studied chemical'' ever. They've made this 
boast to down-play the threat that MtBE poses to drinking water and to 
public health. Yet no one warned Santa Monica or anyone else that MtBE 
could quickly wreak havoc on the public's drinking water supply if it 
leaked out of storage tanks. Almost no one spent any time seriously 
studying what would happen if unsuspecting people accidentally drank a 
gasoline additive because it polluted a drinking water supply. This 
threat was all but ignored. In fact, if it was not for Santa Monica 
bringing the MtBE problem to the nation's attention, it might still not 
be studied.
    I suspect that similar boasts will be made about other oxygenates 
or chemicals that might be touted as ``better'' than MtBE. They too 
maybe labeled ``silver bullet'', able to miraculously clean the air 
with no downside. But before we run the risk of repeating the mistake 
of the past, we need to create better options, which is what H.R. 11 is 
about.
    Coming from Southern California I know all too well the need to 
rapidly clean up our air. No one has to convince me that our reliance 
on cars has come at a high price. Yet, the last three years has 
reminded me too well we need clean air and clean water. We should never 
again sacrifice one for the other.
    From California to Connecticut, reasonable people know that you 
don't clean the air by polluting the drinking water. We made a mistake. 
We need to move on with solutions to air quality that do not destroy 
drinking water. H.R. 11 is a step in the right direction. By looking to 
clean air goals, instead of the chemical formulas of gasoline 
additives, H.R. 11 allows us to refocus on the simple wisdom of what 
the Clean Air Act is about--which is to clean up our air and in doing 
so not make things worse.
    Thank you for your time and attention.

    Mr. Bilirakis. Thank you, Mayor. I will kick off the 
questioning. I suppose I have a little bit of a dilemma in my 
mind. For instance, Senator Feinstein, you have introduced, I 
know you introduced at least a couple of pieces of legislation. 
Apparently it is been more than just a couple. Mr. Waxman has 
already admitted he hasn't co-sponsored it but sounds like he's 
relatively supportive of what H.R. 11 is attempting to do. So 
it seems like the entire California delegation is basically 
there. Considering the credibility and the influence of that 
delegation, particularly on environmental issues, I would 
imagine we should be able to move H.R. 11 relatively quickly.
    Now, the national approach, which many would rather see, 
probably, will take more time and who knows, the way the 
process works. So I guess my dilemma is because we feel 
relatively confident that we can move H.R. 11, should we just 
go forward with H.R. 11 and keep working toward maybe the 
national solution, if you will?
    Senator Feinstein. In my view, yes, Mr. Chairman. I think. 
Very important that a start be made and that the House, if the 
House will take action, I think we can move the Senate to take 
some action. It may be different but I think in conference it 
can be worked out. I think it would be very desirable to sit 
down with Senator Chafee who is now willing, I think, to move a 
bill. Again, I believe it will be a national solution, but I 
think if the House takes action, we can move something in the 
Senate.
    Mr. Bilirakis. And I don't see--I don't hear opposition to 
a national solution. I guess my point here is H.R. 11 could 
probably move a heck of a lot quicker than the other would. And 
I am sure that that is of concern to you.
    Ellen, did you want to offer anything?
    Mrs. Tauscher. Mr. Chairman, I just want to reinforce the 
fact that the problems in California are acute. I would hope 
that with your leadership and Senator Feinstein's leadership in 
the Senate, that we could mitigate any questions that people 
have about a California-only solution versus a national 
solution, in that we could have California move forward on H.R. 
11 and then quickly, as soon as the committee is ready to, to 
continue our hearings on the national situation and move that 
forward.
    But we desperately need H.R. 11 in California and we will 
work with you in any way we can to make sure that the results 
that are happening in California on the passage of H.R. 11 can 
be used to help create a national solution.
    Mr. Bilirakis. As I indicated in my opening statement, a 
couple of weeks ago in writing, I inquired of the EPA to let us 
know if they have legal authority to waive section 211(k) in 
California. And we haven't heard from them; and it was prior to 
that, sometime prior to that that we orally, not in writing, 
indicated to them that we would like to get some sort of an 
opinion. If we can get a quick opinion from them, assuming that 
they would say yes, that they have the legal authority to 
waive, then of course California would then receive what it 
wants and we could maybe focus all of our efforts toward 
possibly the national solution.
    I would ask you, Senator, can you--and I am not putting 
words in EPA's mouth and they will be testifying in a moment, 
but I know that they have--sometime last winter--established a 
blue ribbon panel to study this issue. I don't know whether EPA 
is just going to come back to us and say well, we want to wait 
until we get the results of that panel, but do you see any 
reason----
    Senator Feinstein. That is what I have been told, that they 
want to wait till they get the results. I would welcome a 
change. I think it is clear. I don't know why we need a blue 
ribbon panel. I mean, I think the Livermore study is very 
compelling, as is the University of California study.
    I think Representative Tauscher is right: Let's just take 
the action and begin it. You see, this just gets complicated 
when it comes to the Senate and if it is phased out in 
California, ethanol is going to come in as a substitute where 
it is necessary, which is largely certain times of the year in 
the southern California market, and that amount of ethanol is 
substantial, equal to the national use today. So I don't 
understand why the ethanol people have been so resistant to 
taking this action in the Senate--a profound resistance, I must 
tell you. I am very disappointed by it.
    Mr. Bilirakis. Thank you. Mr. Brown. I am sorry, Bob. Go 
ahead.
    Mr. Franks Mr. Chairman, I just want to say Mayor O'Connor 
graphically underscored the problems with MTBE. It was a 
marvelous statement. Candidly, I could produce a half dozen 
mayors from New Jersey who could illustrate the same kinds of 
problems. I appreciate that California has an enormous problem, 
but the fact of the matter is it is concentration on MTBE, the 
properties of which are identical in its use in New Jersey as 
they are in California. If we need to get it out of the water 
supply in California, which we ought to do in an urgent way, 
that same urgency ought to appear to getting this contaminant 
out of the water supply in New Jersey. It is not just a 
carcinogen, Mr. Chairman. It is nausea, it is headaches, it is 
dizziness. This has a severe public health impact and this 
committee should take action immediately.
    Mr. Bilirakis. I would just hate to see California become--
what is the word that I am looking for--a subject to what 
happens on a national scope, if in fact it can be done and 
California can go into effect, it wouldn't hurt the national 
picture. At least I hope it would not hurt the national 
picture. That is my thinking on the subject. Mr. Brown.
    Mr. Brown. Ms. Tauscher, you testified last year in the 
same committee, the same issue. You stated a State ban of MTBE 
would, ``create tremendous dislocation in an already tight 
gasoline supply and could make it impossible to comply with 
Federal laws in some parts of the State and some times of the 
year.''
    Since your testimony, obviously Governor Davis ordered the 
phaseout of MTBE from gasoline sold within the State. What 
happens if Congress doesn't pass this?
    Mrs. Tauscher. Well, I think that we have a very desperate 
situation in our State right now. We have very, very high 
gasoline prices. We have a cyclical issue, obviously, coming up 
in the summer. The best blue ribbon panel I have ever seen are 
the citizens of California and American citizens. The citizens 
of the State of California are very upset about the fact that 
they have been forced into a tradeoff between clean air and 
clean water. They want us to act.
    The Governor has done, I think, a very good job by putting 
forth this executive order. The short-term issue for us is how 
do we get the relief as fast as possible, how do we make sure 
that California's acute problems are taken care of, and that we 
are mindful of the fact that this is a national problem.
    Mr. Brown. How soon--is it totally impractical to think 
that California could--that MTBE over some time could be 
replaced with ethanol? Is that just totally impractical because 
of the size of the market in California and the emergency 
nature of the situation? Senator Feinstein?
    Mrs. Tauscher. It is about flexibility.
    Senator Feinstein. No, it could be replaced by ethanol. It 
takes some time to change the refining equipment, but there is 
no question--I mean, the gasoline companies have all said that 
to me, their CEOs directly.
    Mr. Brown. Over what period of time?
    Senator Feinstein. Two to 4 years, I am told. But you see, 
in California you don't need MTBE. You could just drop it right 
now and then they make the change to bring in more ethanol over 
a period of time. We could still meet the clean air performance 
standards.
    Mr. Brown. In New Jersey, Mr. Franks?
    Mr. Franks. Mr. Brown, I don't claim to be an expert on 
ethanol, but candidly, if California's entire gasoline supply 
were to be treated with ethanol, questions have been raised as 
to whether or not the availability of ethanol would be adequate 
to supply gasoline in other areas that are currently under the 
reformulated gasoline requirement.
    Mr. Brown. Understanding what Senator Feinstein just said, 
that California can meet the clean air standards simply by 
dropping MTBE, not replacing it with ethanol, New Jersey is not 
in the same situation but doesn't have the same size market 
obviously.
    Mr. Franks. Correct.
    Senator Feinstein. May I say one other thing? The 
Governor's phaseout is carefully calculated to allow some time 
to generate the ethanol that would be required in what I 
understand are 6 winter months in the southern California 
market. And what I have been told is the key to this is 
flexibility, so that there is some time and that there aren't 
just frozen numerical mandates. The performance model of 
California works well and I know Mr. Hickox is here to speak 
about it and I think he can really give you the technicalities 
very well on how this would work.
    Mr. Brown. It is almost a circuitous argument. If the CEOs 
are telling you it will take 2 to 4 years, if Governor Davis is 
phasing out MTBE, can't the phaseout complement the phase-in of 
ethanol without Federal action? I am not necessarily arguing 
against Federal action. I am just pretty open-minded still 
about this. Why do you need Federal action if Governor Davis 
can do that and ethanol can begin to displace the MTBE?
    Senator Feinstein. I suspect there is going to be a lapse. 
Perhaps not. I think it is a complicated--it is not easy, but 
you have had some where Tosco has stopped putting MTBE in its 
gasoline. Bingo, just stopped it. I must tell you, I think that 
is preferable to polluting the groundwater because the cost of 
cleanup is a million dollars a well. Just enormous. Its spread 
is so fast.
    Mr. Brown. In other words, you support the Governor's 
phaseout but you would, perhaps all of you, especially Mayor 
O'Connor, would like to accelerate the Governor's phaseout 
which this legislation would ultimately allow, right?
    Senator Feinstein. Yes, that is correct.
    Mr. Bilbray. Would the gentleman yield?
    Mr. Bilirakis. The Chair yields to Mr. Bilbray.
    Mr. Bilbray. I would just like to point out to the ranking 
member the letter from Governor Davis indicating that H.R. 11 
was essential in establishing his phaseout strategy, that the 
flexibility--and this is where we get back to the outcome-based 
issue--of this bill wasn't designed around one additive. It was 
around a system that those of us who had been involved in 
environmental policy-making saw was going--was creating 
problems and going to create problems. And with the new 
Governor looking at this issue, he has clearly indicated to us 
that this flexibility is essential to making the transition out 
of one additive and the appropriate use of another.
    Senator Feinstein. Why don't you read those two paragraphs?
    Mr. Bilbray. Go ahead, Senator. Why don't you read it?
    Senator Feinstein. ``I have directed the appropriate State 
regulatory agencies to devise and carry out a plan to begin an 
immediate phaseout of MTBE from California gasoline, with 100 
percent removal to be achieved no later than December 31, 2002. 
However, in order for California to achieve this necessary goal 
without a major disruption of our fuel supply, it is imperative 
that Congress provide flexibility to California to meet Federal 
clean air emissions standards without mandatory use of 
oxygenates. Both the House bill H.R. 11, as well as the Senate 
bills 266 and 645, provide exactly the flexibility California 
needs, without weakening air quality regulations.''
    Mr. Bilbray. Mr. Chairman, I think that clarifies the 
ranking member's issues there. I would only like to clarify on 
the ethanol issue that estimates which have been made are that 
with H.R. 11 and the action that the Governor is planning, that 
the use of ethanol in the State of California, as pointed out 
by the Senator, will increase by huge amounts while still 
maintaining the clean air, and actually reducing, in the long 
run, overall cost to the consumer and making it safer for our 
environment. Less expensive, cleaner, and safer. That is all 
H.R. 11 is trying to do.
    Senator, thank you very much. I yield back, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Waxman?
    Mr. Waxman. Thank you very much, Mr. Chairman. Mayor 
O'Connor, we are all trying to figure out how to cut through 
the legislative roadblocks, and the rest of the country is 
starting to recognize that this may not be a problem unique to 
California. We have had a terrible experience in Santa Monica.
    Would you just briefly share with the people here--you did 
it in your statement--but what lessons did we learn that they 
are going to have to learn unless we take some action?
    Ms. O'Connor. Well, the bottom line is if there is any 
additive to gasoline, it needs to be studied. We need to 
understand what are the impacts both in terms of air and water, 
all the environmental impacts. You are finding more and more 
instances where pollution has already occurred so it is 
important for us to seek help both through EPA in terms of 
enforcement and technical assistance to help with that cleanup.
    But again, the bottom line is whatever is introduced, it 
needs to be thoroughly studied beforehand. Folks thought MTBE 
had been studied, but it looked at the air impacts. No one had 
thought about or looked at its affinity toward water and what 
would happen. No matter what regulations we all have in place 
in terms of the underground tanks and making them as good as 
possible, still spills occur sometimes, whether it is 
underground tanks, pipelines, or other kinds of spills 
occurring. So we need to understand all the consequences and 
impacts of any additive.
    Mr. Waxman. Would you share with the committee our 
experience with cleaning up these two wells? One, there wasn't 
a difficulty because the oil company took responsibility. But 
in the other one, the Charnock field, we have had a real tough 
time. Just so people here should be aware of it, tell us about 
it.
    Ms. O'Connor. How to best clean it up is still not known. 
That is where the technical assistance----
    Mr. Waxman. How to do it and who is to pay for it.
    Ms. O'Connor. Right. First of all, there are the folks 
who--potentially responsible parties identifying where the 
leaks are, who polluted it, as well as figuring out how to 
clean it up. And there were no answers. No one knew how to 
clean it up. In fact, we are still struggling with that and for 
us locally, that means it is now going on 3 years; going to be 
4, 5 down the road till we can have our drinking water back 
because there is no consensus. There is no proven way to clean 
it up and we are still struggling with those technical aspects 
of it.
    Mr. Waxman. Mr. Brown asked why don't we turn to ethanol 
for California. First of all, we don't need ethanol to achieve 
the environmental objectives. Second, if we required ethanol 
for California, there would be no ethanol for the rest of the 
country. California is a huge market and we should never forget 
that fact.
    What we want to do is meet air quality performance 
standards. We don't want to do anything to harm the drinking 
water of this country. We also have to be mindful that there is 
a problem with toxic air pollutants and global warming and we 
have to take all that into consideration. And I am hopeful that 
when legislation is finally passed, and hopefully soon, we will 
keep all of these points in mind. Thank you very much, Mr. 
Chairman.
    Mr. Bilirakis. Any further inquiries of this panel? Mr. 
Ganske.
    Mr. Ganske. Thank you, Mr. Chairman. Two comments on timing 
and supply. Ethanol has twice the oxygen content of MTBE. By 
the way, I think that Congress ought to look at banning MTBE 
for the rest of the country. We are looking at it in Iowa, even 
though we primarily use ethanol. There is some MTBE in the 
gasoline there and it is a big--I agree with you 100 percent--
it is a big, big problem and we don't know how to get it out of 
the water once it gets in there.
    But to move on to the supply, because ethanol has twice the 
oxygen content of MTBE, half of the volume supplies the same 
amount. And if you look at the estimate for California's 
ethanol demand, you would be looking at somewhere around 40,000 
barrels per day. With the current U.S. ethanol production 
capacity, this would require only an additional 26,000 barrels 
per day capacity, and I think that can be done in a relatively 
short period of time, probably in 6 months or less by some 
estimates.
    But Senator Feinstein, I wanted to ask you a question. I 
want to read a rather lengthy segment from the statement by the 
renewable fuels people, and since you will be gone when they 
come here, I would like to get your response to this and then 
we will--then I will ask them.
    This is from their testimony today. ``The California Energy 
Commission recently completed an analysis supplying costs of 
alternatives to MTBE in gasoline. The CEC report provides an 
estimate of the potential costs or savings to the public in 
increases or decreases in retail gasoline prices for each 
alternative when compared to MTBE. In all cases studied, i.e., 
near term, medium term, long term, eliminating the use of 
oxygenates resulted in the largest cost increase for California 
consumers.
    ``For example,'' the report states, ``in the long term, a 
complete ban on all oxygenates would result in the greatest 
average cost increase for gasoline for this time period 
compared to all other alternatives studied. Refiners would need 
to make significant investments to modify their facilities, 
totaling over $1.1 billion. This is the primary reason for the 
average cost increase. In all cases, the ethanol option was 
less expensive than a non-oxygenated case. Indeed, the ethanol 
case was shown to potentially save consumers money over the 
long term if adjustments to the predictive model are made 
recognizing the carbon monoxide and exhaust emissions benefits 
of ethanol which would obviate the need for refiners to secure 
especially tailored blend stocks for ethanol.
    ``While the report also showed that passage of legislation 
for making oxygenates optional in California would be the least 
expensive option, this conclusion is based on the assumption 
that other oxygenates, including MTBE, continue to be used. 
Thus, this option, while potentially less expensive, 
perpetrates the water contamination problems that have plagued 
the program. Moreover, the economic analysis did not include 
the potential costs of remediation if ether oxygenates continue 
and additional drinking water supplies are contaminated from 
that.''
    It is a long statement but I would kind of like your 
response, because basically the thrust was that eliminating the 
use of oxygenates in California gasoline could increase 
consumer costs. Would you like to respond to that?
    Senator Feinstein. Of course ethanol has a subsidy. 
Therefore, its use is automatically going to help with price; 
hopefully reduce price. Let me just quote from Mr. Hickox's 
oral presentation today.
    ``If the Federal oxygen requirement remains in effect, 
California gasoline costs could increase as much as 6 to 7 
cents per gallon due to the huge increase in ethanol demand, 
according to the California Energy Commission. If H.R. 11 or 
its companion bills are approved, cost increases could be only 
2 to 3 cents per gallon.'' I know he is going to testify. I 
think he is much more qualified to answer that question than I.
    Mr. Ganske. Thank you.
    Mr. Bilirakis. The gentleman's time has expired. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I think it is 
appropriate I follow my colleague from Iowa. If I was from 
Iowa, I also would be in favor of banning everything but 
ethanol, but I don't think we grow enough corn to do that and 
if we did, we surely wouldn't be able to eat corn, much less 
drink it in corn whiskey.
    Mr. Ganske. If the gentleman would yield, we need to solve 
the drought problem so you guys can grow some corn down there.
    Mr. Green. Well, if we had a tax benefit like ethanol, we 
might be able----
    Again, that is not coming from someone who hasn't been 
involved in this issue. I remember in the legislature in the 
seventies, I supported gasohol and the tax benefits for 
gasohol. Obviously it fell flat on its face. And that was in 
Texas.
    Let me ask of this panel, and I know we are going to have 
other panels and particularly from U.S. EPA in California, one 
of the concerns I have in following Mr. Bilbray's bill now for 
about 3 years is that the MTBE contamination into the 
groundwater, is it predominantly from the underground storage 
tanks or is it from just the burning of it and the pollution 
from our cars? Is it the underground storage tank problem?
    Senator Feinstein. By and large, yes. Water reservoirs are 
being polluted from the air. The two stroke jet ski engines at 
Lake Tahoe produce huge amounts. About a third of the gasoline 
goes into the water and the ethanol, you know, leaches into the 
shore groundwater. So it is a variety, I would say.
    Mr. Green. I know Mr. Waxman's concern that no matter what 
substance, whether it is MTBE or something else, if it is 
getting into Lake Tahoe or if it is leaching in from a leaky 
storage tank--and I guess that is one of the concerns.
    And I know, Mr. Chairman, I may not be here for the 
California EPA, but in December 1998, California's compliance 
with underground storage tanks regulations were 60 percent, yet 
5 months later became 90 percent, and I would just like to know 
the secret in 5 months of how that happened, because I think if 
we could duplicate it in other parts of the country, that no 
matter what substance is developed--except ethanol, because it 
evaporates but it will cause problems in Lake Tahoe or in our 
subsurface formations and that is what the concern is.
    We are attacking MTBE but we are not looking at the problem 
of the leaking storage tanks and beginning with that kind of 
success, I guess you wouldn't. But I would like to see how that 
happened.
    Let me--the study of the other additives, I don't think 
there is a problem. The technology in our country is great, and 
I think that if we have some flexibility, the petrochemical 
industry will develop it. But again I think you have to realize 
it takes time to do that and, like I said in my statement, I 
wasn't here in 1990, although I supported the Clean Air Act. I 
just don't know how we were so specific to have that 
requirement to develop that. Again, hindsight is always 20/20, 
but that is my statement.
    Mr. Bilbray. Would the gentleman yield?
    Mr. Green. I would be glad to.
    Mr. Bilbray. Just to clarify how we got that, and the 
gentleman from Santa Monica isn't here, in 1990 the best 
science said 2 percent by weight was the cleanest technology 
for burning gasoline at that time. What has happened is in 
California, with our toxicologists and our different 
formulations, in 1994 California came out with an outcome-based 
rather than content-based strategy which has 50 percent less 
toxins than the 1990 fuel. So what happened was the Federal 
fuel got locked into a mandate while the State was able to, 
with flexibility, produce a better mousetrap.
    Mr. Green. And again, I have no problem. Of course, again, 
maybe sometimes longevity has problems. I remember the Federal 
Government in the 1970's banned the use of natural gas for 
power plants, and we regretted that for many years after that. 
But a decision was made in 1990 to have a specific formula, and 
it was wrong. And here 9 years later, we are saying okay, what 
can we do? I would not like to build that wrong mousetrap now 
and have to do it 9 years later, after people invest, people 
who buy gasoline invest.
    There is no secret that billions of dollars went into 
creating MTBE facilities.
    Mr. Bilbray. That is why there is flexibility in this bill.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Shadegg?
    Mr. Shadegg. Thank you, Mr. Chairman. I will be brief and 
simply say that I compliment the Chairman for holding this 
hearing. I am very supportive of H.R. 11. Arizona is very 
affected by what happens in the California refineries. More 
than 50 percent of our gasoline comes from there. I think this 
is a great illustration of how local control can improve both 
the environment and other things.
    In Arizona we just recently experienced a dramatic increase 
in gas prices, going from less than $1 a gallon just a few 
short months ago to over $1.40 a gallon now. And if the 
California authorities have come up with a cleaner fuel which 
is less expensive and does less environmental damage, it looks 
to me like it is a no-brainer.
    I do have an opening statement which I would like to put in 
the record and again I compliment the proponents of this idea.
    [The prepared statement of Hon. John Shadegg follows:]
    Prepared Statement of Hon. John B. Shadegg, a Representative in 
                   Congress from the State of Arizona
    Chairman Bilirakis, thank you for holding this hearing on H.R. 11. 
I appreciate the opportunity to discuss this bill and the positive 
precedent that it could set for other states which have concerns with 
implementation of the Clean Air Act.
    The Clean Air Act currently requires the use of gasoline containing 
an oxygenate in certain areas to reduce air pollution. There are two 
types of oxygenates which are used in gasoline to reduce pollutant 
emissions: Methyl Tertiary Butyl Ether (MTBE) and ethanol. California 
is planning to prohibit the use of gasoline containing MTBE because of 
concerns over its environmental effects and, under the Clean Air Act, 
only gasoline oxygenated with ethanol will be allowed in many areas of 
the state.
    H.R. 11 modifies the Clean Air Act to allow California to use a 
type of nonoxygenated, clean burning gasoline approved by the state. 
This means that the state will not be forced to use only one type of 
gasoline and allows it greater flexibility to address its air pollution 
problems.
    This issue is important to my state of Arizona for two reasons. The 
first reason stems from the fact that approximately half of the 
gasoline used in Arizona comes from California refineries. Factors 
which affect production in these refineries have a direct impact on the 
prices which Arizonans must pay for gas. This effect was illustrated 
recently by the major price increases which Arizona experienced 
following explosions in several California refineries. For example, the 
price of gasoline in Phoenix shot up from less than one dollar per 
gallon in January and February to approximately one dollar and forty 
cents today! While this astronomical increase was not completely due to 
refinery problems in California, these problems did make a significant 
contribution to the inflated prices which citizens of my state are now 
forced to pay.
    If significant areas of California are forced by the Clean Air Act 
to use only ethanol oxygenated gasoline, they will compete for the 
supply of this gasoline with the cities of Phoenix and Tucson, both of 
which require that motorists use oxygenated gasoline. This competition 
will further increase the prices which Arizonans must pay.
    This bill is also important to Arizona because of the possibility 
that my state may also choose to prohibit the use of MTBE because of 
the potential which it carries to contaminate supplies of groundwater. 
Passage of H.R. 11 will directly benefit California, and it is 
extremely important to ensure that other states share in this benefit.
    On a more fundamental level, H.R. 11 reiterates the importance of 
local control over matters of environmental protection. The air quality 
situation in each state is unique, due to differences in geography, 
climate, population, and industry. The Clean Air Act recognizes these 
differences to some degree by giving states flexibility in deciding how 
to structure their State Implementation Plans to achieve air quality 
goals. It is logical to carry this flexibility one step further by 
allowing states which certify alternative types of clean burning 
gasoline to use those types in place of the federal standard.
    I look forward to the insights on this issue which our witnesses 
will offer us today.

    Mr. Bilirakis. Thank you. Ms. Eshoo?
    Ms. Eshoo. I don't have any questions. Thank you.
    Mr. Bilirakis. Any questions of this panel?
    Ms. DeGette. No, not of this panel.
    Mr. Bilirakis. All right. You have been tremendously 
helpful. It is unusual to have members sit here this very long 
and basically suffer the inquiries that come from the panel and 
we appreciate it very much. It has been very helpful.
    Mrs. Tauscher. All because of you, Mr. Chairman.
    Mr. Bilirakis. Panel two consists of The Honorable Robert 
Perciasepe, the Assistant Administrator for Air and Radiation, 
U.S. Environmental Protection Agency.

STATEMENT OF ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR FOR AIR 
         AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY

    Mr. Perciasepe. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for the opportunity to talk with you 
today about this very important and critical national issue. If 
I might just do a tiny piece of business before I start the 
testimony. I am going to try to summarize my testimony from a 
couple of charts. I want to make sure----
    Mr. Bilirakis. Is that business responding to our letter?
    Mr. Perciasepe. I will get to that. If I don't, I am sure 
you will ask me a question. I want to make sure the members 
have copies of these charts I am going to use.
    Mr. Bilirakis. Yes, sir.
    Mr. Perciasepe. That was the business. First, I think it is 
important to note that the United States has made tremendous 
progress on air quality over the last decade, and this is in no 
small part due to the work that Congress did in constructing 
the 1990 Clean Air Act and those amendments that were in the 
1990--the amendments to the Clean Air Act of 1990 and the 
programs that were envisioned in them.
    And I am going to review some of that, because the context 
of the work that we are doing here and the discussions we are 
having on this legislation and this issue really need to also 
take place in the context of the larger whole of our clean air 
goals as well as our clean water goals.
    And I want to preface that by saying that I would agree, as 
the EPA does, with the statements that have been made by the 
members. We cannot achieve that kind of air quality coverage at 
the expense of other environmental concerns. And I want to make 
that clear, that it is a vitally important thing. I think it is 
central to the issue we are talking about here.
    There are a number of issues that come beyond the clean air 
requirements. If you look at the chart, when Congress looked at 
the fuels part of the Clean Air Act, we looked at not just at 
the air quality improvement, they looked at energy security and 
how these are things--and these requirements might affect the 
provision of fuel and the supply of fuel. They looked at 
renewable resources and what role that should play in the 
national fuels program, and they looked very carefully at the 
balance between what fuel programs were going to do for clean 
air and what vehicle technology was going to do for clean air 
and how those two would work together. This has resulted, as I 
said, in a very successful outcome.
    On a national level where reformulated gas is used, we see 
toxic reductions of about 30 percent. I don't have on that 
chart the progress that has been made on carbon monoxide also 
around the country with most places, although not all yet, that 
used to be non-attainment for carbon monoxide, now in 
attainment. The fuels have played no small part in that, as has 
the car technology and the oxidation catalysts that are used in 
automobiles.
    Ambient benzene reductions. Now, benzene is a known human 
carcinogen and measurements in the air 1 year after the 
implementation of the Federal reformulated gasoline program in 
those areas where it was envisioned show a 38 percent reduction 
in the ambient concentration. This is what people are 
breathing.
    Volatile organic compounds, another precursor to ozone, 
about a 20 to 25 percent. It does vary a little bit, and the 
bottom line is that this has improved significantly the air 
quality for over 75 million people in the United States, 
particularly in terms of air toxins and in ozone formulation. 
The concentrations of ozone have gone down all over the 
country. I won't go into the great detail on that that I could.
    Now, as we look at the issues that the committee is looking 
at and that Mr. Bilbray's bill brings to the forefront, and as 
we are looking at this at the national level with our panel 
that I think was mentioned in the last panel's discussion, 
which I will talk about in a little more detail, we are looking 
at how do we maintain these air quality benefits. They have 
been significant. They have helped many local areas around the 
country achieve their goals with a very cost-effective 
approach. How do we maintain that? But how do we deal with the 
fact that we have this water contamination problem? What is 
different about this water contamination problem than gasoline 
leaking into groundwater without MTBE in it? Many of these 
places that we've talked about today also have benzene and 
toluene and other components of gasoline in the water as well.
    How do we do a better job of preventing fuel leaks? I know 
it would be idealistic, but if there were no fuel leaks there 
would be no problem. And what are the impacts of alternatives? 
That all came up in the previous panel as well.
    And whatever direction we take, what effect does it have on 
the fuel supply of the United States and the cost of that fuel 
supply?
    I don't think it requires a lot of thought to understand 
how important fuel supply is in the United States and, 
obviously, for the economy of the country and what the cost is. 
And how do we balance that appropriately to make progress on 
the issues that we are talking about?
    Let me tell you quickly what steps we are taking here at 
the national level. Mr. Chairman, what I want to point out is 
that these dovetail very closely with the issues that have been 
talked about here already. We are working with California and 
other States. We have been working both on terms of technical 
assistance, financing, pilot projects to look at remediation, 
enforcement actions where we can use our authority to help 
facilitate cleanup.
    This is something that has been going on in the Santa 
Monica area. We have been looking at approaches to remediate 
leaks. We have a research program: What can we do to find 
cheaper ways to remediate leaks not just where MTBE is 
involved, but in general, but specifically MTBE and to prevent 
these leaks? What more can be done to prevent this problem, 
because even if MTBE or any other component of gasoline wasn't 
in gasoline, the thing we must remember is gasoline is a potent 
toxic mixture of chemicals with or without certain oxygenates.
    We as you have mentioned I think in one of your statements, 
Mr. Chairman, and as the Senator mentioned--we have a blue 
ribbon panel that we appointed last fall because we recognize, 
as does the Congress, that the status quo was probably going to 
have to change in regard to how we deal with these national 
clean fuels programs. And our panel is about 2 months away from 
recommendations to us, and we are working pretty hard with 
them, and so I will talk a little bit more about that during 
the question and answers.
    We are reviewing the statutory and regulatory flexibilities 
we have. I know that the committee asked very specifically, do 
we have the authority to grant a waiver? I will talk about that 
in just a moment. And, very importantly, at the bottom of that 
list there, because it is sequential, after we do those other 
things, it is going to be imperative that we coordinate with 
Congress on how we move this whole thing forward.
    So I am going to say that that is the summary of my opening 
statement. I am sure there will be lots of questions. The key 
point I want to make here is that we are in a process at EPA 
and at the Federal Government. We have many people involved 
with our process, including four people from California on our 
panel. We have people from the drinking water industry in 
California. We have a person from Berkeley. We have a person 
from Lawrence Livermore. And we have a person from the 
California Air Resources Board on our panel, and so we are very 
coordinated in terms of where we are trying to push the panel's 
assessment and where California--what information we can get 
from California. I am going to end there with my opening 
comments and take some questions.
    [The prepared statement of Robert Perciasepe follows:]
   Prepared Statement of Robert Perciasepe, Assistant Administrator, 
   Office of Air and Radiation, U.S. Environmental Protection Agency
    Thank you, Mr. Chairman and Members of the Subcommittee, for the 
invitation to appear here today. I am pleased to have this opportunity 
to share with the Subcommittee the environmental benefits of the 
reformulated gasoline or RFG program, and to address issues raised by 
H.R. 11, introduced by Congressman Bilbray. H.R. 11, if enacted, would 
potentially exempt gasoline used in several California cities from the 
federal RFG requirements, including the 2.0% oxygen Clean Air Act (Act) 
requirement.
    An understanding of the history of the federal RFG program is 
important in order to put H.R. 11 in perspective. As you know, the 
Clean Air Act Amendments of 1990 put in place a number of programs to 
achieve cleaner motor vehicles, and cleaner fuels. By and large, these 
programs have been highly successful. Only after extensive 
deliberations did Congress strike the balance between vehicle and fuel 
emissions control programs. The RFG requirements also emerged from 
combining several Congressional goals, including air quality 
improvement, enhanced energy security by extending the gasoline supply 
through the use of oxygenates, and encouraging the use of renewable 
energy sources.
    The federal reformulated gasoline program introduced cleaner 
gasoline in January 1995 primarily to help reduce ozone levels. 
Unhealthful ozone levels are still of significant concern in this 
country, with over 30 areas still in nonattainment of the current 1-
hour ozone standard, and more expected to exceed the new, 8-hour ozone 
standard.
    Ozone has been linked to a number of health effects concerns. 
Repeated exposures to ozone can make people more susceptible to 
respiratory infection, result in lung inflammation, and aggravate pre-
existing respiratory diseases such as asthma. Other health effects 
attributed to ozone exposures include significant decreases in lung 
function and increased respiratory symptoms such as chest pain and 
coughing.
    RFG is a cost-effective way to reduce ozone precursors such as 
volatile organic compounds (VOCs) and oxides of nitrogen 
(NOX), when compared to other air quality measures. The 
Clean Air Act Amendments of 1990 required that RFG contain 2.0 percent 
minimum oxygen content by weight. The first phase of the RFG program, 
from 1995 through 1999, requires average reductions of ozone-forming 
volatile organic compounds and toxics of 17% each, and NOX 
by 1.5%. In the year 2000, the second phase of the RFG program will 
achieve even greater average benefits: a 27% reduction in VOCs, 22% 
reduction in toxics, and 7% reduction in oxides of nitrogen emissions 
that also contribute to the formation of urban smog. This is equivalent 
to taking more than 16 million vehicles off the road. RFG provides 
these reductions at a cost of less than five cents per gallon.
    The federal RFG program is required in ten metropolitan areas which 
have the most serious ozone pollution levels. Three of these 
metropolitan areas are in California. This includes Sacramento, Los 
Angeles, and San Diego. Although not required to participate, some 
areas in the Northeast, in Kentucky, Texas and Missouri that have poor 
air quality have elected to join, or ``opt-in'' to the RFG program as a 
cost-effective measure to help combat their pollution problems. At this 
time, approximately 30% of this country's gasoline consumption is 
cleaner-burning reformulated gasoline.
    We are often asked about the ``real-world'' benefits of RFG. Since 
1995, RFG, on average, has exceeded expectations for VOC, 
NOX and toxic reductions. Most notably, overall toxics 
reductions are about twice that required, with about a 30% reduction 
versus a 17% requirement. It is estimated that about two-thirds of the 
additional air toxic reduction is a result of the use of oxygenates.
    Ambient monitoring data from the first year of the RFG program also 
showed strong signs that RFG is working. RFG areas showed significant 
decreases in vehicle-related VOC concentrations. One of the air toxics 
controlled by RFG is benzene, a known human carcinogen. The benzene 
level at air monitors showed the most dramatic declines with a median 
reduction of 38% from the previous year.
    Because of the severe air pollution that occurs in parts of 
California, and the leadership California has shown in addressing air 
pollution, the Clean Air Act provides the state with unique authority 
to establish its own clean fuels programs. Using that authority, 
California introduced its current formula of reformulated gasoline in 
1996. Although reformulated gasoline sold throughout California must 
comply with the strict state requirements, all gasoline sold in three 
metropolitan areas (LA, San Diego and Sacramento) must also comply with 
the federal RFG requirements. In order to alleviate the burden on 
California refiners to meet overlapping requirements, EPA has provided 
them flexibility in a number of areas, including reporting and fuel 
survey requirements, and sampling and testing techniques.
    Neither the Clean Air Act nor EPA requires the use of MTBE in RFG. 
The statute and EPA's regulations only specify the oxygen content as a 
performance standard, they do not specify what oxygenate to use. Both 
ethanol and MTBE are used successfully in the current RFG program, with 
fuel providers choosing to use MTBE in about 76 percent of the RFG.
    Like federal RFG, California's Cleaner Burning Gas substantially 
reduces harmful emissions from motor vehicles. When oxygenate is added 
to RFG in California, in both federal and California RFG areas, almost 
all of it is MTBE. Oxygenates help to reduce emissions of ozone 
precursors and air toxics by diluting or displacing gasoline components 
such as benzene, olefins, aromatics, and sulfur and by altering the 
distillation index. Oxygenates also help to reduce carbon monoxide by 
improving the fuel combustion process. In addition, since oxygenates 
increase octane, refiners have chosen to add them to gasoline since the 
late-1970's. And because oxygenates comprise up to 11% of the volume of 
reformulated gasoline, they can extend the gasoline supply through 
displacement of some gasoline components. This reduces our reliance on 
foreign petroleum imports--a fact as important today as it was in the 
1970s.
    Despite the air quality aspects of oxygenates in RFG, there is 
growing concern about contamination of drinking water by MTBE in Santa 
Monica, several other areas in California, as well as in Maine and 
other states. As a result, Governor Davis has recently taken action to 
phase out MTBE use in California by the end of the year 2002. EPA is 
also concerned about the detection of MTBE in drinking water in 
California and other states. For the most part, levels detected in 
drinking water have been quite low. For instance, the California 
Department of Health Services requires public drinking water systems to 
monitor for MTBE. As of April, 1999, 3.8% of California's drinking 
water systems sampled have detected MTBE. Most of those detections are 
below the state's secondary standard (or taste and odor action level) 
of 5 parts per billion.
    The U.S. Geological Survey (USGS) has reported that about 3 percent 
of groundwater wells in RFG program areas have detections of MTBE at or 
above 5 parts per billion. MTBE detections at high concentrations in 
groundwater, such as those experienced in Santa Monica, result 
primarily from leaking underground fuel storage tanks, and possibly 
from spills from distribution facilities. These leaks are unacceptable 
regardless of whether or not MTBE is present in the gasoline. However, 
the presence of MTBE at these leak sites suggests the need for improved 
early warning systems for underground storage tank leaks. The Agency's 
underground storage tank (UST) program is expected to substantially 
reduce future leaks of all fuels and additives, including MTBE, from 
underground fuel storage tanks. All USTs were required to be upgraded, 
closed, or replaced to meet these requirements by December 1998. Over 
80% of the regulated tanks have complied with this requirement and EPA 
is continuing to work with the states to ensure further progress.
    In response to health and water contamination concerns associated 
with the use of oxygenates in gasoline, the Administrator established a 
blue-ribbon panel of leading experts from public health and scientific 
communities, water utilities, environmental groups, industry, and local 
and state government, including California, to assess issues posed by 
the use of oxygenates in gasoline in California and the rest of the 
nation. The Administrator requested recommendations from the panel by 
July 1999. This panel is currently grappling with a number of complex 
issues. This includes an assessment of alternatives to the use of MTBE 
to ensure that the air quality benefits that RFG currently provides are 
continued, and the additional benefits of the second phase of the 
program are not endangered.
    There is concern about the availability and viability of potential 
substitutes such as ethanol, or alkylates, that could help to provide 
the dilution and octane benefits currently obtained with MTBE. Refiners 
are using about 260 thousand barrels per day of MTBE in RFG, as 
compared to about 25 thousand barrels per day of ethanol. If 
substitutes can be made available, what time frame would be needed? Are 
there potential environmental consequences of substitutes that need to 
be considered? What are the potential impacts to water quality if these 
substitutes are accidently released to the environment? What will the 
public ultimately have to pay for such alternatives? These are just a 
few of the many questions the panel is considering as it begins to 
develop options.
    Options being considered by the panel include the following: 
maintain the status quo and continue current efforts to protect water 
sources; enhance existing water protection programs; increase 
flexibility on the use of oxygenates with no new constraints on the use 
of MTBE; increase flexibility while also phasing out the use of MTBE; 
or maintain the oxygen mandate but phase out MTBE. We are impressed 
with the high caliber of individuals that are serving on the panel, and 
are looking forward to hearing the panel's recommendations regarding 
steps that should be taken to ensure continued improvement in both air 
and water quality.
    Mr. Chairman, I want to assure you that we are committed to working 
with the state of California to continue to look at options, including 
potential actions that could be taken within the state to align fuel 
distribution with state and federal RFG requirements. At the same time 
EPA is carefully assessing our statutory authority to determine what, 
if any, options we have to address Governor Davis' recent request for 
flexibility on the oxygen mandate. The waiver request submitted by the 
Governor is the first one EPA has received. Since this is the first 
case, there is no precedent for an administrative response to such a 
request. We are therefore looking closely at the Governor's request, 
and assessing both our authority and the evidence presented by the 
state.
    Again, I want to emphasize that the blue ribbon panel is in the 
process of conducting a robust evaluation of issues posed by the use of 
oxygenates, nationwide. The panel has painstakingly taken the time to 
hear from a wide variety of stakeholders in this matter, including an 
open meeting in Sacramento, California. From that input, the panel has 
now begun to formulate a number of options for consideration. Once we 
have the panel's recommendations, it is important that we work with 
states, and coordinate with Congress over the next three to four 
months. During that time frame, we will not only have the benefit of 
the panel's advice, but we will have a better understanding of our 
authority to respond to Governor Davis' request for flexibility on the 
oxygen mandate. We will then be in a better position to coordinate with 
Congress to ensure that air quality benefits are preserved, while 
continuing to protect the nation's water quality.
    This concludes my prepared statement. I would be happy to answer 
any questions that you may have.

    Mr. Bilirakis. Thank you, sir. I am sure we all have 
questions. I am going to yield to Mr. Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman. On April 22, 1998, 
the EPA testified that they could not--EPA cannot support the 
bill at this time. Now, I have looked at and reviewed your 
prepared statement, and it gives a very comprehensive history 
of the reformulated gasoline program, but it is completely 
silent on H.R. 11. Is the subcommittee to assume that EPA no 
longer opposes the Bilbray/Feinstein bill?
    Mr. Perciasepe. I think the administration has no position 
at this time on this bill or any of the other bills that are 
currently beginning to be introduced, and we want to find a way 
to coordinate between recommendations from our blue ribbon 
panel, which we expect in the next several months, and what the 
legislation might start to look like.
    I would have to say that we would lean toward looking at 
national approaches, but assuming that the panel puts forward 
recommendations that look at national approaches and that 
legislation is part of that, we are about 2 months behind you, 
I would imagine.
    Mr. Bilbray. Do you see any damage, looking at California 
specifically, to us?
    Mr. Perciasepe. I think the fact that you are having this 
hearing is helpful to the entire debate on this subject. I 
think it is very important that we keep in mind the broad base 
of issues that I put up there, because it is not just the 
groundwater contamination, although that is vital and something 
we have to take into account. We have to look at how we don't 
lose the air quality benefits, we have to look at the fuel 
supply issues, the cost issues and everything else.
    I think as several people have already said, as goes 
California, so goes the Nation. Clearly it will be a 
bellwether, and I think it is very important for me, at the 
national level, to have some view about where that is going to 
go before I make a decision one way or another to advise the 
administration specifically on your bill.
    Mr. Bilbray. Okay. Let us point out some specifics about 
California that may make it kind of unique. Does the EPA agree 
that California clean-burning gasoline is equal or superior to 
the Federal reformulated gasoline formula?
    Mr. Perciasepe. I think that is an accurate statement, yes.
    Mr. Bilbray. Thank you. I think, just to clarify, in 
February 1994 the EPA's position was that California's program 
was at least as stringent as the Federal program. In 1994, in 
the Federal Register in February, a statement of EPA was that 
California has a greater emission reduction performance than 
the Federal Phase 1.
    In February 16, 1994, the EPA stated in the Federal 
Register that the fuel meeting the standards of the California 
Phase 2 program has a greater VOC and toxic performance 
reduction than fuels meeting the Federal formulated gasoline 
standards.
    So I think to clarify here, H.R. 11 in no way is indicating 
to outlaw oxygenates in the fuel, but at the same time, 
California is one State that EPA has concluded has a fuel that 
is equal or superior than the 1990 formula.
    That is fair to say?
    Mr. Perciasepe. Yes. The reformulated program in the Clean 
Air Act on the national level has two phases to it, phase 1, 
which was in 1995, and phase 2, which takes effect in 2000. 
When phase 2 takes effect, those differences will narrow, but 
the equivalence will be the same.
    Mr. Bilbray. Do you have any other State equal to the 
California reformulated gasoline?
    Mr. Perciasepe. When States start using the second phase of 
the reformulated program, they will be equivalent.
    Mr. Bilbray. At this time----
    Mr. Perciasepe. The refinery industry, they are somewhere 
in between, I should say. They are somewhere in between phase 1 
and phase 2 reformulated gas as they ramp up, and are probably 
getting closer this summer.
    Next summer they have to be there.
    Mr. Bilbray. Thank you very much. I appreciate it. I yield 
back, Mr. Chairman.
    Mr. Bilirakis. The gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman.
    Good morning to you and welcome. As you know, the Clean Air 
Act gives California a unique authority to administer its own 
fuels program to reduce vehicle emissions. Despite this 
authority, the reformulated gasoline requirements of the Clean 
Air Act still apply to California.
    So as I understand it, this means that California is the 
only State in the country where Federal requirements apply in 
conjunction with State regulations that have proven to be more 
effective in terms of producing cleaner burning gasoline.
    Can you provide any further insight as to whether or not 
EPA is willing to grant a waiver from the Federal reformulated 
gas requirement to California as requested by the Governor, 
and, if not, what is the basis of your thinking?
    I have another question as well, and that is that H.R. 11 
requires that in order to obtain the flexibility it wants, a 
California refiner would have to demonstrate to EPA that its 
nonoxygenated gas burns at least as clean as the Federal RFG. 
Do you have a problem with the principles of a performance 
standard, even when your own agency gets to decide whether the 
standard has been met?
    Mr. Perciasepe. I will try to go in order there.
    Ms. Eshoo. Don't run out of time.
    Mr. Perciasepe. On the equivalency, next summer there will 
be very little difference between the Federal program and the 
California program in terms of the performance from an air 
quality perspective. So the differences in terms of one being 
superior to the other will really fade away next summer.
    The waiver request that the Governor has----
    Ms. Eshoo. This coming summer?
    Mr. Perciasepe. The summer of 2000, the Federal 
reformulated gasoline program will be roughly equivalent to the 
California program. There will be some differences, but it will 
be roughly equivalent.
    Ms. Eshoo. California being more stringent.
    Mr. Perciasepe. Right now. In 2000, they will be much 
closer.
    Ms. Eshoo. I hope everyone hears that on the committee.
    Mr. Perciasepe. Of course, it is only used in the 
Sacramento area, the Los Angeles area, and the San Diego area. 
The request for a waiver that the Governor has sent to EPA was 
for a waiver from the 2 percent by weight oxygenate 
requirement. To my knowledge, all of the California clean gas 
also has oxygenates in it. But the Sacramento, Los Angeles and 
San Diego areas, since those are the Federal reformulated gas 
areas, have to have at least 2 percent by weight of oxygenate.
    There was a request from the Governor to provide some 
flexibility on that or a waiver specifically for that. That 
doesn't mean there will not be oxygenates in it but the 2 
percent waiver.
    Now, you sort of asked me the question already in your 
opening statement, but the Clean Air Act does provide for a 
waiver, so the simple legal interpretation is yes, EPA has the 
authority to grant a waiver. But the problem is, let me tell 
you what it is for. I will read it to you. Upon a determination 
by the administrator that compliance with such requirement, the 
2 percent oxygenate requirement, would prevent or interfere 
with the attainment of the area, in this case the southern part 
of California and Sacramento, with ambient air quality 
standards.
    So the authority we have in the Clean Air Act, given to us 
by Congress, to grant a waiver, is based on whether or not the 
2 percent oxygenate requirement interferes with the attainment 
of National Ambient Air Quality Standards.
    So when I say, yes, we have the authority to grant a 
waiver, I have to preface it with--and the reason I didn't 
answer as explicitly in my written testimony yet, we have never 
been asked whether the oxygenate requirement is interfering 
with the implementation or the attainment of National Ambient 
Air Quality Standards. As the chart showed earlier, all the 
evidence shows it is helping attain the National Ambient Air 
Quality Standards.
    So this is what we are reviewing with the State of 
California and why we don't have a final answer yet on the 
waiver part.
    I am afraid I forgot the third one. I think it was--you had 
a third question there.
    Ms. Eshoo. Do you have a problem with the principles of the 
performance standard, even where your own agency gets to decide 
whether the standards are met or not?
    Mr. Perciasepe. We are in favor of performance standards. 
That is pretty much the way the Clean Air Act is set up.
    Mr. Bilirakis. Did you have anything more?
    Ms. Eshoo. No, I will honor the clock going off.
    Thank you.
    Mr. Bilirakis. Well, sir, of course, the waiver request was 
made by the Governor, but the Commerce Committee request was 
for a legal analysis.
    You have a policy decision, you referred to your charts. 
But we are interested in a legal decision. All we asked about 
was the legal decision and your ability to grant a waiver of 
the requirement, and we haven't heard anything.
    You are saying you do have that legal ability, but that it 
is----
    Mr. Perciasepe. Yes. The plain language of the act says we 
can grant a waiver to the oxygenate requirement if it is 
interfering with the attainment of air quality standards.
    Mr. Bilirakis. That is the only basis that you would have 
to grant a waiver?
    Mr. Perciasepe. That is a specific----
    Mr. Bilirakis. The only basis? Is that the way you read the 
act?
    Mr. Perciasepe. We are looking at the rest of the act as 
well, but that is a specific provision in the act that can 
grant a waiver for the oxygenate requirement.
    Mr. Bilirakis. So what you are telling me is that you are 
looking at other sections of the Clean Air Act to determine 
whether, in fact, you have the legal authority to grant a 
waiver?
    Mr. Perciasepe. We are trying to be as expansive in our 
review of this request that you have given us as we can. We 
haven't completed it. Obviously we are looking into it. We will 
continue to do that.
    Mr. Bilirakis. Sir, with all due respect, and really, I 
mentioned, and it has been brought up here, that there are 
always dangers with opening up the Clean Air Act. Granted, if 
you go into the national approaches to this situation you are 
doing it there anyhow. But if we don't have to open up the 
Clean Air Act for California, I think it is an advantage, and 
we have kind of opened up the door here.
    It sounds to me, frankly, with all due respect, like you 
are stonewalling. Do you just not want to make a decision? The 
least you can do is tell us whether you can make the decision. 
The way we read the Clean Air Act, you have the legal authority 
to either grant or disapprove the waiver. But we haven't flat 
come out and said that. We have asked you if, in fact, you 
could do it.
    Mr. Perciasepe. Okay. Our counsel is still working on this, 
and we would be more than happy to talk to your counsel about 
what ideas that they have on it. Obviously there are advantages 
if we don't have to have Federal legislation if there is a way 
to solve a problem.
    I want to point out something else that has come up several 
times here, and that is California doesn't need a waiver to ban 
MTBE. If the Governor has made this decision, which he has 
done, simply moving to an alternative oxygenate, you don't have 
to have a waiver.
    Mr. Bilbray. If the gentleman will yield, to simply move to 
another oxygenate, to me, is the most insensitive statement I 
have heard here.
    You are talking about the largest consumer of 
petrochemicals in the world, and with the cost impacts to our 
consumers right now, this is not just a simple thing of saying 
let us just start trucking in one product instead of the other.
    I don't know if you have ever been involved in the 
transformation of one fuel to another. I have over 10 years 
ago. I did it 3 times. It is not a simple thing.
    I am sorry, Mr. Chairman, but I have to clarify. The simple 
issue here with H.R. 11 is giving the flexibility, and EPA has 
not, going back 5 years ago with Mary Nichols, has not 
determined they have had that flexibility in the past, and I 
would think the Chairman is just trying to get a clarification. 
But don't say it is a simple transition, because I'm sorry it 
isn't.
    Mr. Perciasepe. You are correct.
    Any transition from the way the fuel is provided now will 
not be simple. Any transition--and any transition is going to 
take time, both in California and nationally, and will cost 
money. The option is open to California to achieve its policy 
objectives--are to have more flexibility with oxygenates, which 
I understand is the question at hand, and/or try to do--I am 
using up whose time--well, if we can go around to the Member 
again.
    Mr. Bilirakis. All right, look, I think it is just a simple 
request that was submitted in writing on April 23 and prior to 
that verbally. That is an awful lot of time. Common, I have 
practiced law too.
    But can you give me a date? Can you give me a time when we 
are going to hear from EPA whether they feel that they have the 
authority to grant a waiver? To grant the waiver regarding 
the--of course, the application made by the Governor.
    Mr. Perciasepe. I don't want--it is not my intention to be 
argumentative here.
    Mr. Bilirakis. I don't intend that either. Put yourself in 
our shoes. We are trying to do a job here, and I don't know, it 
looks like Mr. Shadegg is no longer here, but he made comments 
about how it looks like a no-brainer, because it would clean up 
the air, it would clean up the water, it would result in less 
cost to the consumer, et cetera, et cetera.
    Whether you accept all that or not, I don't know. But it 
indicates if you do, it is a no-brainer. In this committee, we 
are pledged to do a particular job and we are requesting the 
cooperation of EPA, just a simple request. We didn't even ask 
you if you would grant the waiver, but can you in fact?
    Mr. Perciasepe. I can say at this particular juncture it is 
clear under certain circumstances we could grant a waiver, and 
at least in one provision of the Clean Air Act if lays out what 
those circumstances are, that there is an interference with the 
attainment of national air quality standards.
    Mr. Bilirakis. I guess we are going to have to suspend. I 
was hoping, sir, we could finish up and release you.
    Ms. Eshoo. Could you yield for 30 seconds?
    Mr. Bilirakis. We have something less than 5 minutes to 
vote.
    Ms. Eshoo. I just want to get this in before I leave and 
not jeopardize my vote on the floor, and that is I want to 
underscore what the Chairman is struggling to say here.
    I don't think that the California Clean Air Act or the 
Federal Clean Air Act was anything but a magnificent effort at 
a health-based environmental law. I helped implement the 
Federal Clean Air Act, meshed the California Clean Air Act, 
before I came here, together in the Bay Area Air Quality 
District. I come to the table with, I think, well-earned 
environmental credentials.
    So to skirt around this issue or to not address it head on 
and not work as a genuine partner--it is one thing to talk 
about the Federal Clean Air Act. What about the rest of this 
testimony as to what we are subjected to in the State of 
California? We have responsibilities to work with one another 
to make this thing work.
    Mr. Bilirakis. I am going to suspend the proceedings until 
we can return from the vote.
    Mr. Hall. Are you going to keep this witness?
    Mr. Bilirakis. Yes, sir.
    Mr. Perciasepe. I will continue when you return.
    Mr. Bilirakis. As soon as we get back. Thank you, sir.
    [Brief recess.]
    Mr. Bilirakis. Okay, let us get started. Are you ready, 
sir?
    Mr. Perciasepe. Yes, Mr. Chairman.
    Mr. Bilirakis. Mr. Perciasepe, again, you know, I think 
that your concern and the concern of EPA is the opening up of 
the Clean Air Act and the problems that may come from it and 
everything of that nature. So it stands to reason that if you 
can grant the waiver, and we haven't asked you to grant the 
waiver, we haven't asked for a policy decision, we merely asked 
if you feel that you have the legal authority to grant the 
waiver.
    But if you can grant the waiver, obviously then we are not 
reopening up the Clean Air Act insofar as at least as 
California is concerned. You certainly ought to take that into 
consideration.
    Anyhow, getting again to the legal decision, Mr. Meyers is 
right here to my right. I know he has worked with your people 
over the years. When can we expect to find out whether, in 
fact, you feel that you can, you have the authority at least, 
to grant the waiver regarding the specific request?
    Mr. Perciasepe. I am hesitant to give you an exact time, 
but, you know, I don't want to waste a lot of time on this. I 
don't want the committee wasting their time either. I am very 
respectful to the position that you are putting forward here, 
that obviously if there is an administrative way to deal with 
some of these things, that reduces at least some of the 
legislative work that may need to get done.
    If it is within the bounds of what everybody is comfortable 
with, that makes everything work better. I recognize that, and 
obviously I want to do it in a timely fashion so we can work 
with you. I want to keep coordinating with you. I would like to 
coordinate with your counsel. I want to have some time to 
consult with the State of California. I haven't been able to do 
that yet as well. I mean, we have had general discussions. So I 
am talking----
    Mr. Bilirakis. Forgive me, because I am not ordinarily this 
way in the Chair, but, again, you say coordinate with the State 
of California, and all we are wondering is do you have the 
authority, the legal authority to grant the waiver?
    I am not even asking you whether you would grant the 
waiver.
    Mr. Perciasepe. Right. I understand that.
    Mr. Bilirakis. But you are not sure? You can't respond?
    Mr. Perciasepe. I think the answer, in simple terms, is 
yes.
    The question is what constitutes those conditions that are 
in the statute. You know, I want to spend time understanding 
the basis of California's interest in any interference with 
meeting the air quality standards. I would rather not make that 
up.
    Mr. Bilirakis. I am going to ask counsel here then to 
coordinate with the committee by this time next week to find 
out what has transpired in that regard, because I would hate to 
think that--well, I have said it, and Ms. Eshoo said it a lot 
better than I. The word ``stonewall'' is basically what is 
being used here. It is a shame. She mentioned the word 
``partnership.'' We should be working together.
    Mr. Perciasepe. We agree with that. I want to make it 
really clear that I agree with that statement, and what the 
Congresswoman said, and I want--as Mr. Bilbray said earlier, I 
am not here in opposition to this bill, like has been the past 
practice of the Environmental Protection Agency.
    We are changing our views on what has to be done here, but 
we have a process under way where--maybe perhaps a little bit 
behind you, I put up there as one of the principles we want to 
coordinate with Congress.
    You used the word partnership. I agree with that term too. 
I want to be clear to all the members of the committee that we 
are not here trying to stonewall, we are not here trying to say 
let us not do something if it needs to be done. We are here in 
a different position than we have been in the past Congresses, 
and I appreciate the frustration and I respect the need for you 
to know what you are asking me.
    Mr. Bilirakis. Okay.
    Senator Feinstein quite clearly indicated that she did not 
think that the blue ribbon panel and their deliberations had 
anything at all to do with the immediate subject matter of this 
hearing and the request for the waiver.
    Then I do appreciate what you say about the overall 
picture, because decisions have to be made regarding the 
overall picture. But, again, that is the policy.
    I think my time has expired. I will give you all 
opportunities to finish up.
    Mr. Bilbray. Can I make a statement for the record?
    Mr. Bilirakis. Yes, you can.
    I was going to give you that opportunity anyhow.
    Mr. Bilbray. I just want to clarify that my original 
introduction of this bill in 1996 was after extensive 
discussion with Mary Nichols of the EPA, after a request and 
consultation with the State of California between and among 
Mary Nichols, myself, and the California EPA.
    The reason for this legislation is that the representative 
of the EPA at that time. as now, evidently felt that she did 
not have the authority under the act to grant the waiver. That 
is the purpose of the whole legislation. I yield back, Mr. 
Chairman.
    Mr. Bilirakis. To the ranking member of the subcommittee, 
Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. To shift ground just 
a little bit, one of the things you focused on in your 
testimony was this concern about leaking underground storage 
tanks, and this is a concern in my district as well in Colorado 
and around the country as well as in California.
    I was curious to learn that you thought it was a big 
concern here today in your testimony, because last year when we 
had testimony on this legislation, we heard that there was a 
compliance deadline for the tanks at the end of 1998. Then we 
subsequently learned that the EPA intended to give low 
enforcement priority to certain categories of tanks.
    So I guess I am wondering, given the concern that you have 
about MTBE today--and maybe you can also explain, we now have 
two statistics. One comes off of your web site which says only 
500,000 of the 892,000 storage tanks are in compliance with 
Federal standards, and then the other statistic in your 
testimony today says 80 percent are in compliance.
    So my questions are, No. 1, which is it, and, No. 2, what 
is the agency doing to bump this up on the priority list?
    Because it would solve a lot of the immediate health 
hazards, although I don't think it would solve the whole 
problem.
    Mr. Perciasepe. Right.
    Let me just say that 80 percent is our current estimate of 
the compliance rate. We expect it to be around 90 percent next 
year. We are pushing it as hard as we can.
    It is a very important program. We are trying to work with 
water supply programs to look at targeting compliance in areas 
where there is source water protection for drinking water, 
coordination between the water program and the underground 
storage tank program.
    So, yes, it is a high priority, particularly in those 
sensitive watersheds. I think it is fair to say in addition to 
what you said, that underground storage tanks are by no means 
the only source of gasoline getting into the environment. 
Obviously it could be transportation pipelines or overturned 
tanker-trailer trucks, or even in a rural area where you have 
private wells, very small leaks could cause problems.
    So you are correct in that assessment.
    Ms. DeGette. To follow up, what happened with that 1998 
deadline? Did it get extended?
    Mr. Perciasepe. The deadline is not extended. All the legal 
requirements are still in place, and we are sweeping through to 
get the compliance to 100 percent.
    It is going to take time though.
    Ms. DeGette. How much time? Are you seeing in a place like 
California any improvement in the groundwater--or any 
dissipation of the problem of groundwater contamination as you 
move more toward this?
    Mr. Perciasepe. We definitely anticipate, whether it be 
California, Colorado or anywhere, when the tanks are upgraded 
to the more modern tanks that have the coating and the 
protection from electric arching and all these other things, 
that it will reduce substantially the risk of leaking from the 
tanks.
    But there are historic leaks we find when we dig them up--
you probably know all this from looking at the problem before--
that have to be remediated.
    Ms. DeGette. So you haven't actually seen any changes in 
the last year in California in particular?
    Mr. Perciasepe. I don't have enough information to answer 
that question right here.
    Ms. DeGette. Let me ask you another question.
    Last year when we heard from the Department of Energy about 
Mr. Bilbray's bill last year, which was almost identical to 
this, he identified a key supply related issue called 
regulatory stability and discussed major investments in 
oxygenate production as well as refinery equipment that were 
made by the regulated entities with the expectations that the 
regulations would remain stable.
    He opined particularly that as we moved into the 
implementation of the phase 2 that you were talking about a few 
minutes ago, its regulatory uncertainty would reduce stability 
of the reformulated gas program.
    Do you have those concerns as you move into phase 2?
    Mr. Perciasepe. I think the issues you bring up are reasons 
why I testified earlier this morning that there are national 
issues at play here, and as we start to make decisions, whether 
it be in California or Maine, Colorado, or New Jersey, that 
they are going to have a cascading effect on how we try to deal 
with this issue nationally.
    I can't put blinders on and say that isn't the case. 
Notwithstanding the very real problems that have to be dealt 
with today.
    It is true that time is probably one of the more important 
ingredients to making an appropriate transition, whether it be 
in California--and the Governor clearly recognized this in his 
executive orders. And you will be able to ask the California 
folks how they came up with their approach. But time to allow a 
transition so there is no disruption in fuel supply, so there 
are no spikes in price and run-outs in certain areas is vitally 
important. I don't have a good answer for what that time line 
would be on a national level to do this kind of transition.
    But the issues that were testified to last year are issues 
that we are trying to grapple with in our blue ribbon panel. We 
have experts on that panel from the refining industry and from 
the Department of Energy and from California who have already 
gone through some of this analysis to look at how, whether it 
is flexibility or whatever kind of transition that might come 
to be, that it is done in a way that protects the American fuel 
supply from any of those eventualities.
    That would have to be taken into account as we look at this 
issue nationally.
    I don't want to say that California hasn't. The Governor 
did take these things into account.
    Ms. DeGette. Thank you. I am out of time.
    Mr. Bilirakis. Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman.
    Mr. Perciasepe, if I am pronouncing your name right, you 
know, from a lot of the comments that members of the first 
panel made and comments from the committee sitting here, it 
seems like a lot of members think that there is a significant 
problem with MTBE in groundwater. Is that the EPA's view as 
well?
    Mr. Perciasepe. MTBE is less toxic than many other 
constituents of gasoline, so the toxicity part, while a very 
important part, if you took it out, the gasoline would have 
constituents in it that are just as and more toxic than MTBE 
itself.
    What MTBE does have is a unique physical characteristic, 
and that is its solubility in water. It has the ability to move 
more quickly than the other constituents of gasoline. When we 
get the leaks, we get the other stuff, the toluenes and 
benzenes, that gets into the water also, but it doesn't move as 
quickly and get as far away.
    So the answer is yes, MTBE in gasoline does present a 
difficult set of issues when gasoline gets spilled into the 
environment. I guess we would want to have this world where 
this doesn't happen, but it does. So not having MTBE in the 
gasoline will not make it okay to spill gasoline into the 
environment or drink it or anything like that. But having it in 
there and its unique physical characteristic, does exacerbate 
the remediation and it does increase the amount of groundwater 
that can be affected in a shorter period of time.
    So from that perspective, yes, it has a different impact.
    Mr. Ganske. So you are saying that it is unique in that it 
is very soluble, that it tends to move, and in that respect, it 
is unlike other parts of gasoline.
    Is that a fair summary of what you just said?
    Mr. Perciasepe. That is probably a fair summary. I don't 
know every chemical in gasoline. There may be other ones in 
there that are equally soluble. In general.
    Mr. Ganske. Since there is another oxygenate available that 
doesn't present the same kind of problems, why doesn't the EPA 
just ban MTBE?
    Mr. Perciasepe. I know this committee doesn't seem to be 
very amenable to my sort of legalistic or bureaucratic answers 
here, but we don't have the authority--we don't really have the 
authority to ban specific----
    Mr. Ganske. If you had the authority, would you think about 
doing that for this because of this unique property of this 
chemical?
    Mr. Perciasepe. I think that is why we have changed our 
position on this and why the administrator has appointed a blue 
ribbon panel, to look at all the consequences of this. I 
certainly don't want to easily slip out of the frying pan into 
the fire with whatever answer that we come up with there, so I 
am well aware of the competing opportunities that are presented 
and how this will come out.
    But I am very hopeful that if we keep our eyes on the ball, 
to use that sports analogy, in this deliberation that we are 
in, that we can come up with a fair and environmentally 
protective set of recommendations that we will obviously share 
and coordinate with Congress.
    Mr. Ganske. Let us see if we are in agreement with some 
things. It is my understanding that oxygenates reduce exhaust 
emissions of carbon monoxide and volatile organic compounds, 
VOC's, particularly in higher emitting vehicles. Carbon 
monoxide is a precursor to the formation of urban ozone. In 
fact, as VOC emissions from vehicles have been reduced, the 
importance of carbon monoxide to ozone formation has become 
more critical.
    Recent studies indicate that exhaust carbon monoxide 
emissions from gasoline vehicles make about as much ozone as do 
exhaust VOC emissions. Neither Federal RFG or California CBG 
includes a carbon monoxide performance standard. In the absence 
of an oxygen requirement then, an increasingly important 
contributor to the formation of urban ozone will be increased.
    Do you agree with that?
    Mr. Perciasepe. Increase in carbon monoxide?
    Mr. Ganske. In the absence of an oxygen requirement, an 
increasingly important contributor to the formation of ozone 
will be increased.
    Mr. Perciasepe. Well, I don't know whether I can agree with 
that point-blank, because I don't have enough information. But 
let me say there are two things that work against that being an 
absolutely true statement.
    First, as I mentioned earlier in my testimony, Congress 
envisioned an optimization between the automobile technology 
and the fuels. And one of the reasons, among many, that there 
is not a carbon monoxide component to the reformulated gas is 
because the oxidizing catalysts that are put on the tailpipe of 
the automobile oxidize carbon monoxide. So there is a control 
technology on the car. Both California and the Federal 
Government have a very strict tailpipe performance standard for 
automobiles for carbon monoxide.
    So regardless of what happens to the fuel, the automobiles 
can't exceed that performance standard at the tailpipe. To the 
extent that we have total balance the fuel and the technology 
on the car, that is another one of these national issues that 
is before us as we look at these formulations.
    Mr. Ganske. Mr. Chairman, I have one question in follow up 
to that on the exhaust. I--may I have 1 additional minute?
    Mr. Bilbray. One additional minute.
    Mr. Ganske. If reducing ozone then is the objective, 
exhaust VOC emissions are more important than evaporative VOC. 
Would you agree with that? Because exhaust emissions are more 
reactive. Exhaust emissions will form ozone more quickly and 
readily than evaporative emissions.
    In the absence of the oxygen requirement, it is very likely 
that exhaust emissions will increase relative to evaporative 
emissions. Thus, ozone increases even if mass-based VOC--even 
if the mass-based VOC standard, which does note distinguish 
between exhaust and evaporative emissions is met.
    Would you agree with that?
    Mr. Perciasepe. I would agree----
    Mr. Ganske. Thank you.
    Mr. Perciasepe. No, no. I would agree that a simple mass-
based performance standard for either VOC's or toxics can be 
met with varying degrees of actual performance in the ambient 
air because different VOC's do have different reactivities, and 
different toxics have different toxicity.
    One of the concerns in looking at oxygenates and/or other 
formulations of gasolines are--is if there are less or more of 
them, what are they displacing and what is replacing them. If I 
replace oxygenates, for instance, with more aromatics, and 
benzene would be an example of an aromatic, or olefins this 
could increase toxic emissions in terms of toxicity, but you 
still could be meeting the performance standards of toxic mass 
reductions.
    On the VOC question that you have specifically asked, we 
have asked the National Academy of Sciences to give us advice 
on that, and we are--I know this sounds like a broken record, 
almost like I was going through with the chairman earlier, but 
we are hoping that the National Academy of Sciences is going to 
give us some input on that within the next several weeks.
    Clearly there can be variability underneath those mass 
standards.
    Mr. Ganske. My last question then, it is possible that 
eliminating the oxygen requirement in California could result 
in increased environmental problems?
    Mr. Perciasepe. Yes, depending on the formulation that 
replaces it.
    Mr. Ganske. Thank you.
    Mr. Bilbray [presiding]. I think the discussion with the 
gentleman from Iowa clarifies why outcome-based, not process-
based environmental strategies are essential. Right now you 
have a standard based on what you put into it, and you make 
assumptions based on what comes out.
    Sometimes the assumptions are a major problem. I would just 
like to say as somebody who worked on the evaporative emission 
problem, I don't know what has been done in the last 2 years, 
but I remember our problems where we underestimated the 
evaporative emissions problem by 75 percent, I remind my 
colleague in this nonattainment area of California, they have 
the Smog Check-2 tailpipe inspection program, which the 
gentleman from the EPA pointed out, which is the most stringent 
in the world. It is part of this.
    So trying to look at these things in isolation is tough if 
you don't see the whole strategy. I have to say one thing, EPA 
is right, in that you do have to look at the big picture.
    I would like to recognize my colleague from New Jersey, Mr. 
Pallone.
    Mr. Pallone. Thank you. I wanted to ask you two questions. 
One about my bill, and then the other about the underground 
storage tanks.
    First, I know the bill was just introduced yesterday, but I 
just wanted to get an idea whether the EPA would support the 
concept behind it, which basically is a waiver of national 
oxygenate requirements, the MTBE phaseout, and the national 
study of health and environmental effects of oxygenates.
    Mr. Perciasepe. Congressman, I am going to find myself in 
generally the same position in not opposing it, again in a 
little advance--we are trying--I think Congress deserves EPA 
when it comes before it and says this bill, or this piece of 
this bill, or this piece of this bill, works, because it works 
in this context. You deserve to get that from us. 
Unfortunately, as I mentioned earlier, you are ahead of us 
having that context.
    Now, I am going to say in a couple more months we should 
have a better sense of the context in which we can look at the 
different pieces of these legislative proposals and be able to 
be more coordinated, as I mentioned, with Congress.
    So I don't think we would be in here today in a position of 
saying we would oppose any legislation related to this forever 
and hold our peace, but to say that I want to be able to bring 
to you the context in which all these changes would be made. It 
is the fuel supply of the United States, there are a lot of 
moving parts, as somebody might say, and I want to be able to 
give you the best advice I can.
    I am a little bit short on that right now in terms of the 
advice I am trying to get from these national experts.
    Mr. Pallone. Can we ask then that you will get back to us?
    Mr. Perciasepe. Yes. Absolutely. Yes, of course we will get 
back to you.
    [The following was received for the record:]

    Mr. Perciasepe committed to get back to Congressman Pallone 
once the Agency has received recommendations from the panel of 
experts currently assessing issues related to the use of 
oxygenates in gasoline. The recommendations are expected in 
July, 1999.

    Mr. Pallone. You talked about the underground storage tanks 
as a source, and we know they are a source, of a lot of the 
MTBE's. I guess it has been 10 years for underground storage 
tanks to comply with Federal requirements, but you said they 
are at 80 percent compliance and heading toward 90 percent. 
Since it has been 10 years, I am just wondering when we are 
going to reach 100 percent compliance?
    Mr. Perciasepe. I hate to answer for my colleague who is in 
charge of that program, but I guess one way I can just do it in 
my head and project it would probably be another couple years. 
And if you want a more detailed answer for the record I would 
ask that you let me consult with my colleagues who run that 
program and get that to you. I am sure they have got a more 
technical answer than looks like a couple more years.
    Mr. Pallone. All right. If you would get back to us, with 
the permission of the Chair. Thank you, Mr. Chairman.
    [The following was received for the record:]

    EPA expects that within 2-3-years nearly 100% of active 
underground storage tanks (USTs) (that are federally-regulated) 
will have the equipment necessary to meet the 1998 deadline 
requirements, but there are ongoing operation and maintenance 
requirements that need to be followed in order to ensure full 
UST system compliance.

    Mr. Bilbray. The gentleman from Texas, Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman. Have you provided for us 
to submit questions for the record to be answered?
    Mr. Bilbray. Yes.
    Mr. Hall. If we will be allowed to do that, I will shorten 
my questions a little if we can.
    Mr. Bilbray. Especially if you are from Texas.
    Mr. Hall. It is my understanding that the EPA just 
announced a fuel sulfur rule requiring its sulfur be reduced to 
30 parts per million. In order to maintain octane, the preamble 
of the rules suggest that oxygenates are going to be needed. In 
light of this, wouldn't it be shortsighted to place some limits 
on MTBE?
    Mr. Perciasepe. Well, we have provided a pretty long phase-
in for reducing sulfur which, incidently, California has 
already done with their fuel. We basically are catching up the 
national fuel to the California fuel on the sulfur side. On 
these other things we have been talking about we catch up 
pretty much next year, and we have a phasedown going to 2006 
and longer for smaller refineries. There are actively being 
tested today, at the refinery level diesel sulfurization 
processes that do not reduce, octane across the 
desulphurization process--they are catalytic processes 
associated with the fluid catalytic cracker system. If that 
continues to be a problem over the next several years as these 
new technologies evolve, and our hope is they will because it 
will reduce even beyond what we have estimated the cost of 
desulfurization to be, there are other options to working on 
the octane than just simply adding MTBE. But we hope--it is our 
hope, even though we explained in the preamble that there is 
currently an issue with this and this is only a proposal, we 
hope that this will not be an issue, Congressman, in the 
desulfurization processes.
    Mr. Hall. The benefits of MTBE, one of the great ones being 
it is the least expensive?
    Mr. Perciasepe. I think--it is hard to say MTBE has this 
and this other option A has this.
    Mr. Hall. That is meeting the 2 percent requirement.
    Mr. Perciasepe. The reason MTBE is used more than other 
oxygenates is not completely, but significantly associated with 
its cost, but it is not the only reason. It is ease of 
transport through the pipeline systems and other factors are 
involved with that. So there are a number of product side 
advantages from some of the other oxygenates. You can argue 
with them but that is what the industry has done because we 
don't say, in Congress's instructions to us under the Clean Air 
Act or in anything we have done, which oxygenate should be used 
to meet those standards that are in the Clean Air Act.
    Mr. Hall. Aren't there some instructions in the Clean Air 
Act that require technology that is not even in existence yet?
    Mr. Perciasepe. You saying that as a general matter?
    Mr. Hall. Yes. If you don't know, you can tell me you don't 
know. I can't point out--I was here when it was written, days 
and nights. I thought it was a bad act when it was written.
    Mr. Perciasepe. There are probably some parts of it that 
were written in anticipation of some technology.
    Mr. Hall. I will withdraw that. I don't want to hammer 
around on you. You have been condescending in answering the 
best you can on all these, but go ahead and give an answer to 
my question. Wouldn't it be shortsighted to place limits on 
MTBE under those circumstances? Just yes or no.
    Mr. Perciasepe. If life was only that easy. I can't----
    Mr. Hall. Would you recommend to place limits on MTBE, 
then, under those circumstances?
    Mr. Perciasepe. Under which circumstances, sir?
    Mr. Hall. That I have laid out. You want me to repeat them?
    Mr. Perciasepe. The reasons why it is used as much as it 
is?
    Mr. Hall. Yes.
    Mr. Perciasepe. Let me just answer in a phrase, and that 
is, we need to take care in any limits we place on the way the 
fuel is and to not take into account the impact on price 
distribution and fuel supply while we are looking at the 
environmental issues.
    Mr. Hall. Mr. Chairman, I have some other good questions to 
ask him but I will submit them, one of them being whether or 
not EPA believes MTBE to be a health threat. I would like to 
know about their blue ribbon panel on MTBE, the investigation 
of the issues that we are addressing here today and other 
things so I will submit those. And I thank you.
    [The following was received for the record:]

    Congressman Hall noted that he plans to submit questions 
for the record. EPA will will be happy to respond to these 
questions as soon as they are received.

    Mr. Bilbray. The Chair would like to point out to the 
gentleman from Texas that H.R. 11 doesn't specifically outlaw 
the use of any product. Again, it is the flexibility that is 
the intention of legislation.
    Referring to the question about the Clean Air Act requiring 
the use of technology that does not exist or did not exist at 
the time of the act, technically you can say no, it did not; 
but as somebody who has implemented the act, to implement the 
standards that are set by the act, State and local agencies 
have been required to implement a strategy called technology-
forcing regulations. This is an interesting game of chicken 
with reality, in which we say as of this time, you fulfill this 
standard and if you don't, basically the world's going to come 
to an end. And I have got to say one thing as somebody who has 
been involved: Most of the time, industry fulfills those 
standards. There are some times you have to back off, but the 
clean fuel--the reformulated gasoline in California is one of 
those where you had almost every major oil refinery in the 
State say it was absolutely impossible to do it, until one vice 
president or one oil company said we will not only do it, we 
will do it in 6 months. At that time, I will tell you, I 
wouldn't want to have the life insurance policy for that guy.
    I think we have gotten some great testimony. I appreciate 
the fact you are here. I would only like to ask one question, 
because Mr. Ganske had pointed out the possibility that there 
could basically be backsliding in California if the mandated 
oxygenated content was withdrawn to any degree. In the areas of 
California where there is no Federal mandate to use 
reformulated gasoline, in those areas, is the gas used in those 
areas without the Federal mandate equal or better than the 
Federal mandate fuel?
    Mr. Perciasepe. As I testified earlier this morning, it is 
at least equal or better.
    Mr. Bilbray. Thank you very much. We will excuse you at 
this time and call up the next panel.
    Mr. Perciasepe. Thank you, Mr. Chairman.
    Mr. Bilbray. Thank you.
    Mr. Bilbray. Mr. Hickox, welcome to the new job, first of 
all. It is a new face from those of us who have worked with the 
State in California's environmental strategies departments. As 
the new director of Cal EPA, you inherit a very, very lofty 
position with huge responsibilities and a great tradition of 
leading this country in its environmental strategies 
challenges. We will see if you can continue that heritage into 
the future. You now have 5 minutes to testify, so fire away.

  STATEMENT OF WINSTON H. HICKOX, SECRETARY FOR ENVIRONMENTAL 
     PROTECTION, CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY

    Mr. Hickox. Thank you very much. Good afternoon, Mr. 
Chairman and members of the subcommittee. I want to thank you 
for holding today's hearing on H.R. 11. I am glad to be here on 
behalf of Governor Gray Davis to discuss the reasons why we 
strongly support this important bill.
    On March 25, 1999, Governor Davis ordered the elimination 
of the gasoline additive MTBE from California's gasoline 
supplies by no later than December 31, 2002, because it poses 
unacceptable risks to California's environment. His executive 
order outlines a number of steps the State will take to reduce 
those risks immediately.
    Two California communities, Santa Monica and South Lake 
Tahoe, have had their municipal drinking water supplies 
decimated by MTBE contamination and MTBE has been found in 
groundwater at 4,200 leaking underground tank sites across the 
State.
    California has the cleanest gasoline in the world and we 
intend to keep it that way. California's cleaner burning 
gasoline standards provide greater air quality benefits than 
Federal requirements and they also are more flexible. 
California allows refiners to reduce or eliminate the use of 
oxygenates as long as they can demonstrate the fuel provides 
required emissions benefits. However, the Clean Air Act 
requires the year-round use of oxygenated gasoline in southern 
California and Sacramento, which comprises about 70 percent of 
California's gasoline market.
    When MTBE's use is discontinued in California, the only 
acceptable oxygenate will be ethanol. The Federal oxygen 
requirement will in effect be an ethanol mandate for most 
California gasoline. With MTBE, we have learned a painful 
lesson about mandates.
    H.R. 11 and its sister bills in the U.S. Senate, Senate 
bill 266 and Senate bill 645, would exempt California from the 
Federal oxygen requirement. Refiners would have the flexibility 
to market non-oxygenated and ethanol-based gasoline statewide. 
California refiners have shown that they can make MTBE-free 
cleaner burning gasoline, but they need the exemption to 
provide MTBE-free gasoline with or without oxygenates as cost 
effectively as possible while retaining the public health 
benefits of cleaner air.
    If the Federal oxygen requirement remains in effect, 
California gasoline costs could increase as much as 6 to 7 
cents per gallon due to the huge increase in ethanol demand, 
according to the California Energy Commission and as cited this 
morning by Senator Feinstein.
    If H.R. 11 and/or its companion bills are approved, cost 
increases could be only 2 to 3 cents per gallon. The Federal 
oxygen requirement could double the cost of removing MTBE from 
California gasoline without taking a single extra pound of air 
pollution out of the sky. That is unfair to millions of 
California motorists. An ethanol market is expected to develop 
in California even if there is no Federal oxygen requirement. 
And that is important for us all to know. The amount of ethanol 
used in California should be determined by the marketplace, not 
by Federal law.
    Governor Davis's executive order outlines the comprehensive 
plan to address the risks to California's environment from 
MTBE, but we need your help. With the MTBE phaseout and passage 
of H.R. 11, we can and will have clean air and clean water. I 
urge the committee to take action on this legislation as soon 
as possible. Thank you.
    [The prepared statement of Winston H. Hickox follows:]
 Prepared Statement of Winston H. Hickox, Secretary for Environmental 
         Protection, California Environmental Protection Agency
    Thank you, Chairman Bilirakis and members of the subcommittee for 
holding today's hearing on H.R. 11. I am pleased to be here on behalf 
of Governor Gray Davis to discuss the reasons why we strongly support 
this important bill.
    Six weeks ago, on March 25, 1999, Governor Davis declared that the 
gasoline additive MTBE poses a significant risk to California's 
groundwater and drinking water. The Governor established a national 
precedent by ordering the elimination of MTBE from California's 
gasoline supplies by no later than December 31, 2002.
    The Governor's decision was consistent with a comprehensive 
assessment of MTBE by the University of California, which recommended 
that its use be discontinued in order to protect our state's water 
resources. Two California communities--Santa Monica and South Lake 
Tahoe--have had their municipal drinking water supplies decimated by 
MTBE contamination, and MTBE has been found in groundwater at almost 
4,200 leaking underground tank sites.
    The Governor's executive order also outlined a number of other 
steps the state is taking to reduce the risk posed to California's 
environment by MTBE. The executive order calls for moving aggressively 
in areas such as Lake Tahoe and Santa Monica where MTBE has 
contaminated drinking water. The order directs state agencies to 
develop cleanup guidelines and to identify vulnerable water resources.
    Governor Davis' order anticipates that there will be a significant 
increase in ethanol use in California as an alternative to MTBE. To 
prepare for this transition, the Governor has directed the California 
Environmental Protection Agency to conduct a comprehensive health and 
environmental assessment of ethanol. The Governor also has directed the 
California Energy Commission to study the potential for the development 
of a California-based ethanol industry.
    In addition, Governor Davis has formally asked the U.S. 
Environmental Protection Agency to waive the federal Clean Air Act 
requirement for the use of oxygenated gasoline in California. A waiver 
of the oxygen mandate allow us to reduce risks of future water 
contamination, meet California's growing demand for fuel and allow 
flexibility to make more economical blends of gasoline while meeting 
the required emission reductions.
    The Governor's request has the same objective as H.R. 11 and 
several similar bills, such as S. 266 and S. 645 by Senator Feinstein. 
They will give California the flexibility it needs to phase out MTBE 
use in the most cost-effective manner, while retaining all the air-
quality benefits that California receives from its cleaner-burning 
gasoline program.
    While U.S. EPA can give California that flexibility at the earliest 
possible date by granting the Governor's waiver request, Congress must 
still pass H.R. 11 or its companion proposal to provide certainty that 
California can keep that flexibility in the long term, I would like to 
explain why this flexibility is so important.
    California gasoline is the cleanest in the world. When our cleaner-
burning gasoline was introduced in 1996, it reduced smog-forming motor 
vehicle emissions by 15 percent, a benefit comparable to removing 3.5 
million motor vehicles from the state's roads.
    California's gasoline provides about twice the air-quality benefits 
of Phase 1 Federal Reformulated Gasoline, and equal or greater benefits 
than the Phase 2 Federal Reformulated Gasoline to be introduced next 
year.
    While California's gasoline standards are cleaner than the federal 
requirements, they also are more flexible. California regulations call 
for the use of an oxygenate such as MTBE or ethanol, but we allow 
refiners to reduce or eliminate the use of oxygenates as long they can 
demonstrate, using procedures approved by the California Air Resources 
Board, that their fuel produces comparable emission reductions.
    The Federal Clean Air Act arbitrarily requires the year-round use 
of oxygenated gasoline in regions classified as being in severe or 
extreme non-attainment for the federal ozone standard. This requirement 
applies to virtually all gasoline in Southern California and the 
greater Sacramento area, which comprise about 70 percent of 
California's gasoline market.
    In the San Francisco Bay Area, where the federal oxygen requirement 
does not apply, three refiners have produced and sold non-oxygenated 
gasoline that meets all California requirements.
    But federal law prevents the sale of those non-oxygenated 
formulations in Southern California and Sacramento, even though they 
provide greater air-quality benefits than required by the federal 
government.
    If the federal law remains in effect, it will make California's 
transition away from the use of MTBE considerably more difficult, as 
well as costly for California motorists.
    Once MTBE is no longer used, the only acceptable oxygenate will be 
ethanol. The federal oxygen requirement will, in effect, be an ethanol 
mandate for most California gasoline.
    We view the emergence of a California ethanol market as a positive 
development. However, we learned the hard way that it was wrong for 
California to become dependent on a single oxygenate, MTBE. We should 
not repeat the same mistake with ethanol.
    H.R. 11 and its companion proposals will enable California to avoid 
repeating the mistakes of the past by exempting the state from the 
federal oxygen requirement.
    Refiners would have the flexibility to produce and sell non-
oxygenated gasoline, as well as ethanol-gasoline, anywhere in the 
state. California's gasoline regulations would ensure that both types 
of gasoline provide the required air-quality benefits.
    Because ethanol has desirable qualities, we expect many refiners to 
use it whether or not there is a federal oxygen requirement. However, 
if the federal oxygen requirement remains in effect, California 
refiners will be forced to use greater amounts of ethanol than 
necessary to meet our state's needs. This will have an effect on 
gasoline costs in California.
    The California Energy Commission estimates that California in 2003 
will require about 75,000 barrels per day of ethanol if the federal 
oxygen requirement is in effect. This is comparable to the amount of 
ethanol currently produced in the Midwest, which is the heart of the 
U.S. ethanol industry.
    While the Energy Commission believes that sufficient ethanol can be 
produced by 2003 to meet California's needs, that huge increase in 
production could add as much as six to seven cents per gallon to 
gasoline costs in California.
    If the federal oxygen requirement is lifted and refiners are 
allowed to choose their own level of ethanol use, the cost increase 
could be only two to three cents per gallon, the Energy Commission 
estimates. A separate study conducted for Chevron and Tosco 
corporations makes similar findings.
    In short, the federal oxygen requirement could double the cost of 
removing MTBE from gasoline in California, without taking a single 
extra pound of air pollution out of our skies. That is unfair to 
millions of California motorists.
    I would also like to note that if the federal oxygen requirement 
stays in effect, other states could feel the impact as well.
    The California Energy Commission estimates that ethanol prices 
nationally could increase about four cents per gallon as supplies are 
stretched to meet California's 75,000 barrel-per-day market. This may 
also have an effect on gas prices in states where ethanol is widely 
used.
    By exempting California from the federal oxygen requirement, H.R. 
11 and its sister proposals acknowledge what California has already 
proven: Cleaner-burning gasoline can be produced with or without 
oxygenates.
    Oxygenates such as ethanol can provide benefits, but it is 
counterproductive to mandate them. The amount of ethanol used in 
California should be determined by the marketplace, not the federal 
government.
    H.R. 11 and its sister proposals are vitally important to 
California in this time of transition. I urge the committee to take 
action on this legislation as soon as possible. Thank you.

    Mr. Bilbray. Thank you.
    At this time I recognize myself for questions. Let me see 
on page 5 of the RFA's prepared testimony, they state that they 
feel that eliminating the oxygen requirement in California will 
result in an environmental ``backsliding.'' Given the state of 
California's development as to the most stringent clean air 
standards in the world, these are very serious allegations. Do 
you feel that they are accurate?
    Mr. Hickox. No, I do not. The Governor, when he announced 
his decision with regard to his action with regard to MTBE 
flatly stated there would not be any loss in air quality 
benefits that have accrued to the State of California through 
the creation of reformulated gasoline that has dramatically 
reduced emissions in California. We will not give up one inch 
is the simple answer to that.
    There are technical considerations with regard to how that 
would be accomplished, and I am sure additional questions will 
allow me to address that, at least in part. But the California 
Air Resources Board this year will embark upon the creation of 
Phase 3 gasoline in California which will go into effect in the 
not too distant future.
    I have had meetings, extensive meetings with the oil 
refiners with regard to this issue. They are aware of where we 
are and where we are headed and what our objectives are.
    Mr. Bilbray. Since you bring that up, I guess the other 
issue we will be talking about, is the testimony that--you 
testified that you expect the ethanol market in California to 
expand. In other words, with H.R. 11, do you believe the use of 
ethanol in the State of California with H.R. 11 will increase, 
remain the same, or decrease?
    Mr. Hickox. Increase.
    Mr. Bilbray. Do you want to explain why?
    Mr. Hickox. In the discussions--as you may or may not know, 
we took office in January of this year. In February, to finish 
out the requirements of the Senate bill that required 
California State government to look at MTBE and whether or not 
it should be allowed to continue to be used as an oxygenate in 
California, we held three public hearings. I chaired those 
hearings, two in Sacramento and one in southern California. We 
took testimony from across the spectrum of interested parties, 
including the oil refiners.
    In our discussions with the oil refiners, two of whom are 
here to speak with you today, who commissioned a study, it 
became clear to us as well as them that flexibility is the key 
answer to our problem here, and that the way to deal with the 
need for an oxygenate in the gasoline supply in California is 
to have the flexibility to have an amount of ethanol or another 
substitute--I can't imagine what that would be--but not require 
2 percent by weight.
    In discussions with the Governor as he began to finalize 
his decision on this matter, it became clear to him that he 
needed to allow the time that he called for in his executive 
order, in order for you to act on H.R. 11, such that the 
refiners in California would have a clear picture of the path 
that they were going to have to take in order to meet our 
requirement that MTBE be taken out of gasoline: either a full 
1-to-1 substitution which would require certain modifications 
to refineries and to the distribution system or no oxygenate at 
all, which some people think might be possible but at a cost 
that would probably be prohibitive or something in between. And 
the something in between is what is most likely in the minds of 
folks at the Air Resources Board, the Energy Commission in 
California and among the refiners as well.
    Mr. Bilbray. Previous administrations investigated this. 
Governor Davis walked through the front door of the Governor's 
office just about the time the report got dropped in his lap. 
And the Governor has now announced a pretty substantial move 
over the next few years on the MTBE issue. Is there any other 
State that has committed to that kind of action to this date?
    Mr. Hickox. Well, I am told that three or four other States 
have already taken some action. North Carolina and Alaska are 
two of them. And our sense is that other States are following 
closely what we are doing.
    As you know, and to finish the picture, the legislation I 
referred to in California required an extensive study completed 
by the University of California that looked at this issue from 
a very carefully detailed scientific perspective and came to 
the conclusion that led to the Governor's decision. And I am 
sure others are looking at what we have done and will likely 
follow.
    Mr. Bilbray. Thank you. My time has expired. I would 
recognize Ms. Eshoo, the gentlelady from California.
    Ms. Eshoo. Thank you. I want to thank our sitting-in 
ranking member for allowing California to keep going first, and 
also to salute and welcome our new director of the EPA in 
California. You have a very proud tradition to carry out and I 
think that you come to the table magnificently ready to do the 
job. So I wish you well. I mean, to the extent that you 
succeed, we all succeed, right?
    Mr. Hickox. Thank you. Yes.
    Ms. Eshoo. A couple of questions. As I understand it, 
representatives of the ethanol industry have said that the 
problem in California and other States doesn't center around 
the presence of MTBE in gasoline but rather MTBE in water. Do 
you think this is an accurate assessment and, if so, why; and 
if not, why?
    Mr. Hickox. Well, certainly the reason that we are taking 
this action is because California's drinking water supply has 
been impaired as a result of MTBE being in gasoline. And let me 
try as briefly as possible to add something to this discussion 
based upon the time that I sat through earlier responses to 
questions this morning. One of the things that added value when 
we went through our deliberative process as to the action we 
should take is to understand the relationship between drinking 
water supplies, particularly groundwater, and underground 
storage tanks. In some instances, they are in close proximity 
to one another, both horizontally and vertically, if you will. 
In others, drinking water supplies come from very deep wells. 
There are differing topographies between the surface and that 
drinking water supply.
    So while the 4,200 sites of contamination that we detected 
represent potential future risks to groundwater, the current 
groundwater risk is at about a half a percent of the drinking 
water supply. Obviously we want to characterize this in 
balanced terms so we don't create undue concern on the part of 
the people of California. But those underground tanks that are 
leaking pose a threat.
    And as has been described earlier, the characteristics of 
MTBE, its solubility in water and the way in which it moves in 
water exacerbates the problem greatly. Other elements of 
gasoline break down more easily. They tend to float and don't 
mix with water so they present a lesser problem.
    What it did in Lake Tahoe Basin in terms of its impact to a 
local constrained area really brought the picture into great 
clarity. So, yes, it's a problem in terms of drinking water, 
but it is there because it is an element of gasoline and you 
cannot protect groundwater ultimately.
    Ms. Eshoo. Governor Davis's March order calls for the State 
to develop a timetable for the removal at the earliest possible 
date and not later than December 31, 2002. Would California 
achieve this mandate if we don't have a waiver? Could we? I 
mean, it is a devil's advocate question, but for those that 
question why we are pursuing what we are pursuing, I think that 
it deserves an answer.
    Mr. Hickox. Right. And again, as I mentioned a moment ago, 
when we sat down with the Governor to help him develop his 
determination, the important consideration was what time was 
necessary for the production and distribution system for 
gasoline in California in order to respond to this mandate if 
we chose to cause the removal of MTBE. There is lead time 
necessary to retrofit the refinery and distribution system, 
whichever model you take, and what we want is flexibility. 
Without H.R. 11, we won't have flexibility. It will be 
difficult to meet the requirement within the timeframe that has 
been set forth if there is an absolute 1-to-1 requirement of 
the substitution of ethanol for MTBE. There will be ethanol in 
California gasoline as our best projection. It is just that 2 
percent by weight requirement 1-for-1 substitution is forcing a 
solution when we all have talked--I have heard a number of 
people talk today about the wisdom in allowing flexibility and 
letting industry figure out the best way to get there.
    Ms. Eshoo. Thank you very much. Thank you, Mr. Chairman.
    Mr. Bilbray. The gentleman from Iowa.
    Mr. Ganske. Thank you, Mr. Chairman. It would be great if 
we had Mr. Vaughn on the same panel with Mr. Hickox. But you 
have asked most of the questions that I would have asked and so 
I thank Mr. Hickox for coming.
    Mr. Bilbray. The gentlelady from Colorado.
    Ms. DeGette. Thank you. Thank you, Mr. Chairman. Mr. 
Hickox, I was impressed by your commitment and your new 
Governor's commitment to maintaining the high clean air 
standards in California. But I guess I would like you to talk a 
little more specifically about how you intend to do that if you 
remove an oxygenate like MTBE. It sounded sort of like a great 
oratory statement, but how is that going to happen?
    Mr. Hickox. As you may or may not be aware, the California 
reformulated gasoline standards, which the Federal standards 
will soon approach but not quite reach, use a predictive model 
methodology for the refiners to offer a blending formulation 
for gasoline that will meet the equivalent air emission 
outcomes that are required by the law. As long as they prove 
that the formulation that they are proposing will do that, it 
is allowed to be produced and sold in California.
    So the people at the Air Resources Board believe that it is 
possible to produce gasoline without an oxygenate that will 
meet the requirements of the Clean Air Act in California, and 
it is a matter of working with the refineries in California in 
terms of the way in which they would go about retrofitting the 
refinery to produce that gasoline. Some is produced now in 
small quantities.
    Ms. DeGette. How is that equivalency going to be 
demonstrated, given the fact that the EPA doesn't use the same 
predictive model that California does?
    Mr. Hickox. We have the delegated authority to carry out 
the program in the manner in which we have and would continue 
to in California. In other words, we have the ability to use 
this predictive model and it is considered acceptable by U.S. 
EPA as a methodology for determining compliance with the Clean 
Air Act requirements.
    Ms. DeGette. To follow up on that, one of the California 
studies predicted that removing MTBE from the State gasoline 
supply would result in a blending of 60 to 80 percent of 
California's gasoline with ethanol. That is what we were 
talking about before. Now Governor Davis's order, as you well 
know, calls for a study of the health risks of ethanol. What is 
your agency's view of the risks of ethanol leaking into the 
water supply versus MTBE?
    Mr. Hickox. Well, first of all, the Office of Environmental 
Health Hazardous Assessment, which I am responsible for, has 
been given the responsibility to do a portion of those studies 
by the end of this year and to respond to that would be 
premature. The way in which questions similar to that posed by 
the Governor were responded to was the following. The Governor 
was told that there is an enormous amount of information 
available about ethanol, what it is, how it reacts in the 
environment. There are some issues having to do with the 
byproducts of combustion with ethanol that we particularly want 
to look at a little more carefully. That is an air quality 
issue as related to a water quality issue. The focus of your 
question was with regard to water.
    Ms. DeGette. Because we don't want to replace one problem 
with another with respect to the Santa Monica water supply, or 
anyplace else.
    Mr. Hickox. Right. Absolutely right.
    Ms. DeGette. So we will know that by the end of this year?
    Mr. Hickox. End of this year.
    Ms. DeGette. Thank you very much. I will yield back, Mr. 
Chairman.
    Mr. Bilbray. California is experiencing one of the--
actually, the largest and fastest price increase in the history 
of the country, $2 a gallon-plus. I guess that was one of the 
concerns that the Governor had articulated. But I would like 
you to specifically make reference to the fact that we have 
seen the recent experience with California refiners when it 
pertains to ethanol pricing in the Pacific Northwest, where 
there was a 12 to 14 percent increase just because the 
Governor--they thought the Governor had taken action that 
justified the increase.
    Are you worried about California and how vulnerable it 
would be as a captive market without the flexibility of H.R. 
11?
    Mr. Hickox. The question is absolutely. I am aware of the 
experience that you have referenced. One of the reasons for the 
phase-in of this decision and the complete elimination of MTBE 
by the end of the year 2002 was a recognition of the Governor's 
responsibility to the people of California that the appropriate 
amount of time be taken such that we would not affect supply 
and demand and the base price of gasoline to the consumer and 
with regard to the elements that would go into whatever 
solution was developed.
    You are absolutely correct that too hasty a move and not 
having the flexibility that would be granted by H.R. 11 would 
create a risk in California similar to the one that you cited 
in Washington.
    Mr. Bilbray. Thank you. I just remember the outcry when we 
went to low sulfur fuel in California and the supply problems 
that occurred there and the nightmare. That is why I kind of 
came unglued with EPA when they said you ``just do this, or 
this.'' If you had a room full of truck drivers with crowbars 
standing in the room with you, believe me they sensitize you to 
market demand real fast.
    Any other questions from the members?
    I will excuse you. Thank you very much.
    Mr. Hickox. Thank you.
    Mr. Bilbray. The next panel, please. Mr. Bordvick, you have 
5 minutes.

 STATEMENTS OF DUANE B. BORDVICK, VICE PRESIDENT, ENVIRONMENT 
AND EXTERNAL AFFAIRS, TOSCO CORPORATION; GREGORY C. KING, VICE 
   PRESIDENT AND GENERAL COUNSEL, VALERO ENERGY CORPORATION; 
 THOMAS L. ROBINSON, PRESIDENT, ROBINSON OIL COMPANY, INC., ON 
BEHALF OF SOCIETY OF INDEPENDENT GASOLINE MARKETERS OF AMERICA, 
  NATIONAL ASSOCIATION OF CONVENIENCE STORES, AND CALIFORNIA 
 INDEPENDENT OIL MARKETERS ASSOCIATION; ERIC VAUGHN, PRESIDENT 
    AND CEO, RENEWABLE FUELS ASSOCIATION; AND MARK BEUHLER, 
   DIRECTOR OF WATER QUALITY, METROPOLITAN WATER DISTRICT OF 
  SOUTHERN CALIFORNIA, ON BEHALF OF ASSOCIATION OF CALIFORNIA 
                         WATER AGENCIES

    Mr. Bordvick. Thank you very much. Thank you for this 
opportunity. Thank you for this subcommittee hearing on this 
very important subject. My name is Duane Bordvick. I am Vice 
President for Tosco Corporation and for Environmental and 
External Affairs.
    Tosco strongly supports the prompt enactment of H.R. 11 
which has been endorsed by Governor Davis, as you have heard, 
authored by Congressman Bilbray, and is co-sponsored by a 
bipartisan group of 52 House Members from California. H.R. 11 
is also supported by the Western States Petroleum Association 
OF which Tosco is a member.
    Tosco's four petroleum refineries in California with the 
combined crude capacity of 400,000 barrels per day supply 
California and the neighboring States of Arizona, Nevada, and 
Oregon. Almost all of the gasoline we produce in California 
meets the requirement for California cleaner burning gasoline, 
Federal reformulated gasoline, or both. Tosco markets our 
gasoline on the West Coast through more than 3,000 retail 
outlets under the brand Union 76 and Circle K.
    Driven by a growing concern in California over groundwater 
contamination, our company took the lead for our industry in 
advocating the removal of MTBE from gasoline. In October 1997 
we wrote the California Air Resources Board proposing that, 
``responsible action should be taken sooner rather than later 
to allow the reduced use or elimination of MTBE in gasoline.''
    We pointed out then, as we do now, how important passage of 
Congressman Bilbray's bill would be to provide refiners with 
the flexibility needed to rationally shift away from MTBE use.
    To underscore our commitment and to demonstrate the 
technical and commercial viability of non-MTBE fuel, Tosco 
launched a project in April 1998 for northern California to 
produce and market California cleaner burning gasoline, using 
ethanol instead of MTBE in both the summer and winter. We have 
been marketing ethanol-blended California gasoline at about 60 
of our Union 76 outlets in the Bay area ever since, and we have 
received a very positive response from our dealers and our 
customers.
    In addition, Tosco has demonstrated that California cleaner 
burning gasoline can be produced without using any oxygenate. 
During this past winter, we produced non-oxygenated California 
gasoline from our refinery in Rodeo, California, which we 
marketed in the San Francisco Bay area.
    It is not surprising, then, that Tosco welcomed the 
decision of Governor Davis in March of this year to require a 
complete phaseout of MTBE from California by the end of the 
year 2002. In response to a request from Governor Davis, we 
have already begun supplying non-MTBE gasoline to our stations 
in South Lake Tahoe where concerns over water contamination, as 
we have heard today, are especially acute.
    While we are proud of these special programs, our current 
ability to supply this non-MTBE gasoline is very limited 
because of refinery hardware limitation. It is limited because 
of unavoidable characteristics of California's system for 
transporting gasoline throughout the State, and it is limited 
because of the Federal oxygenate mandate affecting 70 percent 
of California gasoline.
    The Governor's phaseout order was based in part on a study 
performed by the California Energy Commission by MathPro, 
Incorporated, which examined the supply and cost implications 
of removing MTBE from gasoline. Together with Chevron Products 
Company, Tosco sponsored an extension of the MathPro study to 
examine the relationship of H.R. 11 to the supply and cost 
implications of eliminating MTBE. A summary of the MathPro 
results is attached in my prepared statement and I request that 
the full study be included in the record of the hearing.
    The MathPro study included the following three key 
findings:
    First, enactment of H.R. 11 would reduce the cost of 
removing MTBE from gasoline by one half or more.
    Second, enactment of H.R. 11 will create the opportunity 
for California refiners to optimize cleaner burning gasoline 
production by providing two types of gasoline, one blended with 
ethanol and one blended without oxygenate.
    Third, this optimal production of non-MTBE gas will result 
in a substantial increase in the use of ethanol in California.
    The study predicted that 60 to 80 percent of the California 
gasoline production would be blended with ethanol remaining 
non-oxygenated. So based on the MathPro study and our own 
experience, we are convinced that H.R. 11 would significantly 
moderate the negative economic impacts of eliminating MTBE from 
California gasoline without adverse effects on emission 
quality, and we hope that Congress will enact the bill promptly 
in order to facilitate this orderly and rational phaseout of 
MTBE.
    [The prepared statement of Duane B. Bordvick follows:]
Prepared Statement of Duane B. Bordvick, Vice President, Environmental 
                and External Affairs, Tosco Corporation
    Mr. Chairman and Members of the Subcommittee: My name is Duane B. 
Bordvick, and I am Vice President of Tosco Corporation for 
Environmental and External Affairs. Tosco strongly supports the prompt 
enactment of H.R. 11, which has been endorsed by Governor Davis, is 
authored by Congressman Bilbray, and is co-sponsored by a bi-partisan 
group of 50 House members from California. H.R. 11 is also supported by 
the Western States Petroleum Association, of which Tosco is a member.
    Tosco's four petroleum refineries in California, with a combined 
gasoline production capacity of about 400,000 barrels per day, supply 
California and the neighboring states of Arizona, Nevada, and Oregon. 
Approximately 75 percent of the gasoline we produce in California meets 
the requirements for California Cleaner Burning Gasoline (``CBG''), 
Federal Reformulated Gasoline (``RFG''), or both. Tosco markets 
gasoline on the West Coast through more than 3,000 retail outlets, 
primarily under our Union 76 and Circle K brands.
    Driven by a growing concern in California over groundwater 
contamination, our company took the lead for our industry in advocating 
the removal of MTBE from gasoline. In October 1997, we wrote the 
California Air Resources Board proposing that ``responsible action 
should be taken sooner rather than later to allow the reduced use or 
elimination of MTBE in gasoline.'' We pointed out then, as we do now, 
how important passage of Congressman Bilbray's bill would be to provide 
refiners with the flexibility needed to shift away from MTBE.
    To underscore our commitment and to demonstrate the technical and 
commercial viability of a non-MTBE fuel, Tosco launched a project in 
April 1998 for Northern California to produce and market California CBG 
using ethanol instead of MTBE in both the summer and winter seasons. We 
have been marketing ethanol-blended CBG at about 60 of our Union 76 
outlets in the San Francisco Bay Area ever since, and we have received 
a very positive response from our dealers and our customers.
    In addition, Tosco has demonstrated that California CBG can be 
produced without using any oxygenate. During this past winter, we 
produced non-oxygenated CBG at our refinery at Rodeo, California, which 
we market in the Bay Area.
    Tosco welcomed the decision of Governor Davis in March of this year 
to require a complete phase-out of MTBE from California by the end of 
the year 2002. In response to a request from Governor Davis, we have 
already begun supplying non-MTBE gasoline to our stations at South Lake 
Tahoe, where concerns over water contamination are especially acute. 
While we are proud of these special programs, our current ability to 
supply non-MTBE gasoline is very limited because of refinery hardware 
limitations, unavoidable characteristics of California's system for 
transporting gasoline throughout the state, and the federal oxygenate 
mandate affecting 70 percent of California gasoline.
    The Governor's phase-out order was based in part on a study 
performed for the California Energy Commission by MathPro Inc., which 
examined the supply and cost implications of removing MTBE from 
gasoline. Together with Chevron Products Company, Tosco sponsored an 
extension of the MathPro study to examine the relationship of H.R. 11 
to the supply and cost implications of eliminating MTBE. A summary of 
the MathPro study results are attached to my prepared statement, and I 
request that the full study be included in the record of this hearing. 
The MathPro study included the following three key findings:
    First, enactment of H.R. 11 would reduce the cost of removing MTBE 
from gasoline by up to one-half, from 6.1 cents per gallon to 2.7 cents 
per gallon.
    Second, enactment of H.R. 11 will create the opportunity for 
California refiners to optimize CBG production by providing two types 
of gasoline, one blended with ethanol and the other non-oxygenated.
    Third, this optimal production of non-MTBE gasoline will result in 
a substantial increase in the use of ethanol in California. The Study 
predicted that 60 to 80 percent of California gasoline production would 
be blended with ethanol and the remaining gasoline, about 20 percent to 
40 percent of statewide supply, would be non-oxygenated.
    Based on the MathPro study and on our own experience, we are 
convinced that enactment of H.R. 11 would significantly moderate the 
negative economic impact of eliminating MTBE from California gasoline 
and would lead to a substantial new market for ethanol in California, 
with no adverse effect on the emission quality of California CBG. We 
hope the Congress will enact the bill promptly in order to facilitate 
an orderly transition away from MTBE in California.
    I would be pleased to answer any questions the Committee may have.

    Mr. Bilbray. Thank you.
    Mr. King.

                  STATEMENT OF GREGORY C. KING

    Mr. King. Mr. Chairman, members of the subcommittee, thank 
you for this opportunity to testify. My name is Greg King and I 
am Vice President and General Counsel of Valero Energy 
Corporation.
    Valero Energy is the second largest independent refining 
and marketing company in the United States with five refineries 
in Texas, Louisiana, and New Jersey. Valero produces premium 
environmentally clean products such as reformulated gasoline, 
car gasoline and oxygenates like MTBE. Valero believes strongly 
that the production and use of MTBE worldwide has been a boon 
to air quality by reducing gasoline's most harmful components, 
all in a cost-effective and uncomplicated manner.
    Phase 1 of RFG has exceeded expectations, as we have heard 
today. It was designed to reduce air toxins by 15 percent, but 
actually achieved a greater than 30 percent reduction. It was 
supposed to reduce VOCs by 15 percent, but in reality achieved 
a reduction of more than 27 percent. And while having no 
specific requirement for NOX, a 3 percent reduction 
was realized.
    Some have wondered whether the same performance could be 
expected from fuels without oxygenates. The simple answer is 
no. Fuel chemistry clearly demonstrates that MTBE in particular 
is the most cost-effective component of pollution control when 
the car is still relatively cold and therefore more polluting. 
Without it there will be an increase in air toxins from 
automobiles, including benzene.
    The most severe nonattainment areas in California have 
improved considerably over the course of the last decade. In 
addition, earlier this week thousands of Californians expressed 
their discomfort with fuel prices by staging the Internet-
driven Great American Gas Out when they delayed filling up 
their tanks for a day. While gas prices have been volatile, we 
can assure the committee that fuel oxygen was not the cause, 
accounting for only a 2 to 4 cent increase in gas prices since 
1995. As unexpected refinery fires on the West Coast diminished 
supply, the flexibility to use additional increments of MTBE 
actually extended the fuel supply in California enough to avoid 
shortages.
    While MTBE quietly labored as the workhorse of the Clean 
Air Act, few in the public took notice until MTBE appeared in 
certain isolated water samples. Valero strongly believes that 
it is possible to protect water quality without sacrificing the 
air quality benefits attributable to MTBE. Fixing or replacing 
leaking tanks would solve the problem. For example, the Lake 
Tahoe area, served by seven local gas stations, all of which 
were leaking gasoline into the groundwater which eventually 
found its way into Lake Tahoe.
    As we have heard, in December 1998, the Federal law 
required all underground storage tanks to be replaced with 
state-of-the-art upgraded tanks. This law is not being 
enforced. Currently 30 percent of the Nation's storage tanks 
continue to leak gasoline. The EPA must undertake efforts to 
enforce compliance or shut down these dangerous underground 
tanks. We urge members of this committee not to opt for the 
simple solution of restricting MTBE when complex water quality 
problems deserve a more comprehensive approach.
    Given what little we know about potential alternatives to 
MTBE, we could be making matters worse by changing fuel 
formulations without fixing our deteriorating tanks. 
Formulations without any oxygenates will have more toxic 
aromatic components. Further, the effects of ethanol have not 
been fully studied, as even Governor Davis's executive order 
admitted.
    MTBE is not a carcinogen listed by the International Agency 
for Research on Cancer. By contrast, benzene, the toxic 
compound that would increase in the absence of fuel oxygenates, 
is a known human carcinogen. The fact is, MTBE has become a 
convenient scapegoat, a way to avoid the reality of leaking 
storage tanks. Clearly banning MTBE at either the State or the 
Federal level won't solve this problem.
    Now, some have suggested that legislation should give 
California and other States the right to opt out of the fuel 
oxygen standard. While we believe that the case has not been 
made for such legislation, Valero does not oppose an open 
dialog in which the flexibility of the fuel oxygen standard is 
a part of the discussion. However, any legislation must meet 
the following objectives: First, such legislation must not 
result in diminished effectiveness at reducing air emissions 
from the current RFG levels of achievement. Second, such 
legislation must not present greater logistical problems or 
price fluctuations that occur in RFG. And last, such 
legislation must not undermine the performance of gasoline.
    Should an alternative approach for the fuel oxygen standard 
meet this criteria, Valero believes we would have the principal 
basis for a dialog on the subject. Since the passage of the 
1990 Clean Air Act, Valero Energy has invested hundreds of 
millions of dollars to produce cleaner burning fuels. We did so 
in good faith, responding to the government's challenge and the 
public's environmental needs. We urge Congress not to penalize 
companies that are providing environmental solutions when the 
more appropriate course is to fix the leaking tanks.
    Thank you very much for your careful attention to this 
matter. And I look forward to working with you all on this 
subject.
    [The prepared statement of Gregory C. King follows:]
   Prepared Statement of Gregory C. King, Vice President and General 
                   Counsel, Valero Energy Corporation
    Mr. Chairman and members of the Subcommittee, thank you for this 
opportunity to testify on a matter of great environmental and economic 
significance to my home state and to the nation. My name is Greg King 
and I am the Vice President and General Counsel of Valero Energy 
Corporation. Valero Energy is the second largest independent refining 
and marketing company in the United States and is a member of the 
Oxygenated Fuels Association. The company owns and operates five 
refineries in Texas, Louisiana and New Jersey, with a combined 
throughput capacity of approximately 735,000 barrels per day. Valero is 
recognized throughout the industry as a leader in the production of 
premium, environmentally-clean products such as reformulated gasoline, 
CARB Phase II gasoline, lowsulfur diesel and oxygenates like MTBE.
    Valero is proud of its record of environmental achievement, which 
goes beyond its commitment to produce cleaner-burning fuels and 
additives. Investing millions of dollars in pollution prevention and 
waste minimization, Valero was the first petroleum refiner ever to 
receive the prestigious Texas Governor's Award for Environmental 
Excellence and has been recognized by a national trade publication for 
its ``outstanding environmental stewardship and leadership.'' Valero 
believes strongly that the production and use of MTBE worldwide has 
been a boon to air quality by reducing air toxics, volatile organic 
compounds, oxides of nitrogen, and greenhouse gases all in a cost-
effective and uncomplicated manner.
Background of the Use of Oxygenates
    The Clean Air Act divides air pollution into two broad categories: 
stationary sources and mobile sources. By the time of the Act's 
amendment in 1990, it had become clear that mobile sources presented 
the most intractable problem for urban air quality. Interested 
stakeholders together with the Congress and the Administration 
developed the reformulated gasoline program using state-of-the-art 
scientific and technical information.
    Introduced to the American public on January 1, 1995, RFG is used 
in areas of 18 states that have the greatest ozone air quality problems 
and accounts for 32 percent of the gasoline market. As part of the 
federal requirements, RFG must have an average of 2 percent fuel oxygen 
by weight, and must have reduced levels of aromatics, olefins, benzene, 
sulfur, and controlled Reid vapor pressure. Oxygenates, for their part, 
have long been used in gasoline as an octane enhancer. As the phase out 
of lead in gasoline got underway in 1973, it was the oxygenate MTBE 
that was principally used to replace the octane that lead accounted for 
in the fuel. And the EPA has termed the phase out of lead as one of the 
single most effective policy initiatives for the protection of 
children's health.
    MTBE itself is a fuel ether largely derived from natural gas, a 
clean and abundant fuel source with a superior carbon profile to liquid 
petroleum. Regardless of other effects on fuel chemistry, therefore, 
gasoline with MTBE can be expected to have less greenhouse emissions 
and can be expected to stretch limited petroleum resources.
Effect on Air Quality
    MTBE has a profound impact on automobile emissions. By using 
oxygenates like MTBE in gasoline, refiners have exceeded the announced 
expectations for the federal RFG program. For example, Phase I RFG was 
supposed to reduce air toxics by 15 percent, but actually achieved a 
greater than 22 percent reduction. It was supposed to reduce volatile 
organic compounds by 15 percent, but achieved a reduction of more than 
27 percent. And while having no specific requirement for Nox reduction, 
a 3 percent reduction was realized.
    Some have wondered whether the same performance could be expected 
from fuels without oxygenates. The simple answer is no. Oxygenates like 
MTBE go to work in an engine at the point where most pollution is 
produced: the cold cycle. For the first 3 to 4 minutes after you start 
your ignition, your car's engine produces the lionshare of its 
emissions. Because oxygenates combust at low temperatures with MTBE 
combusting at far lower temperatures than ethanol--fuel chemistry 
clearly demonstrates that MTBE is the most effective component of 
pollution control when the car is still relatively cold. In addition, 
to meet the other federal specifications, RFG without oxygenates would 
have to change its ratio of aromatics. The result of this change is 
two-fold: first, there will be a certain increase in air toxics from 
automobiles; and second, more byproducts from the use of aromatics may 
be created. In fact, if ethanol is used to replace MTBE, it is more 
volatile than MTBE and therefore would increase evaporative emissions.
    And the potential loss of RFG's important benefits would be 
significant. The most severe nonattainment areas in California have 
improved considerably over the course of the last decade. In addition, 
earlier this week, thousands of Californians expressed their discomfort 
with fuel prices by staging the Internet-driven Great American Gas Out 
when they delayed filling up their tanks for a day. While gas prices 
have been volatile, we can assure the Committee that fuel oxygen was 
not the cause, accounting for only a 2 to 4 cent increase in prices 
since 1995. Indeed, as unexpected refinery fires on the West Coast 
diminished supply, the flexibility to use additional increments of MTBE 
actually extended the fuel supply in California enough to avoid 
shortages.
    Alternatives to MTBE, including ethanol, are more expensive and 
more difficult to transport. Industry experts estimate that even under 
ideal circumstances, replacing MTBE with ethanol will raise prices at 
the pump a minimum of seven cents a gallon. But prices could rise much 
higher than that if shortages of ethanol and, as a result, of gasoline 
develop. Currently, refiners use about 250,000 barrels a day of MTBE; 
total ethanol capacity is only about half of that.
Impact on Water Quality
    While MTBE quietly labored as the workhorse of the Clean Air Act, 
few in the public took notice until MTBE appeared in certain water 
samples taken, principally in California. Valero shares the concerns of 
most Americans for clean water; having made substantial investments in 
waste minimization and pollution prevention that protects our water 
resources. However, we strongly believe that it is possible to protect 
water quality without sacrificing the air quality benefits attributable 
to the use of MTBE. In most instances, MTBE found in water is traceable 
to leaking underground storage tanks. Fixing or replacing leaking tanks 
would solve the problem. For example, the Lake Tahoe area is served by 
7 local gas stations. According to testimony given in the California 
public hearings, 7 out of 7 of these stations were leaking gasoline 
into the ground water which eventually found its way into Lake Tahoe. 
The problem that needs to be fixed is the underground storage tank 
itself and not the part of the fuel which does the most to prevent 
pollution!
    In December of 1998, federal law required all underground storage 
tanks to be replaced with state of the art, upgraded tanks. It is not 
being enforced. Even the EPA has admitted that enforcement of the 
underground storage tank program has been lax at best. Currently, 
approximately 270,000 or 30 percent of the nations storage tanks 
continue to leak gasoline. The EPA must undertake efforts to enforce 
compliance or shutdown dangerous underground tanks. Valero and other 
members of the oxygenates industry are willing to work on legislation 
or regulatory changes that would streamline storage tank repair and 
remediation. We are aware that such approaches take time and money. 
However, as H.L. Mencken once observed, ``Complex problems have simple 
solutions . . . simple solutions that are usually wrong.'' We urge 
members of this Committee not to opt for the simple solution of 
restricting MTBE when complex water quality problems deserve a more 
comprehensive approach.
    Indeed, given what little we know about potential alternatives to 
MTBE, we could be making matters worse by changing fuel formulations 
without fixing our deteriorating tanks. Consider that formulations 
without any oxygenates will undoubtedly have more toxic aromatic 
components. Further, the effects of ethanol and the ether ETBE have not 
been fully studied, as even Governor Davis' executive order admitted. 
And we do know that ethanol compounds tend to degrade plastics. With 
the most prevalent repair strategy for leaking tanks being plastic 
fiberglass liners, a precipitous change to ethanol could make the 
problems of leaks even worse! The problem could also be worse because 
MTBE in water is below public health thresholds and MTBE itself is not 
listed as a carcinogen by the International Agency for Research on 
Cancer. By contrast, ethanol is listed as a carcinogen, as is benzene, 
the toxic compound that would increase in the absence of fuel 
oxygenates.
    MTBE actually reduces the risk of cancer. According to the 
California Environmental Protection Agency, the cancer risk from 
gasoline-powered vehicles throughout the state has been reduced by 
approximately 40 percent since the reformulated gasoline program began 
because MTBE displaces known carcinogens in gasoline. The fact is, MTBE 
has become a convenient scapegoat, a way to avoid the reality of 
leaking storage tanks. Clearly, banning MTBE won't solve this problem.
The Fuel Oxygen Standard
    As we observed, federal RFG has an average content of 2 percent 
oxygen as required by the Clean Air Act. Some have asked that this 
standard be waived administratively by EPA. From our reading of the 
Clean Air Act, we believe that such a waiver would be illegal. Others 
have suggested that legislation should give California and/or other 
states the right to opt out of the fuel oxygen standard. While believe 
that the case has not been made for such legislation because oxygenates 
contribute significantly to air quality while other approaches should 
be used to maintain water quality. Valero does not oppose an open 
dialogue in which the flexibility of the fuel oxygen standard is a part 
of the discussion. However, any legislation designed to meet such 
objectives would not be good public policy unless it met several 
important criteria: first, such legislation should not result in 
diminished effectiveness at reducing air emissions from the current RFG 
specifications. Remember that the most likely candidates for increased 
emissions are air toxics, the most carcinogenic part of the air 
emissions profile. Further, as the federal RFG program becomes less 
effective as an air quality control initiative, states will be required 
to undertake other programs that may be less effective or more 
intrusive to the public. These alternative control strategies might 
force further ratcheting down on factories already hard hit with a raft 
of new Clean Air regulations; second, such legislation should not 
present greater logistical problems or price fluctuations than current 
RFG; and last, such legislation should not undermine the performance of 
gasoline. Federal RFG has been carefully studied and engineered with 
modern engines and pollution control devices in mind. Alternative fuel 
formulations have not been the result of such careful analysis. Our 
pollution control strategies are only as good as consumers will 
tolerate. If alterations in fuel without careful study result in less 
optimal fuels, we will all hear about it and loudly. Consumers must not 
only understand our reasons for changing the law; they must also accept 
the consequences of such changes.
    Should an alternative approach to the fuel oxygen standard meet 
these criteria, Valero believes we would have the principled basis for 
a dialogue on the subject.
    Since passage of the 1990 Clean Air Act amendments, Valero Energy 
Corporation has invested hundreds of millions of dollars to produce 
clean-burning fuels. We did so in good faith, responding to the 
government's challenge and to the public's environmental needs. We urge 
Congress not to penalize companies that are providing environmental 
solutions, when the more appropriate course is to fix leaking tanks and 
improve the management of our water resources. Thank you very much for 
your careful attention to this subject. I look forward to working with 
you, Mr. Chairman and the members of the Subcommittee on this issue in 
the future.

    Mr. Bilbray. Thank you.
    Mr. Robinson.

                STATEMENT OF THOMAS L. ROBINSON

    Mr. Robinson. Good morning, Mr. Chairman. My name is Tom 
Robinson. I am President of Robinson Oil, San Jose, California. 
Our company, in partnership with another San Jose company, 
Coast Oil, owns and operates 28 ``Rotten Robbie'' retail 
gasoline outlets located in the San Francisco Bay area.
    Thank you for inviting me to testify today. I appear before 
you representing the California Independent Oil Merchants 
Association, CIOMA, the National Association of Convenience 
Stores, NACS, and the Society of Independent Gasoline Marketers 
of America, SIGMA.
    Our company is an independent unbranded marketer of 
gasoline. Our company does not manufacture ethanol, MTBE, or 
gasoline. Independent branded and unbranded marketers 
traditionally have been recognized as the most cost-competitive 
segment of the motor fuels marketing industry. But our role in 
this industry is dependent upon adequate supplies of gasoline. 
Without adequate supply, independent marketers cannot be 
competitive.
    This is the reason I am appearing before you today. If the 
storm clouds I see gathering on the horizon today are not 
dissipated in the near future, independent marketers, who I am 
very concerned about, and gasoline consumers, who we both 
should be very concerned about, will suffer.
    This hearing represents my third opportunity to present 
testimony before Congress. Last year I testified on H.R. 630, 
the predecessor legislation under consideration today. In 1996 
I testified before the Senate on the reasons for increases in 
retail gasoline prices during the spring of 1996. My concern is 
that without passage of this legislation, I may receive another 
invitation when Congress again looks for the reasons for 
significant California retail price increases.
    CIOMA, NACS, and SIGMA believe that H.R. 10 must pass 
Congress this year to avoid a pending gasoline supply crisis in 
California. This crisis will not be caused by California 
gasoline marketers but it surely will be marketers and, more 
importantly, consumers that will feel the brunt of this crisis 
if it is not averted.
    Consequently, we collectively urge the members of the 
subcommittee to pass this legislation as soon as possible. I 
will not take up your time by repeating the technical arguments 
for H.R. 10 put forth by other witnesses. We agree that H.R. 10 
must pass to give California refiners greater flexibility in 
producing gasoline.
    California currently has the cleanest and the most 
expensive-to-make gasoline in the world. Governor Davis's 
recent decision to ban MTBE in California gasoline will 
increase the cost of the gasoline production and decrease the 
supply gasoline even if this legislation is passed. However, 
without the passage of this legislation, we have big problems.
    The central point CIOMA, NACS, and SIGMA want to make to 
the subcommittee is that it ultimately will be California 
consumers who will suffer if H.R. 10 is not enacted.
    Many of the other witnesses appearing here today have an 
economic stake in the components of California gasoline. 
Refiners make the base product and some manufacture MTBE as an 
additive. MTBE manufacturers want to make sure that MTBE bans 
do not spread to other States. The ethanol industry is trying 
to secure the California market for the product. Certainly a 
mandate without a viable competitor situation, any business 
dreams about.
    Companies I represent today are different. For all program 
purposes we are surrogates for the California consumer. In 
general we do not win or lose if one component or another is 
included in the gasoline sold in California. However, we do 
lose and consumers will lose if the gasoline supplies in 
California are not adequate to meet the demand in the future. 
And given the facts as I currently view them, such a disconnect 
will occur if some action is not taken soon.
    Refiners and marketers in California are faced with an 
untenable situation. Seven out of every ten gallons of gasoline 
used in California must meet Federal RFG standards, including 
the mandatory oxygenate standard. MTBE currently is the 
oxygenate of choice in the State. Ethanol, while used in 
limited quantities in isolated markets, generally is not a 
viable alternative to MTBE because of limited supplies and 
tight Federal and State gasoline RVP constraints. Oxygenates 
are mandated. The primary oxygenate used, MTBE, will soon be 
banned, and ethanol may or may not be a viable substitute for 
MTBE.
    The solution of this untenable solution is clear. The 
enactment of H.R. 10 will remove the oxygenate mandate for 
California alone. As a result, California refiners will be 
permitted to meet the very stringent performance standards of 
California Phase 2 RFG and Federal Phase 2 RFG without 
oxygenates if they choose to do. California Phase 2 RFG is the 
cleanest gasoline in the Nation, without the need for oxygenate 
mandate.
    We submit that opposition to this legislation has nothing 
to do with clean air. Instead it has to do with economics and 
politics. If the oxygenate mandate is removed in California, 
then the MTBE industry is afraid it will spread to other States 
and the ethanol industry is afraid it will lose a golden 
opportunity to expand its market. Clean air is not the issue. 
Economics and politics are. We urge you to side with 
independent marketers and consumers. Consumers and marketers 
will win with the enactment of H.R. 10.
    Again, thanks for allowing me to appear. I hope the next 
time I am invited to appear before Congress, it won't be 
because of higher gasoline prices in California caused by the 
failure to pass this legislation.
    [The prepared statement of Thomas L. Robinson follows:]
   Prepared Statement of Thomas L. Robinson, President, Robinson Oil 
   Company, Inc., on Behalf of California Independent Oil Marketers 
Association, National Association of Convenience Stores, and Society of 
               Independent Gasoline Marketers of America
    Good morning, Mr. Chairman. My name is Tom Robinson. I am President 
of Robinson Oil Company of San Jose, California. Our company, in 
partnership with another San Jose company, Coast Oil Company, owns and 
operates 28 ``Rotten Robbie'' retail gasoline outlets located in the 
San Francisco Bay Area of California.
    Thank you for inviting me to testify today. I appear before you 
representing the California Independent Oil Marketers Association 
(CIOMA), the National Association of Convenience Stores (NACS), and the 
Society of Independent Gasoline Marketers of America (SIGMA). Together, 
sales to consumers by CIOMA, NACS, and SIGMA members account for a 
substantial majority of the gasoline sold each year in California.
    Our company is an independent, unbranded marketer of gasoline. Our 
company does not manufacture ethanol, MTBE, or gasoline. We do not fly 
the flag of a major oil company. Independent branded and unbranded 
marketers traditionally have been recognized as the most cost-
competitive segment of the motor fuels marketing industry. But our role 
in this industry is dependent upon adequate supplies of gasoline. 
Without adequate supply, independent marketers cannot be competitive.
    This is the reason I am appearing before you today. If the storm 
clouds I see gathering on the horizon today are not dissipated in the 
near future, independent marketers (who I am very concerned about), and 
gasoline consumers (who you should be very concerned about), will 
suffer in the near future.
    This hearing represents my third opportunity to present testimony 
before Congress. Last year, this Subcommittee invited me to testify on 
H.R. 630, the predecessor to the legislation authored by Congressman 
Bilbray that is under consideration today. In 1996, I testified before 
the Senate Energy and Natural Resource Committee on the reasons for 
increases in retail gasoline prices during the Spring of 1996. While I 
may be becoming a veteran at this in some people's eyes, I still get 
very nervous before presenting testimony and take my opportunity to be 
a witness before this Subcommittee very seriously. I suspect that, 
without passage of this legislation, I may get the opportunity to visit 
you again in the future when Congress again looks for the reasons for 
significant California retail gasoline price increases.
    CIOMA and SIGMA supported H.R. 630 last year before this 
Subcommittee. This year, NACS joins with CIOMA and SIGMA to urge your 
support for H.R. 10. In our collective opinion, this bill must pass 
Congress this year to avoid a pending gasoline supply crisis in 
California. This crisis will not be caused by California gasoline 
marketers, but it surely will be marketers, and more importantly, 
consumers, that will feel the brunt of this crisis if it is not 
averted. Consequently, we collectively urge the members of this 
Subcommittee to pass this legislation as soon as possible.
    I will not take up this Subcommittee's time today by repeating the 
important and persuasive technical arguments for H.R. 10 put forth by 
other witnesses. I have attached to my formal statement a copy of my 
testimony before this Subcommittee last year. We agree that H.R. 10 
must pass to give California refiners greater flexibility in producing 
gasoline. California currently has the cleanest, and the most expensive 
to make, gasoline in the world. Governor Davis' decision to ban MTBE 
will increase the cost of gasoline production and decrease the supply 
of gasoline even if this legislation is passed. However, without the 
passage of this legislation, we've got big problems.
    The central point CIOMA, NACS, and SIGMA want to make to this 
Subcommittee is that it ultimately will be California consumers who 
will suffer if H.R. 10 is not enacted. Virtually all of the other 
witnesses appearing here today have an economic stake in the components 
of California gasoline. Refiners make the base product and some 
manufacture MTBE as an additive. MTBE manufacturers want to make sure 
that Governor Davis' decision to ban MTBE does not spread to other 
states. The ethanol industry is trying to secure the California market 
for their product. Certainly, an oxygenate mandate without another 
viable competitor is a situation any business dreams about.
    The companies I represent today are different. For all practical 
purposes, we are a surrogate for the California consumer. Our primary 
mission is to secure adequate supplies of gasoline to sell to consumers 
at a competitive price. In general, we do not win or lose if one 
component or another is included in gasoline sold in California.
    However, we do lose, and consumers will lose, if gasoline supplies 
in California are not adequate to meet demand in the future. And, given 
the facts as I currently view them, such a disconnect will occur if 
some action is not taken in the near future.
    Seven out of every ten gallons of gasoline used in California must 
meet federal reformulated gasoline (RFG) requirements, including a 
mandatory oxygenate standard of 2.0 percent by weight. Currently, 
because of issues involving air quality, MTBE is the oxygenate of 
choice in California. Ethanol, while used in limited quantities in 
isolated markets, generally is not a viable alternative because of 
limited supplies and its impact on gasoline volatility (RVP)--which is 
tightly controlled under federal and California RFG specifications.
    As of 2003, MTBE cannot be used in California gasoline under 
Governor Davis' decision. It will be extremely difficult for ethanol to 
replace MTBE both because of limited existing ethanol supplies, 
constraints in the California fuel distribution system, and current 
environmental regulations. Further, studies must be performed to 
determine if ethanol is, in fact, a viable substitute for MTBE. As a 
result, refiners and marketers in California are faced with an 
untenable situation. The federal government has mandated that we must 
have oxygenates in the majority of the gasoline we sell, but the most 
widely used oxygenate is banned and the other generally-used oxygenate 
will be very difficult for refiners to use because of the significant 
added expense of producing gasoline that meets the RVP constraints when 
blended with ethanol.
    The solution to this untenable situation is clear, at least to 
CIOMA, NACS, and SIGMA. The enactment of H.R. 10 will remove the 
federal RFG oxygenate mandate for California alone. As a result, 
California refiners will be permitted to meet the very stringent 
performance standards of California Phase II RFG and federal Phase II 
RFG without oxygenates if they choose to do so. California Phase II RFG 
already is the cleanest gasoline in the nation. If oxygenates are not 
necessary to make this clean gasoline, then the federal RFG mandate 
also is unnecessary, at least in California.
    CIOMA, NACS, and SIGMA submit that opposition to this legislation 
has nothing to do with clean air. Instead, it has to do with economics 
and politics. If the oxygenate mandate is removed in California, then 
the MTBE industry is afraid it will spread to other states. If the 
mandate is removed in California, then the ethanol industry is afraid 
it will lose a golden opportunity to expand its markets.
    Clean air is not the issue. Economics and politics are. If this 
Subcommittee must make a decision based upon economics, CIOMA, NACS, 
and SIGMA urge you to side with the independent marketers and 
consumers. Marketers and consumers will win with the enactment of H.R. 
10 through increased refiner flexibility, increased supplies of 
gasoline, and lower retail gasoline prices.
    Again, thank you for inviting me to appear today. I hope that the 
next time I am invited to appear before you, it will not be because of 
higher gasoline prices in California caused by the failure to enact 
H.R. 10.
    I would be pleased to answer any questions you may have regarding 
my testimony.

    Mr. Bilbray. Thank you.
    I would like to commend the staff in making sure that you 
were in the middle of this panel, because I think as a 
middleman in this issue, obviously your perception of what is 
going on with this legislation is very enlightened; except for 
one point, that it is H.R. 11. Unless we have a room full of 
bankers here, we better watch it.
    Mr. Robinson. Could I hit one point which was the tank 
issue, because there were many comments regarding that? The 
comment I would like to hit is that EPA is seen as pretty 
flexible when they don't want to enforce environmental rules. 
The associations I represent have been very disappointed with 
EPA's lack of enforcement of the 1998 tank upgrade 
requirements. The statements they have made have been, I think, 
very irresponsible and do significant damage to compliance 
nationwide.
    Fortunately, many States, certainly California is one, have 
continued to aggressively enforce these regulations, and I 
think that enforcement of the tank laws would go a long ways 
toward solving many of the leak problems.
    Mr. Bilbray. I appreciate your comments on the price issue. 
I think in California right now, especially southern 
California, we have seen what driving the little guy out of 
business has done to the consumer's ability to get a fair price 
or at least what the consumer perceives as a fair price. And I 
know a lot of the big guys may disagree with me on that.
    Mr. Bilbray. Mr. Vaughn, you have 5 minutes.

                    STATEMENT OF ERIC VAUGHN

    Mr. Vaughn. Thank you, Mr. Chairman. Once again it is a 
pleasure to be here with you and I appreciate the opportunity 
to offer testimony here on what I consider to be extremely 
important environmental economic policy and energy security 
policy legislation. I have actually brought a surprise guest, 
because many people in the country, certainly the Congress, 
believe that the ethanol industry exists in the State of Iowa. 
I am sorry, Congressman Ganske, it is beginning to move around 
the country and we have with us today the largest single 
ethanol producer west of the Rocky Mountains, Neil Koehler with 
Peril Products. I have Neil here with me today. Unfortunately, 
while Neil is producing ethanol in California from agriculture 
waste and other biomass products, much of his ethanol has to 
leave the State because there is no market for it today in the 
great State of California. We hope to change that. With your 
support, with your enthusiastic interest in the renewable 
alternative option in California, we will see that change.
    I represent the Renewable Fuels Association. We are the 
national trade association for the ethanol industry. We have 54 
companies, manufacturing approximately 1.8 billion gallons of 
ethanol today and approximately 400 million new gallons of 
ethanol production capacity coming on line the next 18 months 
to 2 years. Much of that is not designed for, or destined for, 
focused on the developments in California. Much if not all of 
this ethanol production is being used throughout the Midwest in 
attainment areas and non-attainment areas.
    When our industry looks at the reformulated gasoline 
program, we do not see calamity, water contamination, consumer 
outrage, political frustration. We see a success story. The 
success story is in Chicago, in Milwaukee, and in Gary, 
Indiana, where fully a third of the ethanol produced in the 
United States is used in the Federal reformulated gasoline 
program. It is the reformulated gasoline model for our country. 
It is exactly what Ed Madigan--excuse me, Congressman Ed 
Madigan the ranking minority member at the time, and at some of 
the subcommittee hearings, Chairman Henry Waxman, were trying 
to design when they put together the reformulated gasoline 
program as part of the Clean Air Act Amendments in 1990.
    History is a wonderful tool to be able to make sure we 
don't repeat it--in terms of bad lessons and bad impacts--but 
history is a perfect indicator of what this Congress intended 
to do with this important fuel legislation. There are a range 
of public policy goals and objectives. Clean air is certainly 
at the top of the list. But the range of public policy 
objectives, energy security initiatives, marketplace 
opportunities for grain and other renewable biomass materials 
and moving our country away from all hydrocarbon slated fuels 
were among those initiatives.
    The historic passage of the Clean Air Amendments in 1990 
would not have been possible had it not been for the support of 
Republicans and Democrats alike throughout the upper Midwest. 
They were the deciding factor and the deciding force in the 
successful completion of those legislative initiatives.
    The Renewable Fuels Association stands firmly in support of 
the reformulated gasoline program and the oxygen content 
requirement. However, we are not unmindful and certainly we are 
not insensitive to the water quality contamination concerns 
that have been expressed not only in California but in 11 
States across the United States where legislation has been 
introduced to ban and/or to significantly limit the use of 
MTBE.
    Just last Friday, the legislature of the great State of 
Iowa introduced and passed a ban bill on MTBE use. There is no 
MTBE used in Iowa, but they are afraid of the potential 
implications of MTBE coming out of California and working its 
way up the Mississippi River. So the concern is literally coast 
to coast. The fact of the matter is we have a successful 
program and it includes the role of oxygenated fuels, and 
ethanol is meeting that objective today.
    In Chicago we have the very best air quality in the country 
among the reformulated gasoline areas. We have absolutely no 
water contamination. And Congresswoman DeGette, I would only 
point out since 1985, ethanol has been used effectively and 
fully, and today in virtually all of the front range of 
Colorado's gasoline. And according to the Colorado Department 
of Health, never has MTBE been found more often, as it was all 
across that State when it was used, but ethanol is not found in 
any of the test sites or in any of the test analyses being done 
in those programs.
    We applaud the work and the support and the leadership of 
Governor Gray Davis. We think his 11-point plan, not just a 
waiver of the oxygenate standard, deserves this committee's 
serious and thoughtful attention.
    I would encourage you, Congressman Bilbray, to look at all 
of the initiatives that are incorporated in the Governor's 
plan. Just so you are fully aware, we are anxious, angry, upset 
at all suggestions that we are not ready to compete in the 
California market--we are--with available supplies today and 
growing supplies in the future.
    And I would close with this. We look forward to the debate 
in California, Mr. Hickox's leadership on these issues, and I 
intend to fully and aggressively and hopefully effectively 
compete in the California and other reformulated gasoline 
program markets in the future.
    I thank you, Congressman, for your kind invitation. I look 
forward to your questions.
    [The prepared statement of Eric Vaughn follows:]
     Prepared Statement of Eric Vaughn, President, Renewable Fuels 
                              Association
    Good morning Mr. Chairman and Members of the Committee. I am very 
pleased to be here to discuss H.R. 11, a bill introduced by 
Representative Brian Bilbray (R-CA) which amends the Clean Air Act to 
permit the exclusive application of California State regulations to 
federal reformulated gasoline within the State. This is an important 
issue with far-reaching consequences for both consumers and air 
quality, and I appreciate the opportunity to provide comments on behalf 
of the domestic ethanol industry.
    The Renewable Fuels Association (RFA) is the national trade 
association for the domestic ethanol industry. Our membership includes 
a broad cross-section of ethanol producers, marketers, agricultural 
organizations and state agencies interested in the increased 
development and use of fuel ethanol. There are more than 50 ethanol 
producing facilities in 21 states in operation today, including a 
growing number of farmer-owned cooperatives that have begun production 
in just the past five years. The industry currently produces 
approximately 100,000 barrels of ethanol per day, and utilizes more 
than 600 million bushels of grain per year. The RFA membership 
represents more than 95% of all ethanol produced and sold in the United 
States today.
    In short, the RFA opposes H.R. 11, as drafted. We understand the 
desire of some to reduce or eliminate the use of MTBE. But H.R. 11 does 
not accomplish that objective. Simply put, the problem is MTBE in 
water, not oxygen in gasoline. Governor Davis' recent decision to phase 
out the use of MTBE in California gasoline by 2003 addresses the 
problem of MTBE water contamination. Providing refiners with additional 
flexibility to use no oxygenate at all is unnecessary and will result 
in environmental backsliding. Moreover, providing this additional 
flexibility could increase consumer fuel costs, threatens the 
investments made by farmers and ethanol producers in anticipation of 
oxygenate markets, and undermines the energy security and rural 
economic development policy objectives of the Clean Air Act Amendments 
of 1990.
Background
    The Clean Air Act Amendments of 1990 (the Act) created several 
programs to help reduce emissions from automobiles. First, the Act 
created the oxyfuel program, which required gasoline marketers in 
carbon monoxide (CO) non-attainment areas to add 2.7% wt. oxygen to 
reduce CO emissions beginning in 1992. Because of its higher oxygen 
content, ethanol has been the oxygenate of choice in this market. 
Approximately 85% of the oxyfuel market is ethanol blended gasoline, 
the remainder is MTBE. The oxyfuel program has been a tremendous 
success, reducing ambient CO pollution approximately 14 percent. As a 
result, many areas have achieved attainment of the CO standard. In 
1990, there were 42 CO non-attainment areas. Today, in large part 
because of the success of the oxyfuel program, there are only 17, and 
additional areas are demonstrating attainment every year.
    The second fuel program created by the Act was the reformulated 
gasoline (RFG) program. The Act requires refiners distributing gasoline 
in severe ozone non-attainment areas to reduce VOC and toxic emissions 
by 15% (27% and 20%, respectively, in phase 2 RFG which begins January 
1, 2000). A key component of this program also is the addition of 
oxygenates. The Act requires that RFG contain 2.0% wt. oxygen, which 
can be met by either 11% volume MTBE or 5.7% volume ethanol. Oxygenates 
were seen as a means of providing clean octane to replace components, 
such as aromatics, which would have to be reduced in order to meet the 
VOC and toxic performance standards of the Act.
    From an air quality perspective, the RFG program has also been a 
success. EPA estimates RFG is the equivalent of taking 8 million 
vehicles off the road each year. Unlike the oxyfuel program, however, 
MTBE has become the oxygenate of choice in this market. Including areas 
which opted-in to the program, RFG represents about 30% of the nation's 
total gasoline supply, or about 35 billion gallons annually. 
Approximately 88% of the RFG oxygen market is met with MTBE. The 
remaining 12% is met by ethanol, primarily in Chicago and Milwaukee 
where ethanol blends are used almost exclusively.
    In California, while one refiner is now using some ethanol blended 
fuels on a limited basis, almost all of the state's cleaner burning 
gasoline (CBG) has been blended with MTBE. California is the largest 
single market for MTBE, using approximately 100,000 barrels per day (b/
d) or 1.5 billion gallons annually.
Governor Davis' Executive Order eliminating the use of MTBE addresses 
        the problems of MTBE water contamination.
    In early 1996, California state officials reported that several 
municipal water supplies had to be closed because of MTBE 
contamination, and that MTBE water contamination was becoming a larger 
threat. The California legislature responded by enacting legislation 
(S.B. 521) requiring a number of studies of the health and 
environmental impacts of MTBE. If the Governor, on the basis of these 
technical reports, concluded MTBE posed a significant threat to the 
health or environment of California, the legislation authorized the 
Governor to take whatever action necessary to protect the citizens of 
California.
    In December, 1998, several reports were completed and forwarded to 
Governor Davis. Among the reports was a comprehensive analysis by the 
University of California-Davis, ``Health and Environmental Assessment 
of MTBE'' (UC Davis study) which concluded that there are ``significant 
risks and costs associated with water contamination due to the use of 
MTBE.'' According to the UC Davis study, ``if MTBE continues to be used 
at current levels and more sources become contaminated, the potential 
for regional degradation of water resources, especially groundwater 
basins, will increase.'' The report concludes, ``the use of either non-
oxygenated reformulated gasoline or ethanol as an oxygenate in CaRFG2 
would result in a much lower risk to water supplies, lower water 
treatment costs in the event of a spill, and lower monitoring costs.''
    Based on the UC Davis assessment, the peer review comments and 
public hearings, and acting on the basis of S.B. 521, Governor Gray 
Davis on March 26, 1999 issued Executive Order D-5-99, phasing out the 
use of MTBE in California gasoline by 2003. Thus, we question the need 
for federal legislation largely designed to achieve the same end.
    While there are some overlapping reporting requirements for 
refiners selling CBG in federal RFG areas, from a practical standpoint, 
the only effect of H.R. 11 is to vitiate the oxygen requirement of 
federal RFG, making oxygen optional in California gasolines. But as 
described in the state's own reports, the problem is MTBE in water, not 
oxygen in gasoline. Governor Davis' Executive Order of March 26 deals 
with the problem--it phases out the use of MTBE.
    Governor Davis' order also expresses support for federal 
legislation providing flexibility to refiners not to use oxygenates at 
all. But the only reason to provide such ``flexibility'' would be an 
assumption there is insufficient ethanol to meet the oxygenate demand. 
That is not the case.
There is sufficient ethanol supply to meet California oxygenate demand.
    The only reason to provide refiners with the flexibility to utilize 
non-oxygenated gasoline in California, or elsewhere, is a presumption 
that ethanol supply is insufficient to meet anticipated demand. But 
U.S. ethanol production is adequate to meet California's oxygenate 
demand, particularly given the extensive phase-out of MTBE included in 
Governor Davis' Executive Order. Approximately 100,000 b/d of MTBE are 
used in California today. That includes MTBE that is currently being 
used in CBG not covered by federal RFG requirements. But it would not 
take that much ethanol to meet the same oxygenate demand. Ethanol has 
twice the oxygen content as MTBE. Thus, it will satisfy the same oxygen 
demand with only half the volume. Assuming oxygenates are not used in 
areas where it is not required, it is estimated that California's 
ethanol demand is only 40,000 b/d. With current U.S. ethanol production 
capacity of about 117,000 b/d, and an additional 26,000 b/d of capacity 
in construction or in planning, there will clearly be adequate supplies 
of ethanol to meet California oxygenate demand.
    Another issue is whether there would be adequate transportation and 
storage capacity to handle increased ethanol usage in California. 
Again, the answer is yes. Attached is a report completed by Downstream 
Alternatives, Inc., ``The Use of Ethanol in California Clean Burning 
Gasoline: Ethanol Supply/Demand and Logistics,'' which concludes;
        ``Based on our assessment, adequate supplies of competitively 
        priced ethanol could be supplied to the California market 
        almost immediately. Terminal preparation is the real variable. 
        But even here it is clear that well over half the terminals 
        offering gasoline could make ethanol available in six months or 
        less. In turn, these terminals could be utilized to supply 
        ethanol for gasoline sourced from other terminals thereby 
        increasing the amount of ethanol blending that could be 
        achieved in a short time frame. It is not necessary to have 
        ethanol in all gasoline terminals to achieve 100% market 
        penetration.''
The U.S. ethanol industry invested $2.8 billion in expanded production 
        capacity to meet anticipated Clean Air Act oxygenate demand.
    Indeed, the U.S. ethanol industry has already demonstrated its 
ability to respond to market forces quickly and effectively. In 
anticipation of significant market opportunities, the domestic ethanol 
industry began an unprecedented expansion in 1990, almost doubling in 
size from 850 million gallons of annual capacity to 1.5 billion gallons 
in 1995. Most of that new production capacity was by farmer-owned 
cooperative plants. Farmers have recognized the need for value-added 
processing, and understand that ethanol production offers a tremendous 
opportunity for rural economic growth and investment. According to the 
U.S. Department of Agriculture, small farmer-owned cooperative ethanol 
plants now represent approximately 30% of the industry's production. 
The industry continues to grow. Domestic ethanol production capacity 
today is approximately 1.8 billion gallons.
    More than 40 plants were either built or expanded as a result of 
the 1990 clean air bill, representing about 450 million bushels of 
increased corn demand annually and $2.8 billion in investment in this 
important value-added industry. Repealing the oxygen standard places 
much of that investment and rural economic growth at risk, and 
certainly threatens the continued development of the domestic ethanol 
industry.
Eliminating the use of oxygenates in California gasoline will increase 
        consumer costs.
    The California Energy Commission (CEC) recently completed an 
analysis, ``Supply and Cost of Alternatives to MTBE in Gasoline.'' The 
CEC report provides an estimate of the potential costs or savings to 
the public in increases or decreases in retail gasoline prices for each 
alternative when compared to MTBE. In all cases studied (i.e., near 
term, medium term, long term), eliminating the use of oxygenates 
resulted in the largest cost increase for California consumers. For 
example, the report states:
        ``In the long term, a complete ban on all oxygenates would 
        result in the greatest average cost increase for gasoline for 
        this time period compared to all of the other alternatives 
        studied . . . refiners would need to make significant 
        investments to modify their facilities, totaling over $1.1 
        billion. This is the primary reason for the average cost 
        increase.''
    In all cases, the ethanol option was less expensive than the non-
oxygenated case. Indeed, the ethanol case was shown to potentially save 
consumers money over the long term if adjustments to the predictive 
model are made recognizing the carbon monoxide and exhaust emissions 
benefits of ethanol which would obviate the need for refiners to secure 
specially tailored blendstocks for ethanol. While the report also 
showed that passage of legislation making oxygenates optional in 
California (i.e., H.R. 11, S. 645) would be the least expensive option, 
this conclusion is based on the assumption that ether oxygenates, 
including MTBE, continue to be used. Thus this option, while 
potentially less expensive, perpetuates the water contamination 
problems that have plagued the program. Moreover, the economic analysis 
did not include the potential costs of remediation if ether oxygenates 
continue and additional drinking water supplies are contaminated.
    Recently, MathPro Inc. completed an analysis of the economic impact 
of non-oxygenated fuels in California for Chevron Products Company and 
the Tosco Corporation, ``Potential Economic Benefits of the Feinstein-
Bilbray Bill.'' The MathPro analysis concluded that even with the 
flexibility to use non-oxygenated fuels, refiners in California would 
continue to utilize oxygenates to help meet the toxic performance 
standards and maintain octane. It is interesting to note that MathPro 
concluded, ``the `optimal' (cost minimizing) share of non-oxygenated 
CARB gasoline ranges from about 20 to 40 percent, depending on the time 
period and Predictive Model mode.'' But approximately 35% of 
California's gasoline is already exempt from the federal RFG oxygen 
requirement. Thus, according to the refining industry's own analysis, 
the most economic level of non-oxygenated fuel can already be supplied 
to California without federal legislation.
Eliminating the oxygen requirement in California will result in 
        environmental backsliding.
    The California Air Resources Board (CARB) and the oil companies 
maintain the oxygen standard is not necessary to meet Clean Air Act 
emissions standards. From a strict VOC compliance perspective, they 
might be right. But this perspective ignores the ``real world'' 
benefits of oxygenates that would be forfeited by passage of H.R. 11. 
Both state and federal emissions standards for cleaner burning 
gasolines use mass VOC emissions as a measure of compliance. There are 
many ways to reduce VOC emissions, and for some large integrated 
refiners it would not be necessary to use oxygenates in order to meet 
those standards. Modeling by the Department of Energy and others 
suggests refiners would likely respond to the ``flexibility'' for non-
oxygenated fuels by increasing olefin and aromatic content, and using 
alkylate or other petroleum-derived products. The result would be 
dirtier air.
    Oxygenates reduce exhaust emissions of CO and VOC's, particularly 
in higher-emitting vehicles. CO is a precursor to the formation of 
urban ozone. In fact, as VOC emissions from vehicles have been reduced, 
the importance of CO to ozone formation has become more critical. 
Recent studies indicate that exhaust CO emissions from gasoline 
vehicles make about as much ozone as do the exhaust VOC emissions. 
Neither federal RFG nor California CBG includes a CO performance 
standard. In the absence of the oxygen requirement then, an 
increasingly important contributor to the formation of urban ozone will 
be increased.
    In addition, if reducing ozone is the objective, exhaust VOC 
emissions are more important than evaporative VOC emissions because 
exhaust emissions are more reactive, i.e., exhaust emissions will form 
ozone more quickly and readily than will evaporative emissions. In the 
absence of the oxygen requirement, it is very likely that exhaust 
emissions will increase relative to evaporative emissions. Thus, ozone 
will increase even if the mass-based VOC standard, which does not 
distinguish between exhaust and evaporative emissions, is met.
    A detailed analysis of the air quality impacts associated with 
repealing the oxygen standard is attached. The clear conclusion, 
however, is that unless the emissions standards are tightened to 
reflect the Areal world@ benefits of oxygenates, there will be 
environmental backsliding caused by H.R. 11.
In addition to environmental backsliding, enacting H.R. 11 would 
        forfeit the energy security and rural economic development 
        benefits of the oxygen requirement.
    As stated by Richard Wilson, then-EPA Acting Assistant 
Administrator for Air and Radiation, in testimony expressing the 
Agency's opposition to this legislation at last year's hearing on H.R. 
630 (the predecessor to H.R. 11);
        ``The RFG requirements also emerged from the melding of several 
        Congressional goals, including air quality improvements, 
        enhanced energy security by extending gasoline supply through 
        the use of oxygenates, and encouraging the use of renewable 
        energy sources.''
    Indeed, these ancillary benefits were an integral part of the 
historic agreement leading to passage of the Clean Air Act Amendments 
of 1990. With hundreds of thousands of American troops stationed in the 
Persian Gulf at the time and a flagging rural economy, the Congress 
wanted to promote the increased use of domestically produced, renewable 
resources, such as ethanol, through the oxygen requirement. These 
policy objectives remain valid today.
    The farm economy would certainly benefit from continuation of the 
oxygen requirement. Recently, Federal Reserve Board Chairman Alan 
Greenspan conceded, ``farmers, rather than sharing in the general 
prosperity, have been experiencing disappointing exports and sharply 
falling prices.'' The potential for increased domestic value-added use 
of grain, such as ethanol production, could dramatically enhance rural 
economies. This rationale for the oxygen content requirement is perhaps 
more valid today than it was even in 1990.
    The importance of ethanol and maintaining the oxygen standard was 
recently underscored by several farmer and commodity organizations in a 
letter to Congressional leadership. The letter states:
        ``The elimination of the oxygen requirement would deal a severe 
        blow to the domestic ethanol industry which has offered one of 
        the few growing market opportunities for American farmers in a 
        year of economic collapse in farm country . . . Removing the 
        oxygen standard now simply because there is a problem with MTBE 
        would reverse a policy that has not only brought clean air to 
        many American cities, but renewed economic activity in rural 
        America.''
      April 22, 1999 letter to congressional leaders signed by the 
National Corn Growers Association, American Farm Bureau Federation, 
          National Farmers Union, National Grain Sorghum Producers 
Association, American Soybean Association, American Sugar Alliance, 
American Sugarbeet Growers Association, Florida Sugar Cane League, 
 Gay and Robinson, Inc. (Hawaii), Rio Grande Valley Sugar Growers, 
   U.S. Beet Sugar Association, American Corn Growers Association, 
  American Society of Farm Managers and Rural Appraisers, National 
    Association of Wheat Growers, National Pork Producers Council, 
      Women Involved in Farm Economics, National Council of Farmer 
                                                      Cooperatives.
    In addition to the agricultural impacts, enhancing energy security 
at a time when the U.S. is more dependent upon imported energy than at 
any time in its history also remains an important policy objective. It 
is indeed ironic that almost 40% of the MTBE used in RFG today (1.4 
billion gallons annually) is imported. If MTBE use is reduced as a 
result of actions taken to curtail water contamination, the energy 
security objective of the clean air bill may finally be realized.
Conclusion:
    The domestic ethanol industry understands the strong interest in 
protecting water supplies. But the problem is MTBE in water, not oxygen 
in gasoline. By simply giving refiners the flexibility to use 
oxygenates, or not, H.R. 11 simply does not address the problem. Just 
as in Illinois and Wisconsin, where the ethanol RFG program has been an 
unqualified success, California can have clean air and clean water. The 
oxygen requirement is a critical protection against environmental 
backsliding. It also advances important public policy objectives of 
energy security and rural economic development, and promotes the 
increased production and use of renewable fuels, such as ethanol, which 
is the only transportation fuel strategy we have for reducing 
greenhouse gases and addressing global climate change. If MTBE must be 
removed from gasoline to protect public health and water quality, there 
is sufficient ethanol supplies to satisfy demand. If MTBE is a problem, 
ethanol can, and will, preserve the air quality benefits of RFG without 
sacrificing public support for this important program.
    Thank you.

    Mr. Bilbray. Thank you. I appreciate the fact that you have 
at least indicated support for the State strategy at addressing 
these issues.
    Mr. Beuhler, you have the floor for 5 minutes.

                    STATEMENT OF MARK BEUHLER

    Mr. Beuhler. Mr. Chairman, distinguished members, my name 
is Mark Beuhler. I am the Director of Water Quality for the 
Metropolitan Water District of Southern California. I am here 
on behalf of the Association of California Water Agencies, 
ACWA. ACWA represents over 450 water suppliers throughout the 
State of California and serves, in combination, about 90 
percent of the water in the State. And ACWA would like to 
express its strong support for H.R. 11.
    About 50 years ago, the pesticide DDT was introduced 
worldwide to control mosquitoes, and as a result, millions of 
lives were saved by the prevention of malaria. Then we found 
DDT had some unintended environmental consequences, and it had 
to be phased out. Similarly, MTBE clearly has helped clean up 
the air, but recently we have seen some of these similar 
unintended environmental consequences, and it is time to look 
at the lead California has already taken in terms of phasing it 
out.
    MTBE is a known animal carcinogen and a potential human 
carcinogen. When we tell our consumers of the presence of this 
compound in their water--and we have to tell them now as a 
result of the 1996 Safe Drinking Water Act Amendments, some of 
which you were involved in passing that--our consumers in 
general don't drink the water. Instead, they turn to bottled 
water at the cost of maybe 500 to 1,000 times more per gallon 
consumed.
    Also, they can taste MTBE at very low levels, about 5 parts 
per billion. That is about a tablespoon of MTBE in an Olympic-
size pool of water. Very low concentrations. MTBE is unique. It 
is much more persistent than most compounds we deal with. It 
simply doesn't degrade well in the environment and it moves 
very rapidly; in our view, more rapidly than the regulators can 
track it.
    Utilities have been impacted. You already heard of the case 
of Santa Monica. South Lake Tahoe is another example. In fact, 
South Lake Tahoe provides an interesting example of two things. 
One is they have both a groundwater problem and a surface water 
problem in the lake, as well as in south Lake Tahoe. With the 
contamination they have had, there has not been a single 
demonstrated case of a leaking underground tank. It is all due 
to other sources.
    The University of California estimates as many as 10,000 
wells throughout the State of California could be impacted. 
What we are really worried about is not the cases that we know, 
but rather the iceberg out there, the cases of MTBE 
contamination that we are going to find out about.
    Governor Davis acted in March to ban MTBE or actually phase 
it out over about 3\1/2\ years, and ACWA's position is we have 
to have complementary Federal legislation like H.R. 11 to make 
the Governor's action work.
    Finally, I might add the really significant impact of 
consumers. We have estimated--``we,'' actually being an 
interesting partnership between the oil industry and ACWA, have 
estimated a cost of $40 to $90 per family per year to clean up 
MTBE. And that is probably the bottom end of the cost.
    In summary, we need H.R. 11. We need to phaseout MTBE, and 
we need to move quickly because the longer we wait, the more of 
our surface waters and our wells will be contaminated. Thank 
you.
    [The prepared statement of Mark Beuhler follows:]
  Prepared Statement of Mark Beuhler on Behalf of the Association of 
                       California Water Agencies
    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 as well as a member of the Water 
Quality Committee of the Association of California Water Agencies 
(ACWA). I am testifying today on behalf of ACWA in strong support of 
H.R. 11. H.R. 11, introduced by Brian Bilbray, is cosponsored by 49 
members of the California congressional delegation. It is also 
supported by major air and water quality districts throughout 
California. ACWA also supports S. 266, a companion bill in the Senate 
sponsored by Senator Feinstein. ACWA represents over 450 public urban 
and agricultural water utilities throughout the State of California, 
which deliver more than 90 percent of the water supplied in California.
    The gasoline additive MTBE is a known animal carcinogen and 
potential human carcinogen. Existing health studies are inadequate to 
determine the risk posed by MTBE in drinking water. Yet, it has become 
the third most common chemical manufactured in the United States. It 
constitutes about 11 percent of the gasoline in areas such as Los 
Angeles, San Diego, and Sacramento. It is unfortunate that a chemical 
with so little known about its health risk(s) has become so widely 
used.
    Our consumers can taste MTBE in their water at extremely low 
concentrations, in the range of 5 parts per billion (this is equivalent 
to less than a tablespoon of MTBE in an Olympic-sized pool). If our 
consumers taste a chemical that is a known animal carcinogen and 
potential human carcinogen, they very often choose to buy bottled water 
at a cost of 500 to 1,000 times more than the cost of tapwater. Also, 
MTBE is a man-made chemical. There is no good reason why it should be 
present in our drinking water.
    MTBE is a unique contaminant in water. It spreads into our drinking 
water aquifers faster than nearly all other constituents in water. It 
moves faster than regulatory agencies can track it and faster than 
water utilities can drill new wells to replace the contaminated 
supplies. Unlike most organic chemicals, MTBE does not biodegrade 
rapidly in water. Once it has leaked into our groundwater or spilled 
into our drinking water reservoirs, it persists.
    Why do we need H.R. 11? The gasoline oxygenate requirement in 
federal law is not necessary to meet clean air standards. The 
flexibility provided by H.R. 11 will enable California to eliminate the 
use of MTBE. California is taking decisive action on this issue.
    A recent study conducted by the University of California has 
recommended that use of MTBE be eliminated in California. Governor Gray 
Davis acting on this recommendation issued Executive Order D-5-99 to 
phase out the gasoline additive by December 31, 2002. However, this 
executive order is not on track with existing federal requirements for 
mandatory use of oxygenates within the Clean Air Act. H.R. 11 is needed 
to implement Governor Davis' executive order to accomplish the phase 
out.
    Water suppliers in California have already been severely impacted 
by MTBE. The City of Santa Monica lost 50 percent of its well 
production capacity and has had to switch to more expensive imported 
water from Northern California. South Tahoe Public Utilities District 
has lost one third of its well capacity. Unfortunately, South Tahoe has 
no imported water to replace its lost supplies and is at risk of water 
shortages. Many other utilities throughout the state have shut down 
wells or bypassed water supply reservoirs rather than risk having the 
fast-moving, persistent MTBE making its way into consumers' taps.
    MTBE has also impacted individuals with private wells. Residents of 
the City of Glenville were drinking water with MTBE levels as high as 
20,000 parts per billion, which is 1,000 times greater than the 
California Public Health Goal of 13 parts per billion.
    These documented contamination incidents are likely to be just a 
preview of future cases. The University of California estimated that as 
many as 10,000 wells may be contaminated with MTBE in California. This 
could have a huge impact on the state's water resources and on the cost 
to consumers of providing alternate drinking water supplies.
    The cost of removing MTBE through treatment is very expensive. The 
University of California has estimated these treatment costs to range 
from $340 million to $1.5 billion in California alone. Existing 
treatment technologies, such as air stripping, would cost at least $40 
to $90 per family per year. Other existing treatment processes would be 
even more expensive (see Figure 1).
    To develop new, less expensive treatment technology, an MTBE 
Research Partnership was created by the Association of California Water 
Agencies, the Western States Petroleum Association, and the Oxygenated 
Fuels Association. The Partnership focuses on developing new, cost-
effective treatment technology to handle existing contaminated drinking 
water supplies and developing source protection technology, to protect 
uncontaminated sources. This is a cooperative step in the right 
direction.
    ACWA has also supported all major state legislation on MTBE, 
including bills by Kuehl/Hayden, Sher, Mountjoy, and Cunneen. However, 
California MTBE legislation cannot override the federal mandate for the 
use of oxygenates like MTBE.
    California has demonstrated that it can meet all of the health and 
air requirements of the Clean Air Act without the use of MTBE. H.R. 11 
will provide the flexibility to implement an MTBE phase-out ordered by 
the Governor of California and simultaneously meet all state and 
federal clean air standards. With the elimination of MTBE, it will be 
possible to have both clean air and clean water.
    About 50 years ago, the pesticide DDT came into widespread use 
throughout the world to control mosquitoes. It saved millions of lives 
by preventing Malaria. Then we found that DDT had unintended 
consequences on the environment and it had to be phased out. MTBE is 
similar. Its use has produced unintended consequences in drinking 
water. Trading clean air for clean water is not an acceptable tradeoff. 
It is time to phase out MTBE. H.R. 11 will enable California the 
flexibility to do that.
    Mr. Bilbray. Thank you, Mr. Beuhler. Appreciate it.
    The Chair will start off the round of questioning. Mr. 
King, can you elaborate on why you were testifying today as a 
single company rather than as the Oxygenated Fuel Association 
which has opposed the legislation in the past two Congresses?
    Mr. King. We were invited to participate as an individual 
company. I never inquired as to why the OFA is not testifying. 
We were encouraged at the opportunity and we looked forward to 
coming and visiting with you.
    Mr. Bilbray. Your testimony is rather confusing. I will 
just be very frank. I read your testimony and it is appropriate 
that I am frank here because it sounded like you were 
testifying in opposition to Mr. Franks' bill. Your specific 
testimony was aimed at a proposal that MTBE might be--would be 
outlawed. But seeing that if you read H.R. 11, you see that it 
is totally content neutral, and it doesn't outlaw MTBE. Also, 
for the record, we have had a pretty extensive history of 
dialoguing over the last 4 years, 5 years, so your challenge at 
saying let's work together and let's talk about this issue, is 
it aimed at H.R. 11 or is it aimed at the movement in some 
parts of Congress in this country at specifically outlawing one 
product?
    Mr. King. Well, H.R. 11 does not seek to ban MTBE, we agree 
with that. But you have heard--we have heard for the last 3\1/
2\ hours quite a bit of discussion about banning the product 
and the negative implications of MTBE, and Governor Davis's 
order is asking that the product be eliminated from California. 
Your bill facilitates the Governor's ability to phase the 
product out, so it really does dovetail into a phaseout of 
MTBE, which we obviously do not support.
    Mr. Bilbray. The question is that my bill eliminates an 
inflexible mandate and your concern is that that mandate is 
right now a defensive mechanism to avoid the elimination of a 
commodity that you sell.
    Mr. King. That is correct. Without your bill, the product 
cannot be banned in California.
    Mr. Bilbray. I have just got to say, Mr. Robinson, that I 
think as the testimony went on, you have proven that you are 
basically sitting between two agendas: one wanting a mandate to 
be able to defend a product, and basically one that wanted a 
mandate to be able to guarantee a market base.
    I would ask Mr. Vaughn, I have just got to go back and say 
the testimony from Governor Davis and the refineries have all 
indicated that the market share of ethanol in the State of 
California will be expanded over the next few years 
substantially with the passage of H.R. 11.
    Why would an industry oppose a bill that has been 
identified as basically being part of the answer? Is it 
transitioning from one product to another with expansion of 
your own market share or is it that you are looking at the fact 
that without H.R. 11, your market share can be huge and 
guaranteed, and that H.R. 11 only allows the transition to a 
larger market share, not a guaranteed monopoly basically in the 
State of California?
    Mr. Vaughn. Congressman, you asked a lot. Let me see if I 
can try and answer the first and then I will work my way 
through the questions, unless we run out of time.
    Mr. Bilbray. First, your product is going to be sold more 
and is going to be phased in faster and that H.R. 11 would help 
that. Why would you oppose H.R. 11?
    Mr. Vaughn. What I said in my prepared remarks, and I heard 
you in the background commenting, and you did say after my 
testimony you are glad I have endorsed, we have pledged to 
support what we consider to be bold and effective action by the 
Governor of California to specifically address a problem. He 
has an 11-point agenda that we think, if enacted in its current 
plan, will result in significant market development 
opportunities for ethanol.
    Quite frankly, I think it is going to drive very specific 
rice straw development for ethanol in California and we are 
very encouraged by that. I am not certain, sir, because every 
single chance you get, you say your objective is to be fuel 
neutral or at least you are content neutral. That is not what 
Governor Davis is doing. Your bill works in concert with 
Governor Davis's plan. If your bill is a stand-alone 
initiative, as it is before this committee, it does not work.
    Mr. Bilbray. Reclaiming my time. Let me just clarify that 
this body, not just as a subcommittee but as a Congress, is not 
in the position to implement the Davis plan in the State of 
California. But we can do our part of it. But I am sitting here 
with two people from different industries that are having 
totally different reasons to oppose H.R. 11, and to be frank 
with you, the ban standing between you really indicates why I 
and a lot of people in the State of California and in this 
Congress feel that it needs to be passed; specifically because 
you two are standing here to oppose it. So I am just saying it 
is a clear statement. I allow my colleague--I have got to go to 
the ranking member, but I will allow my colleague, and we will 
do a second round.
    Mr. King. I was just going to add something.
    Mr. Bilbray. Go ahead.
    Mr. King. We keep referring to Mr. Robinson and the 
consumer. We got a letter yesterday, sent to Chairman Bilirakis 
from the National Consumer League, which supports the continued 
use of MTBE for both environmental and for economic reasons. 
This is a 100-year-old organization that I----
    Mr. Bilbray. Do they support mandating that it has to be 
used in an area that has a cleaner--basically a cleaner 
formula, and does a Federal mandate accomplish what we want to 
do with this? That is the big question.
    Ms. DeGette. Thank you, Mr. Chairman. First let me clarify 
something, Mr. Vaughn, because I was disturbed by a 
misinterpretation you may have, as evidenced by your remarks 
directed toward me and the front range of Colorado.
    I am certainly well aware of the benefits of ethanol in 
Colorado and other places. But I do think that because of what 
Mr. Beuhler was saying and some of the unintended results we 
have seen from MTBE, that before we make a wholesale shift into 
ethanol or anything else, we should look at all of the 
environmental and health impacts before we go there. So I just 
wanted to clarify that with you.
    Mr. Beuhler, let me ask you, because I think what you are 
talking about in Lake Tahoe with the MTBE, they are finding in 
areas with no leaking underground storage tanks, is important. 
Do you think that that contamination is coming from two-stroke 
boat engines or other sources, or do you know?
    Mr. Beuhler. It is both. In fact--and I also serve on the 
blue ribbon panel that was referred to earlier so we have heard 
of cases, similar things in Maine and other parts of the 
country. In the case of Lake Tahoe, the lake itself has 
contamination from two-cycle engines. About a quarter of the 
fuel gets spewed out unburnt into the lake, so that is a 
problem with the lake itself.
    The city of South Lake Tahoe, though, has its own set of 
municipal wells. They don't use water from the lake. They use 
it from their wells. And in those wells, although they have 
good monitoring, they have yet to see a single demonstrated 
case of leaking underground tanks. When they have investigated 
what the cause is, it is things like poor maintenance, people 
spilling gas on the ground.
    There is one example I am aware of where a car drove away 
with a nozzle stuck in the tank, and it ripped off the hose and 
it spilled that way. So there are lots of ways that gasoline 
can get into the groundwater other than just leaking tanks.
    Mr. Shadegg. Do you have any sense of what the extent of 
contamination is from these other sources versus the leaking 
underground tanks?
    Mr. Beuhler. Yeah. The largest single source is clearly the 
leaking underground tanks--to be clear about that--and that has 
been demonstrated in a variety of cases. But the reason for 
emphasizing the non-underground tank situation is MTBE is so 
obnoxious at low concentrations that just a little bit goes a 
long ways. And so even with perfectly functioning tank systems, 
communities are at risk of MTBE contamination.
    Ms. DeGette. Do you know what the percentage is?
    Mr. Beuhler. No, I don't.
    Ms. DeGette. Is anyone working on that?
    Mr. Beuhler. No, I don't think so, probably because in 
general it is concluded that we have got to fix the tanks but 
we have also got to address a whole series of other issues, 
too.
    Ms. DeGette. Mr. Bordvick, I want to ask you, there are a 
lot of refiners who are a lot less sophisticated than you folks 
are, and I am wondering if you have any information about small 
refiners that are ready and able to produce gasoline without 
any oxygenate that will meet the California standards.
    Mr. Bordvick. I don't have specific information on other 
refiners. We have heard certainly from other sophisticated 
refiners, if we can use that term, like Chevron who has made 
certain commitments. What I can tell you is this. We do produce 
today gasoline that has all the same air quality benefits, 
cleaner burning gasoline using ethanol, which isn't easy to do 
year round since summertime is a challenge, but we can do it 
and without any oxygenates at all. It is not magic. It is not 
using some science that isn't available to anyone else. It does 
require some hardware changes in the refinery, which we haven't 
made yet, in order to make the volumes that we need to 
provide--supply the entire State--but it is not a technological 
issue.
    It does take some investment, which smaller companies may a 
have harder time than bigger companies, but it is not--it is 
not a huge issue. One biggest issue right now is time. It just 
takes some time to do that.
    Ms. DeGette. In your testimony, you said there are really 
three barriers to getting this non-oxygenated fuel out. 
Obviously, the current law. And then you also said technology 
and transportation. Let's say we pass H.R. 11. Aren't you still 
going--may I have permission for a couple extra minutes?
    Mr. Bilbray. Yes.
    Ms. DeGette. Thanks. We are still going to have the 
technology and transportation problems, I would assume. Do you 
think those will lessen if we pass the law and, if so, why?
    Mr. Bordvick. By passing H.R. 11, one of the benefits of 
passing H.R. 11 is that you will provide the opportunity for 
some immediate phaseout of MTBE. With the flexibility of no 
longer having a mandate, we can look at the distribution and 
transportation system in California, for example, and see where 
there are opportunities to perhaps dedicate specific pieces of 
that transportation system to a non-MTBE gasoline, similar to 
what we have done to Lake Tahoe. It won't provide--everywhere 
in the State won't have that same opportunity, but we are going 
to look at every opportunity we can, so one of the very 
significant benefits of passing this bill is the speed at which 
MTBE can be phased out. We still may not get a 100 percent 
removal under the Governor's mandate, but there is going to be 
a lot less MTBE in gasoline with the passage of this bill.
    And if I may comment on the underground storage tank issue, 
which is a big issue. As I mentioned, we have 3,000 retail 
outlets on the West Coast. It is a significant issue for us. 
The person that has to pay the bill in cleaning it up is us. If 
I could guarantee to you that we could make an underground 
storage system that would absolutely not leak, I would love to 
do that. I cannot sit here and tell you that won't happen, 
either from spills, from customers, whatever; but I can 
guarantee you that if MTBE is not in the gasoline, it won't get 
in the water.
    Ms. DeGette. Mr. King, can you comment on some of these 
same issues?
    Mr. King. I don't know whether Mr. Bordvick is saying that 
all of his tanks had not been replaced but----
    Mr. Bordvick. All of our tanks are complying with the 
Federal standards, and we also would wish that the EPA would 
uniformly enforce that because we certainly are in compliance. 
We don't have leaking tanks. But we have found that it is 
showing up in other places, and we conclude that is from fairly 
small customer spills. It might be from even someone in the 
backyard with their lawn mower, and certainly motor boats' 
deposition from the air. There are a lot of other sources. I 
can't give you a percentage, unfortunately, but there is a 
significant other source, other than storage tanks.
    Mr. King. Clearly the problem is storage tanks. We have 
talked about at least 30 percent of the country does not have 
their storage tanks replaced to the new double-hold standards. 
We believe very strongly that that is the problem. We talk 
about MTBE is the problem with the leak, but there are other 
constituents of gasoline that are leaking as well, that are 
known carcinogens. And so EPA has to come out and decide on a 
deadline for the tanks to be remediated and get it done.
    Ms. DeGette. Mr. Chairman, I think from our side of the 
aisle, if I can just ask unanimous consent that any members 
that had to leave could submit any questions for this panel.
    Mr. Bilbray. No objection.
    Mr. Ganske.
    Mr. Ganske. Mr. Beuhler, you started out your comments with 
a pretty strong comparison. I mean, you basically were 
comparing MTBE to DDT.
    Mr. Beuhler. If I could clarify, DDT is not an MTBE or not 
comparable in terms of health risks. That is not the issue. I 
think the reason for the comparison is unintended consequences 
on the environment. Nobody understood when DDT was first used, 
there would be unintended consequences on the environment, and 
the same is true with MTBE. Nobody understood there would be 
unintended consequences on the environment, in this case water.
    Mr. Ganske. You are basically in agreement with the 
gentleman from the EPA that there were some unique properties 
about MTBE that facilitated dispersion; is that correct?
    Mr. Beuhler. Absolutely. It is one of the most difficult 
compounds to deal with, because it moves so fast and doesn't 
really break down effectively.
    Mr. Ganske. It isn't really like just regular gasoline.
    Mr. Beuhler. No.
    Mr. Ganske. It doesn't have MTBE that we have had around 
the country for a long time.
    Mr. Beuhler. You are correct. We don't have anywhere near 
the same problems like with benzene or toluene, because they 
biodegrade in the environment. By the time they hit our wells, 
they are largely gone.
    Mr. Ganske. Mr. Vaughn, earlier in the day, we had some 
questions or comments about the availability of ethanol and the 
impact on cost. Would you care to address those?
    Mr. Vaughn. Yes, sir, Mr. Ganske. The ethanol industry 
today has the capacity to produce approximately 1.8 billion 
gallons, and as I mentioned in my remarks, approximately 400 
million gallons of new capacity is coming onstream. If you took 
a look at the entirely reformulated gasoline program in 
existence today, and you put those gallons of MTBE that is used 
today in ethanol equivalent, which means you need less ethanol 
to achieve the same oxygenate requirement, it is approximately 
a 2.1 billion gallon demand. And anyone who says that ethanol 
can meet all that requirement tomorrow afternoon at 5 o'clock 
is wrong. We couldn't.
    But Governor Gray Davis has asked in an analysis completed 
by the end of this year, could ethanol meet approximately 650 
million gallon demand, annual demand in the State of 
California? How much of that would be coming from California 
base feed stocks? Congressman, we consider all of those to be 
very positive economic environmental goals and objectives that 
have not been talked about here today.
    We would like to see those on objectives fully evaluated, 
fully developed, and to see the role of renewables alternatives 
like ethanol be fully explored and developed in the California 
market.
    Mr. Ganske. What would be the impact on the cost of 
gasoline in California if you are using ethanol instead of 
MTBE?
    Mr. Vaughn. Mr. Hickox, the new director of the California 
EPA, in his comments said that the impact on adding ethanol to 
gasoline in California under the current regime would increase 
gasoline prices approximately 7 cents. What he is referring to 
was if it was an immediate ban on MTBE and an immediate 
replacement of ethanol. Quite frankly, I think he is correct in 
those numbers.
    The California Energy Commission analysis, the UC-Davis 
report, as was also pointed out here, pointed out that an 
ethanol-blended option in the current reformulated gasoline 
program marshaled in over the timeframe that the Governor has 
indicated, is the cheapest option in terms of the impact on 
consumers. But that is also, sir, taking ethanol out of the 
Midwest.
    We are anticipating, then--the representatives of 
California rice growers are here for meetings this afternoon 
with Senators from California in the other body to promote 
renewable alternative development right there in Sacramento, in 
the valley. We are burning the equivalent of 350 million 
gallons a year in rice straw in California. That is a crime. We 
ought to stop that and we ought to produce the ethanol in 
California, which would drive down those consumer impact 
implications immediately. It would be the most consumer-
friendly and the most environmentally friendly option available 
on the docket today.
    Mr. Ganske. Senator Feinstein, I thought, mentioned 
something about 4 years before you could get significant 
ethanol into California. Is that in line with what you are 
thinking, or would it be a shorter period of time?
    Mr. Vaughn. The ethanol has--and I do apologize, 
Congresswoman DeGette, if we have gotten off on the wrong foot 
with ethanol on the front range--ethanol surrounds California. 
We are in every major metropolitan area in the Rocky Mountain 
region from the Pacific Northwest to Phoenix. Denver is the 
most exciting program we have had for 10 years with ethanol, 
Reno, Las Vegas, Salt Lake City. So we are within minutes of 
the western part of California right now today.
    We would estimate that we could respond to the entire 
northern California marketplace demand for oxygenates in 60 to 
180 days and the transportation is available, the 
infrastructure for refining internally is available and the 
ethanol is available.
    Southern California is a different story, and that is why 
Governor Gray Davis's 3-year plan, while some might consider it 
to be excessive in terms of phasing out one product, it could 
be a very positive way of developing in-state and national 
ethanol production to meet demand for cleaner burning renewable 
oxygenates if California.
    Mr. Ganske. Finally, one question, Mr. Beuhler. As a 
physician, I have looked at--worked with ethanol for a long, 
long time. I mean, there are probably very few people in this 
room that haven't consumed it. Even though there isn't a study 
that is out there, it is hard for me to believe that a 
substance that we have in beer, other drinks, you know--is it 
your expectation that we would see the same type of problems 
with ethanol at some time in the future that you are seeing 
with MTBE?
    Mr. Beuhler. Well, I will defer to your medical knowledge 
on that. But just from the standpoint of drinking water 
suppliers, two things work in our favor. The first is hopefully 
it won't get to our water sources in the first place. It 
degrades very rapidly, in fact, much faster than most of the 
other compounds that are in gasoline. So that works in our 
favor.
    The other question is a real good one. We don't have the 
answer to that yet. What do low levels of ethanol mean in 
drinking water? I don't think anybody knows.
    Mr. Ganske. Thank you. Thank you, Mr. Chairman.
    Mr. Bilbray. Mr. King, I wanted to come back to you because 
I think I was a little harsh on one side. After re-reading more 
of your testimony, it doesn't seem like your company is very 
far from H.R. 11 at all. You refer to that any legislation 
should have the objective that would be good for public policy 
and would fulfill certain criteria to protect the public 
health. Are you aware that the EPA has already made a 
determination about California reformulated gasoline pertaining 
to the public health protection?
    Mr. King. In what form?
    Mr. Bilbray. That it is superior to the Federal 
reformulated gasoline. In fact, it is superior to the Phase 2 
Federal reformulated gasoline.
    Mr. King. Superior to Phase 2 with oxygenates?
    Mr. Bilbray. With or without.
    Mr. King. I am not aware of that. I guess I have been under 
the impression that the fuel in California with oxygen is a 
better product than without.
    Mr. Bilbray. But with the standard, the California standard 
which, granted, the great percentage of it has oxygenates in 
it, but the California standard, which is what my bill would 
refer to, are you aware that that standard that my bill would 
refer to has already been found by EPA to be superior to the 
Federal clean fuel?
    Mr. King. I know that that fuel is superior, but I don't 
know exactly whether it is superior to the Federal clean fuel 
because it has oxygenates. But, you know, we are aware that the 
California clean fuel is a good product, but we just believe it 
is better with MTBE in it, and it does help reduce the key 
toxic emissions that we have been talking about.
    Mr. Bilbray. My point was you were talking about the 
criteria to make sure there was no net degradation of the 
public health. That was a determination that is included right 
in the bill that the EPA needs to make a--would have to make 
that determination which they already have. The question I--
that is where I am wondering where we are going with this. I 
understand your concern about an abolition and a substance 
specific. Again, this is why this bill isn't substance-specific 
because I have seen, through practical application and air 
pollution strategies, that flexibility has been the success of 
the Clean Air Act traditionally. It is most successful--can we 
all agree it is the most successful environmental strategy in 
the history of the world? It also gives the most local 
flexibility of any environmental strategy there has been.
    California's air right now is twice as clean right as it 
was in the sixties. The question is, why not build on the 
flexibility successes of the Clean Air Act? In other words, be 
outcome-based like the rest of the act is.
    Mr. King. The Federal RFG program provides benefits greater 
than the California cleaner burning gasoline. What we are 
saying is you necessarily would have a slight backslide, I 
think--you are still meeting the standards with California 
cleaner burning gasoline without oxygenates, but with the 
oxygenates I have talked about in my comments that we have 
exceeded far beyond what the expectations were. So if you go to 
that standard nationally, you are going to have backsliding 
from where we are currently today.
    Mr. Bilbray. I just wish to point out the previous 
testimony of the director of the California EPA that in the 
parts of California that are not under the Federal mandate at 
this time, the fuel burned there is superior to the Federal 
fuel and there has not been a backsliding in those areas.
    Mr. King. That is right. And here is why, I think. Because 
in those areas, there is 1.6 percent, on average, by weight of 
MTBE used as opposed to the 2 percent, by weight, in the 
oxygenate mandate areas. So MTBE is still being used in that 
gasoline.
    Mr. Bilbray. But the point is, it isn't dependent on a 
Federal mandate. It is based on the outcome of how important 
the clean fuel is. I appreciate that. I just appreciate how far 
you guys come in addressing this issue. And I appreciate it.
    I would like to thank the panel. I think that we have had a 
rather open discussion. Let me just say this to the gentlemen 
that are testifying today. Each of you are representing your 
portion of the American community one way or the other. You 
have got people that want the water to be able to be consumed 
so it can be sold. You have got those who want the renewables 
to be able to have expanding markets as much as humanly 
possible. You have those who want to be able to provide a cost-
effective product that is safe to the consumer. You have those 
who have a product that has shown air pollution benefits in the 
past. And you have got those who basically want to be able to 
have the flexibility to produce the cheapest, safest, and the 
most effective fuel available.
    I know we can all disagree on certain issues. We come from 
different approaches. The challenge for Congress is to make 
sure that we represent no one group sitting before us but we 
represent the general good of the American people. And with 
your testimony, we hopefully will see that happen.
    Mr. Robinson?
    Mr. Robinson. Can I just clarify our support for your 
legislation, whatever the number is?
    Mr. Bilbray. Thank you very much. This meeting stands 
adjourned.
    [Whereupon, at 1:35 p.m., the subcommittee was adjourned.]
    [Letters in support of H.R. 11 were received from: Board of 
Supervisors, County of Los Angeles, dated December 16, 1998; 
City of Sebastopol, dated December 17, 1998; Town of Windsor, 
dated December 3, 1998; Water Advisory Committee of Orange 
County, letter dated October 2, 1998; Orange County 
Transportation Authority, letter dated July 27, 1998; 
Metropolitan Water District of Southern California, letter 
dated October 5, 1998; and the Lake County Board of 
Supervisors, letter dated January 9, 1998.]
    [Additional material submitted for the record follows:]
   Prepared Statement of Hon. Mike Johanns, Governor of Nebraska, on 
               Behalf of the Governors' Ethanol Coalition
    I am very pleased to submit this statement on behalf of the State 
of Nebraska and on behalf of the 22 members of the Governors' Ethanol 
Coalition regarding H.R. 11. This legislation, introduced by 
Representative Brian Bilbray to redress the MTBE water contamination 
crisis in California, amends the Clean Air Act to eliminate the overlap 
between California's cleaner burning gasoline program and the federal 
reformulated gasoline program by allowing California state regulations 
to prevail.
    First of all, as a governor, let me say that I empathize with 
Representative Bilbray, Senator Feinstein, Governor Davis, and others 
who, as elected officials like myself, have a responsibility to protect 
the quality of life of their constituents and as such must provide 
viable solutions to the current water quality situation in California. 
However, in light of recent actions by Governor Davis, I do not believe 
H.R. 11 is any longer necessary, nor do I believe it would it address 
the problems posed by MTBE.
    Last month, acting on the Health and Environmental Assessment of 
MTBE prepared by the University of California-Davis, Governor Davis 
issued an Executive Order that phases out the use of MTBE in the state 
by the end of 2002. As a result, MTBE's days are numbered in 
California. Governor Davis's action preempts the need for federal 
legislation, as Representative Bilbray's goal to reduce MTBE use in the 
state is already being implemented.
    The problem in California is MTBE in the water, not oxygen in 
gasoline. Allowing the California Cleaner Burning Gasoline program, 
which does not have an oxygen content requirement, to supercede the 
federal reformulated gasoline program in California will forfeit the 
public policy benefits of the oxygen standard.
    When the federal reformulated gasoline program was established in 
1990 as part of the Clean Air Act Amendments, an important component 
was the inclusion of a year-round oxygen content requirement. There are 
two commonly used oxygenates today: ethanol, derived from agricultural 
feedstocks and biomass, and MTBE, a petroleum or natural gas-derived 
chemical. The oxygen standard was designed to enhance air quality and 
provide dramatic economic benefits to agricultural America while 
reducing our dependence on foreign energy supplies.
    In parts of the country where ethanol has been the oxygenate of 
choice, there is tremendous support for the oxygen standard and it is 
hailed as an unqualified success. The Chicago metropolitan area, 
Minnesota, Wisconsin, Oregon, and numerous other states have relied on 
ethanol as an additive to satisfy the requirements of the Clean Air 
Act. And, wherever acute health effects concerns regarding MTBE have 
been raised, from Alaska to Maine, the use of ethanol has preserved 
important pollution reduction programs. Everywhere ethanol is used, it 
allows compliance with the Clean Air Act without the problems of water 
pollution or negative health effects. In fact, the American Lung 
Association of Chicago recently released a report praising the ethanol 
reformulated gasoline program, stating:
        ``[O]xygenates like ethanol help fuels burn more completely, 
        thereby reducing emissions of carbon monoxide, volatile organic 
        compounds, and toxic air emissions. Furthermore, oxygenates 
        displace benzene found in conventional gasoline, which reduces 
        emissions of this known carcinogen as well.''
    In Iowa--where ethanol has been the oxygenate of choice for over 20 
years--the legislature last week banned the sale of MTBE-blended 
gasoline in the state. Although MTBE use in Iowa is relatively 
insignificant, the U.S. Geological Survey did find MTBE in eight of 30 
monitored Iowa water wells, two of which had MTBE concentrations high 
enough to warrant a potential U.S. Environmental Protection Agency 
health advisory. With the number of states experiencing MTBE-related 
water quality problems growing at an alarming rate, Iowa lawmakers took 
this precautionary measure to protect its citizens and the quality of 
their water supplies. When blended with gasoline, oxygenates such as 
ethanol can reduce emissions of carbon monoxide, fine particulates, 
toxics, nitrogen oxides and exhaust hydrocarbons that contribute to 
urban ozone. And because ethanol is a renewable fuel, it is the only 
commercially available transportation fuel that helps reduce carbon 
dioxide emissions, a greenhouse gas. These benefits will be forfeited 
if the oxygen content requirement is eliminated.
Ethanol Supply
    Some have suggested that the reformulated gasoline oxygen content 
requirement must be eliminated because the ethanol industry cannot meet 
demand currently satisfied by using MTBE. That is simply not true. 
Current U.S. ethanol capacity is more than twice the amount needed to 
fulfill California's demand. That capacity will quickly expand, 
including new production from California biomass feedstocks, with 
growing supply to replace MTBE. The California Energy Commission has 
concluded that as an alternative to MTBE-blended fuels, ethanol blends 
can be available at prices lower than non-oxygenated gasoline.
Economic Development
    Speaking as the Governor of one of the nation's largest ethanol 
producing states, I can personally attest to the value that a homegrown 
ethanol industry brings to agricultural economies. Ethanol production 
is one of the most effective economic engines we have to stimulate 
increased domestic demand for grain, boost farm income, and create 
jobs. During the economic downturn of the early 1980s that devastated 
economies in agricultural states, Nebraska and similarly situated 
states were advised to add value to their agricultural bounty by 
developing new manufacturing and industrial uses for the surplus grain. 
In Nebraska, we heeded that advice. Hundreds of millions of dollars 
have been spent to develop the value-added ethanol industry in the 
state. Nebraska's ethanol industry has grown so that today over 30 
percent of the state's corn crop is processed in the state's ethanol 
plants. Also, over 75 percent of the state's grain sorghum crop is used 
in ethanol production. Studies have shown that corn and sorghum used 
for ethanol production results in higher prices paid to farmers. 
Without the ethanol industry, the grain surpluses and low commodity 
prices we are experiencing today would be worse. Lastly, we have been 
able to create new jobs--more than 4,000 in Nebraska--in small towns 
where job creation is particularly difficult.
    The agricultural community is suffering from low commodity prices, 
falling export markets, decreasing land values and plunging domestic 
feed use of grain. In fact, recent testimony before the House 
Agriculture Committee by a Cargill executive confirmed recent US 
Department of Agriculture findings: U.S. grain exports are dropping, 
but the domestic market--new uses for grains by American manufacturers 
and others--has grown by more than 50 percent since 1980.
    In a recent speech to the Independent Bankers Association of 
America, Federal Reserve Board Chairman Alan Greenspan noted that while 
the U.S. economy as a whole continues to experience robust economic 
growth, the agricultural sector has been adversely affected by severe 
problems of many foreign economies, which have led both to reduced 
demand from abroad and to increased competition from imports:
        ``Farmers, rather than sharing in the general prosperity, have 
        been experiencing disappointing exports and sharply falling 
        prices. Overall, the prices received by farmers in February 
        were about 5 percent below the level of a year earlier. In 
        recent weeks, corn prices have been running around $2 a bushel 
        in the Midwest, the lowest late-winter price for that crop in a 
        number of years.''
    One significant bright spot in agriculture's otherwise dismal 
outlook is the opportunity for increased domestic grain consumption 
created by new demand for ethanol. Already, ethanol is the third 
largest consumer of grain, behind only feed and export markets. The 
industry uses a portion of the grain from more than 600 million bushels 
to produce over 1.4 billion gallons of clean-burning, renewable 
ethanol, adding $4.5 billion in farm revenue annually. The production 
of ethanol has sparked new capital investment and economic development 
in rural communities across America. Direct farmer ownership of ethanol 
production facilities accounts for the majority of the recent expansion 
within the industry. American farmers are realizing the positive impact 
from this important value-added market for their crops. Today, a 
substantial portion of U.S. ethanol production is accounted for by 
farmer-owned cooperatives.
    The current status of farm markets makes the availability of value-
added processing that much more important to our nation's farmers and 
the agricultural economy. Clearly, California farmers could benefit 
from expanded in-state ethanol production. Today there is modest 
ethanol production in California, primarily from Parallel Products, a 
company which produces the product from waste beverage products. As the 
market for ethanol grows in California, new ethanol plants in the state 
will be built to provide local supply. These plants can convert waste 
products such as rice straw, forest residue and urban waste into 
ethanol. This will help solve vexing waste issues and create jobs as 
well. The rice industry has three plants currently planned in the 
Sacramento valley to convert rice straw into ethanol. Ethanol is the 
only real alternative foreseen by the rice industry to prevent field 
burning which has been banned because of air pollution concerns.
Conclusion
    While the oxygenate of choice for refiners in California has been 
MTBE, demand for ethanol to replace MTBE in the state can result in 
developing an in-state ethanol industry. Ethanol demand will be met by 
a combination of an expanded California ethanol industry and supplies 
from existing ethanol production facilities across the U.S.
    The members of the Governors' Ethanol Coalition and I are committed 
to working with Congressman Bilbray and this Committee to ensure the 
best possible solution for California without abandoning the 
significant air quality, energy security, and rural economic 
development benefits of the oxygen content requirement in reformulated 
gasoline. No citizen should have to choose between clean air and clean 
water. With ethanol, that choice does not have to be made.
                                 ______
                                 
  Bluewater Network's Legislative Recommendation for methyl tertiary-
                              butyl ether
                           executive summary
    The gasoline additive methyl tertiary-butyl ether (MTBE), listed as 
``a possible human carcinogen'' by EPA, is being found in ground and 
surface water resources throughout the United States. Drinking water 
shortages, boating restrictions, litigation and remediation costs, and 
increased human exposure to toxins are unavoidable consequences of 
using MTBE. Bluewater Network contends that in order to avoid massive 
water contamination throughout the U.S., MTBE must be expeditiously 
phased out nationwide. Other ether-based additives should be banned 
until they are adequately studied. A realistic phaseout can be 
accomplished in 2-4 years.
    The use of non-oxygenated ethanol-blended gasoline as a replacement 
for MTBE does not result in increased air emissions (assuming 
volatility and other existing regulations are left intact). Urban areas 
within Reformulated Gasoline Program areas which are required to use 
oxygenates, will shift to ethanol until acceptable alternatives are 
available. In some areas, a volatility waiver may be appropriate to 
better accommodate the use of ethanol provided that overall air quality 
is maintained as a result of the waiver. Ethanol's positive effect on 
carbon monoxide emissions, as well as high emitters, should be 
accurately weighted in the analysis.
    A temporary 2-4 year moratorium from the oxygen standard of the 
Clean Air Act will have two primary benefits: (1) accelerating the 
phase-out of MTBE by allowing non-oxygenated fuels to displace MTBE-
blends in previously, oxygenated areas; (2) providing a grace period to 
review the effectiveness of ethanol, the oxygen standard and progress 
towards the use of non-petroleum fuel. Until those question's are 
answered, Bluewater Network strongly recommends that the general 
requirements of the CAA are permanently protected.
Section 1: Bluewater Network supports state and federal bills calling 
        for a ban or phase out of ether-based oxygenates, including 
        MTBE.
    MTBE and other ether-based oxygenates (e.g. ETBE) are suspected 
carcinogens. Although all gasoline compounds are a threat to ground and 
surface water resources, ether additives have the following unique 
characteristics:

 High water solubility (e.g. sub-surface contamination);
 High mobility in soil and water (e.g. larger and deeper 
        plumes);
 High persistence in the environment (e.g. accumulates in 
        boating season)
 Resistance to biodegradation (i.e. slower than other gas 
        compounds);
 Resistance to traditional water treatment (e.g. intake/tap 
        levels similar);
 Noxious odor and taste at extremely low concentrations (e.g. 2 
        ppb);
 High remediation costs (e.g. air stripping not effective).
    Extensive investigation into the hazards of MTBE demonstrates that 
continued use of MTBE or other ethers will further jeopardize U.S. 
water supplies, undercut the public's right to clean drinking water, 
shoulder water and regulatory agencies with unprecedented liabilities 
and cost burdens, and seriously threaten public health. Although MTBE 
proponents argue that aggressive replacement of leaking underground 
storage tanks (USTs) and two-stroke marine engines will mitigate the 
MTBE problem, the most advanced USTs available have proven ineffective 
at preventing leaks large enough to contaminate groundwater with 
dangerous levels of MTBE, and two-stroke marine engines will remain in 
use for at least twenty years. Two-stroke engines currently emit an 
estimated 8 million pounds of MTBE into U.S. waterways every year. 
Containment of MTBE or other ethers is not a viable option.\1\
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    \1\ The current California Department of Health Services 
``aesthetic'' standard is 5 parts per billion (ppb) for MTBE in 
drinking water. In April, 1999, a pinhole sized leak in the ``vapor 
recovery line'' of a new, fully compliant underground storage tank in 
South Lake Tahoe, CA caused MTBE groundwater contamination at levels of 
100,000 ppb. In terms of two-stroke engines, a 5 ppb standard.is the 
equivalent of a 12-ounce soda can of MTBE in 13 million gallons of 
drinking water (the water consumed daily by about 90,000 people). The 
California public health standard is roughly three times that amount. A 
single jet ski releases enough MTBE to exceed the ``aesthetic'' 
standard in less than I hour, and enough MTBE to exceed the public 
health standard in less than 2 hours.
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Section 2: Bluewater Network supports state and federal bills designed 
        to provide increased protections from MTBE-related 
        contamination, and/or which accelerate the phase-out of MTBE 
        and other ethers with either of the following conditions:
1) any amendments to the Clean Air Act provide only a 2-4 year 
        temporary moratorium from the oxygen requirement, and other 
        components of the Act are not considered for amendment; or
2) the Clean Air Act is not amended.
    Bluewater Network's top priority is protect water resources from 
ether-based oxygenates. Bluewater supports aggressive legislation which 
seeks to improve the underground storage tank system, protect drinking 
water reservoirs from two-stroke engine pollution, safeguard vulnerable 
and at-risk areas, and provide more extensive liability and clean-up 
programs and funds. We agree with California Governor Gray Davis' 
assessment that MTBE poses a significant risk to public health and the 
environment, especially his emphasis on the need for continued action 
at the legislative level.
    Consistent with extensive research indicating that MTBE is not a 
unique and indispensable component of the Reformulated Gasoline 
Program, or the only viable oxygenate for ``non-attainment'' urban 
zones or RFG-designated areas, Bluewater Network does not believe that 
banning one category of oxygenates necessitates permanently lifting the 
oxygen standard in the Clean Air Act.
    Although temporarily lifting the oxygen mandate may accelerate a 
shift away from ether-based additives in areas where a phase-out is 
required, permanent changes to the Act may have the following 
consequences:

 opening the Act may lead to damaging amendments;
 loss of current and potential fuel diversity through an 
        immediate return to 100% hydrocarbon-based fuel;
 continued use of MTBE and other ethers which provide octane 
        and regulatory benefits to refiners; and as a result, continued 
        ground and surface water MTBE contamination;
 an increase in carbon monoxide (CO) emissions;
 an increase in ground level ozone;
 an increase in primary particulate matter (PM2.5) 
        emissions;
 loss of a dilution effect of other toxic gasoline compounds 
        such as benzene, toluene, xylene and aromatics inherent with 
        the use of oxygenates;
 a potential increase in the use of other toxic gasoline 
        compounds to replace octane, such as toluene;\2\
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    \2\ Because regulations are more stringent in California than in 
other states, refiners would utilize different means to produce 
compliant gasoline and octane needs depending upon the regulations in 
effect. In California, refiners may alter aromatics and paraffins to 
boost octane, while in New England refiners may use toluene.
---------------------------------------------------------------------------
 loss of progress towards renewable or alternative fuels,\3\ 
        including ethanol, which offer the current or potential for 
        less dependence on imported oil, a non-petroleum fuel source 
        with the potential to be produced from agricultural and 
        commercial waste, and a reduction in climate change greenhouse 
        gases. Promoting alternative fuels was one of the primary goals 
        of the Clean Air Act.
---------------------------------------------------------------------------
    \3\ In the short term, experts believe that refiners would continue 
to utilize ethanol to comply with gasoline regulations and octane 
needs; however, refiners would quickly begin moving away from ethanol--
or other alternative or renewable products produced by outside 
vendors--towards their own oil-based sources.
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Relevance to current bills
    S 645, as currently drafted, would allow the U.S. EPA to waive the 
2% reformulated gasoline oxygenate requirement of the Clean Air Act in 
any state where use of gasoline with less than 2% oxygen, including 
non-oxygenated fuel, does not result in greater emissions. As 
discussed, although the bill may help California to accelerate the 
shift away from ether-based additives such as MTBE, it will not help to 
reduce MTBE use throughout the United States. In fact, it may actually 
perpetuate the status quo use of MTBE and other ethers, since such 
additives have similar costs to ethanol while continuing to provide 
competitive, regulatory and octane benefits to refiners. For that 
reason, Bluewater Network has requested that Senator Feinstein sponsor 
a companion bill to phase-out the use of added ethers such as MTBE over 
a two to four year period.
    S 266, as currently drafted, would allow California to apply its 
own clean or reformulated gasoline rules [over those stipulated by the 
Clean Air Act] as long as emissions reductions are equivalent or 
greater. As discussed, although this may be a viable and immediate 
short-term solution to curb MTBE use, in the long term California may 
be inhibiting its growth towards fuel diversity, the use of a 
renewables, and a reduction in climate change greenhouse gases.
    Therefore, if Senator Feinstein proceeds with S 645 and S 266, we 
urge her to take either of the following two steps to preserve those 
benefits:
          1. Amend the bills to incorporate a renewable content 
        requirement for all fuels. This could start at modest levels 
        and increase each year until achieving maximum practical, 
        sustainable (or politically acceptable) levels. It would also 
        provide an excellent mechanism in the future should the 
        Congress choose to try to further reduce US carbon emissions 
        through a fuels program.
          2. Amend the bill to create a 2-4 year temporary moratorium 
        from the oxygenate requirement, in order to accelerate the 
        shift away from MTBE and other ether-based additives. The Clean 
        Air Act would remain intact and the oxygenate requirement would 
        be reinstated after the moratorium.
    Governor Davis' support of Feinstein's oxygenate bills is 
consistent with his hope to provide an impetus for refiners to shift, 
as quickly as possible, to less dangerous fuel blends in California. 
Bluewater Network supports the Governor and Senator Feinstein in their 
pursuit of an accelerated phase-out so long as the exemption from the 
Clean Air Act is exclusive and temporary, and tied to a ban on the use 
of ether-based additives.
    HR 1367, as currently drafted, would ban the use of MTBE nationwide 
within the next three years. Congressman Bob Franks (R-NJ) has proposed 
the only bill that will effectively end the threat of MTBE 
contamination. However, to prevent refiners from switching to other 
equally dangerous additives to replace MTBE, we have requested that the 
bill include language banning other ether based additives until they 
are adequately studied.
Ouestions concerning an expected increase in the use of ethanol
    Production--There has been concern in California that a shift to 
ethanol as the primary oxygenate could not be accommodated by the 
ethanol industry. However, according to a recent study,\4\ the current 
capacity for ethanol production is more than double the amount needed 
to meet California's demand if MTBE use is eliminated. According to the 
report, this ethanol supply could be made available to the state almost 
immediately.
---------------------------------------------------------------------------
    \4\ ``The Use of Ethanol in California Clean Burning Gasoline: 
Ethanol Supply/Demand and Logistics,'' study requested by the Renewable 
Fuels Association in anticipation of CA Governor Davis' decision to ban 
MTBE, conducted by Downstream Alternatives, Inc., January/February, 
1999.
---------------------------------------------------------------------------
    Nationally, actual production of ethanol in 1998 was approximately 
1.5 billion gallons. Production capacity is expected to exceed 1.8 
billion gallons in 1999. By comparison, current production of MTBE is 
approximately 3.5 billion gallons. According to ethanol producers, 
expanding ethanol use to meet demand is feasible based on 1) the 
diversity of potential sources of ethanol (e.g. corn, feedstock, 
agricultural waste, rice, etc.); 2) the potential for growth in the 
agricultural community; 3) the relatively short time period required 
for new facility construction (6 months). Furthermore, ethanol contains 
more oxygen than MTBE. Attainment of the 2% oxygen mandate requires 
only 7% ethanol by volume versus 11% MTBE. Therefore, compliance with 
the Act demands less supply of ethanol. Demand for ethanol may also 
stimulate the production of new ethanol facilities, including waste and 
cellulosic material conversion plants, especially in states where it is 
used. Some believe that California alone has the potential to produce 2 
billion gallons of ethanol within a few years.\5\
---------------------------------------------------------------------------
    \5\ Personal contact with ethanol industry business representative, 
April, 1999.
---------------------------------------------------------------------------
    In addition, the California Energy Commission found that 
``potential suppliers appear to have the production capacity and raw 
materials necessary to produce sufficient volumes of ethanol . . . 
under any of the various cases [of an MTBE phase-out].''
    Cost to refiners and consumers--According to the California Energy 
Commission, ``if the scope of replacing MTBE were to be broadened to 
include the elimination of all oxygenates from gasoline, the cost 
impact for consumers would be the greatest, regardless of the length of 
time allowed for the transition.'' The study confirms that ethanol-
blended fuels are actually cheaper than non-oxygenated fuels both in 
the short and long term.
    UC-Davis concluded that MTBE RFG was the least cost-effective 
gasoline using a multi-media analysis. The study confirms that both 
ethanol and non-oxy blends are more cost effective than MTBE, but of 
these two alternatives to MTBE, non-oxygenated would have the highest 
net cost to consumers. This is based on the anticipated cost of 
replacing oxygenates, which constitute 11-15% of gasoline supplies by 
volume, with imported oilbased alternatives.
    There is also a strong argument to be made that fuel source-
diversity will benefit consumers by reducing price fluctuations in the 
petroleum sector. This is another reason why the oil industry opposes 
the oxygenate mandate (i.e. it lessens their control over the market).
    In sum, the cost to consumers is expected to be higher by 
converting to non-oxygenated RFG than ethanol RFG, with actual cost to 
refiners roughly equivalent between ethanol, MTBE and non-oxygenated 
fuel blends. However, the economic and environmental costs of MTBE are 
significantly higher if other factors are included such as water 
cleanup costs, greenhouse emissions, waste reduction and economic 
development.
    Air Emissions--The use of ethanol in reformulated gasoline does not 
result in an increase in air pollution if no other gasoline regulations 
are adjusted. As confirmed by the California Energy Commission study, 
under the current Air Resources Board Predictive Model \6\ ethanol has 
comparable emissions benefits to other oxygenates including MTBE, as 
long as the current 7.0 pound maximum volatility requirement is 
maintained. Tosco's current ethanol blend, distributed in California, 
confirms the conclusions of the Energy Commission study.
---------------------------------------------------------------------------
    \6\ This excludes ethanol's additional benefits in reducing carbon 
monoxide emissions. Ethanol proponents criticize the current model 
because it fails to include the impact of carbon monoxide in general, 
especially on ozone production. Recent photochemical air-quality 
monitoring reveals that carbon monoxide is a significant and perhaps 
growing contributor to urban ozone formation relative to VOCs. Ethanol 
reduce's carbon monoxide emissions by roughly 10% more than MTBE or 
other ethers.
---------------------------------------------------------------------------
    Some experts believe that the feasibility of ethanol hinges on an 
increased one pound volatility (RVP) allowance, from 7.0 to 8.0 pounds. 
Under this waiver, refiners would not have to produce a base gasoline 
of lower volatility (roughly 6.0), at presumably higher cost, to 
accommodate the more volatile ethanol and remain under the current 
volatility requirement (7.0).\7\ Current regulations could allow 
refiners to produce gasoline containing 10 percent ethanol with a one 
pound volatility allowance, to 8.0 pounds, but CARB has not determined 
what the air quality costs will be under this waiver.
---------------------------------------------------------------------------
    \7\ Tosco and other refiners currently produce gasoline with 
ethanol that complies with the 7.0 volatility requirement.
---------------------------------------------------------------------------
    Some experts also believe that the air quality costs of a one pound 
volatility waiver will be significant--an estimated 100 tons per day HC 
increase in the State of California. This prediction is simple: it 
presumes a reversal of the estimated emissions benefits of reducing the 
volatility requirement from 8.0 to 7.0 a few years ago. According to 
the Energy Commission, the preliminary results of a vehicle test study 
performed by CARB show that gasoline blends of 10 percent ethanol and a 
maximum volatility of 8.0 appear to confirm a suspected increase in HC 
emissions.
    However, the overall air quality costs of ethanol remain unclear. 
Although a volatility waiver (if necessary) may increase HC emissions 
by 100 tons per day, ethanol use reduces carbon monoxide emissions by 
an additional 10% (in comparison. to MTBE). CO is critical because (a) 
it is treated separately by CARB's emissions analysis; (b) its role as 
an ozone precursor may be underestimated by CARB, and its emissions 
models. Ethanol proponents claim that emissions increases from 
volatility can be justified if CO emissions benefits were accurately 
weighted by CARB. Conversely, MTBE's emissions benefits are actually 
accommodated by CARB. The Agency acknowledges that they lowered the 
volatility requirement to 7.0 largely because MTBE RFG is highly 
accommodative of a 7.0 volatility requirement. In other words, some 
fuel-blend specifications set by the cleaner burning gasoline (CBG) 
program are designed around a model expectant of MTBE use.
    In terms of CO emissions, one of the known benefits of requiring 
oxygenates during the discussions leading up to the Clean Air Act's 
oxygen mandate was that oxygen-content provided CO reductions and 
enhanced ozone reductions for the RFG program without the complications 
of trying to impose hydrocarbon-based control strategies to combat the 
ozone-forming potential of CO. Ethanol use will further reduce the 
formation of ground-level ozone from CO, as well CO concentrations in 
general. Concerns regarding a possible 100 ton/day increase in HC 
emissions may overlook the possibly crucial 800 ton/day decrease in CO 
emissions.\8\
---------------------------------------------------------------------------
    \8\ Based on CARB's inventory of 8327 tons/day CO emissions in CA 
from mobile sources in 1997, and the new CARB study which concludes 
that ethanol reduces CO by 10% more than MTBE.
---------------------------------------------------------------------------
    Inclusion of CO emissions in an ethanol-related air quality 
analysis may be even more important if a recent Urban Airshed Model 
(UAM) accurately reveals that exhaust hydrocarbon emissions from 
gasoline vehicles produce about as much ozone as exhaust carbon 
monoxide emissions.\9\ Under these conditions, a 10% reduction in 
carbon monoxide emissions may be as important to ozone reduction as a 
10% hydrocarbon emissions reduction. In terms of ethanol, and 
irrespective of the benefits of reducing CO exclusively, a 10% CO 
reduction would reduce ground level ozone levels by enough to 
counteract the ozone effects of a 100 tons per day increase in HC 
emissions.\10\
---------------------------------------------------------------------------
    \9\ Gary Whitten, ``Potential Extra Air Quality Benefits From 
Oxygenates That Are Not Required to Meet Reformulated Gasoline 
Specifications,'' report prepared for the 9th CRC On-Road Vehicle 
Emissions Workshop, San Diego, CA, April 19-21, 1999.
    \10\ Based on CARB's TOG emissions inventory of 1066 tons per day. 
100 tons more is equivalent to roughly a 10% increase in HC, which 
would be counteracted by a 10% reduction in CO based on the latest UAM 
research.
---------------------------------------------------------------------------
    Air quality effects should be considered for: (a) those compounds 
which would replace oxygenates in non-oxy fuel; (b) older, high 
emitting engines, which clearly benefit from oxygenates. Although 
oxygenates have little effect on new model automobiles, they clearly 
improve CO emissions among older vehicles, and slightly improve HC 
emissions.
    Experts also believe that non-oxy fuel will contain higher levels 
of aromatics, paraffins and other toxins such as toluene. Increased use 
of these gasoline constituents may produce higher levels of airborne 
benzene, olefins, peroxyactyl nitrates (PAN), fine particulate matter 
(PM), nitrogen oxides (NOX) and other harmful toxins.
                                 ______
                                 
    Prepared Statement of Janet Hathaway, Senior Attorney, and Dave 
  Hawkins, Senior Attorney on Behalf of the Natural Resources Defense 
                             Council (NRDC)
 a. mtbe contamination: america's challenge to better protect air and 
                                 water
    Detection of MTBE in water provides us with convincing evidence 
that our methods of storing, transporting and using gasoline and other 
petroleum fuels must be substantially improved. MTBE and other gasoline 
constituents have been detected in California in surface and ground 
water as well as in other states. These findings make obvious what we 
should have known: gasoline endangers our water, and improper storage 
of gasoline will result in soil contamination that can then endanger 
ground water.
    States also jeopardize water supplies when, as in California, they 
allow highly-polluting, very inefficient recreational vehicles on 
reservoirs--and where this happens, one finds not only MTBE but 
benzene, a known human carcinogen, and other gasoline toxics including 
toluene, xylene and ethylbenzene. Throughout the country, fuel storage 
tanks have been located in porous soil over shallow groundwater, and 
over the years many of these tanks leaked fuel. In such places, MTBE as 
well as a long list of gasoline constituents will be found, both in 
soil and in groundwater.
    MTBE is not the only dangerous substance in gasoline, but it has 
perhaps become the most notorious. Gasoline is a cocktail of known and 
suspected carcinogens, neurotoxins, and reproductive toxicants. Studies 
of workers exposed to gasoline suggest higher rates of leukemia, kidney 
cancers and other cancers may be associated with exposures to gasoline 
or its constituents.1 While today's science does not suggest 
that MTBE is among the most dangerous substances in gasoline, the fact 
that sensitive people detect a foul taste at concentrations of MTBE as 
low as a few parts per billion makes it impossible to ignore. Perhaps 
there is a silver lining in our inability to ignore this problem. We 
should ignore neither MTBE contamination nor any other of the pervasive 
gasoline spills and leaks endangering our environment.
---------------------------------------------------------------------------
    \1\ ``Potential Health Effects of Gasoline and Its Constituents: A 
Review of Current Literature (1990-1997) on Toxicological Data''. 
Environ. Health Perspect. 1998 Mar; 106(3):115-125; McKee RH, Plutnick 
RT Exxon Biomedical Sciences, Inc., East Millstone, New Jersey 08875-
2350, ``Carcinogenic potential of gasoline and diesel engine oils,'' 
Fundam. Appl. Toxicol.1989 Oct;13(3):545-553; Raaschou-Nielsen O, Lohse 
C, Thomsen BL, Skov H, Olsen JH Division for Cancer Epidemiology, 
Danish Cancer Society, Copenhagen, Denmark. [email protected], ``Ambient 
air levels and the exposure of children to benzene, toluene, and 
xylenes in Denmark,'' Environ Res, 1997 Nov; 75(2):149-159; Infante PF 
Health Standards Program, Occupational Safety and Health 
Administration, Washington, DC 20210, ``State of the science on the 
carcinogenicity of gasoline with particular reference to cohort 
mortality study results,'' Environ Health Perspect 1993 Dec;101 Suppl 
6:105-109; Hadnagy W, Seemayer NH Medizinisches Institut fur 
Umwelthygiene, Universitat Dusseldorf, FRG.; ``Genotoxicity of 
particulate emissions from gasoline-powered engines evaluated by short-
term bioassays.'' Exp Pathol 1989;37(1-4):43-50; Environ Health 
Perspect 1985 Oct;62:303-312 ``Epidemiologic evidence for an 
association between gasoline and kidney cancer.'' Enterline PE, Viren 
J; Lynge E, Andersen A, Nilsson R, Barlow L, Pukkala E, Nordlinder R, 
Boffetta P, Grandjean P, Heikkila P, Horte LG, Jakobsson R, Lundberg I, 
Moen B, Partanen T, Riise T Danish Cancer Society, Copenhagen, 
Denmark., ``Risk of cancer and exposure to gasoline vapors,'' Am J 
Epidemiol 1997 Mar 1;145(5):449-458; Hotz P, Lauwerys RR Unit of 
Industrial Toxicology and Occupational Medicine, Catholic University of 
Louvain, Brussels, Belgium, ``Hematopoietic and lymphatic malignancies 
in vehicle mechanics,'' Crit Rev Toxicol 1997 Sep;27(5):443-494; 
Enterline PE Graduate School of Public Health, University of 
Pittsburgh, PA 15261, ``Review of new evidence regarding the 
relationship of gasoline exposure to kidney cancer and leukemia.''; 
Environ Health Perspect 1993 Dec;101 Suppl 6:101-103; Caprino L, Togna 
GI, Institute of Medical Pharmacology, University of Rome ``La 
Sapienza,'' Rome, Italy, Potential Health Effects of Gasoline and Its 
Constituents: A Review of Current Literature (1990-1997) on 
Toxicological Data; Guldberg PH Tech Environmental, Inc., Waltham, MA 
02154. ``Gasoline and vapor exposures in service station and leaking 
underground storage tank scenarios.'', J Expo Anal Environ Epidemiol 
1992 Jan;2(1):97-107.
---------------------------------------------------------------------------
    If the nation responds to the evidence of gasoline contamination 
merely by banning MTBE, the larger environmental problem represented by 
thousands of leaking tanks and recurrent gasoline spills will remain. 
Will we simply repeat today's scenario a few years hence with a 
different chemical ``culprit''--another ether or another gasoline 
constituent? That would be most unfortunate. Instead, let us use what 
we've learned about the dangers gasoline contamination poses to the 
environment to better protect air, water and soil.
    The challenge is to preserve the air quality benefits that have 
resulted from reformulated gasoline (RFG)--which will increase with 
Phase II of the federal RFG program beginning in December of this 
year--while taking action to improve protection of our reservoirs, 
ground water and surface water.
    Various bills have been introduced in this and the previous 
Congress to address concerns about contamination of groundwater. NRDC 
supports giving states flexibility to limit or even eliminate their 
oxygenate use so long as the states preserve the air quality benefits 
of reformulated gasoline (RFG). Different legislative approaches could 
achieve that end.
    One approach would simply eliminate the minimum oxygen content 
requirement currently in the Clean Air Act. NRDC would support such 
legislation if it includes an express requirement to preserve all 
existing and anticipated RFG air quality benefits. We understand that 
Senator Chafee is proposing legislation which has that objective. The 
Clean Air Act and regulatory performance standards mandating reductions 
of air toxics and ozone precursors, however, would remain in place. 
With some needed drafting changes to clarify the critical requirement 
to preserve all current and anticipated RFG benefits, the Chafee bill 
would be a positive step.
    Another approach is embodied in legislation before this committee. 
H.R. 11 (introduced by Mr. Bilbray of California, with a companion 
Senate bill introduced by Senator Feinstein) allows any state which 
adopts especially stringent vehicle standards because of serious air 
pollution and which EPA determines to have a reformulated fuels program 
at least as effective as the federal program (``achieving equivalent or 
greater emissions reductions'') to apply state fuel standards instead 
of the federal program specifications. This approach would effectively 
eliminate the specification of oxygen content but would require 
equivalent reductions of toxic emissions and ozone precursors. This 
approach also is meritorious in providing flexibility to states to 
ensure air quality protection without requiring a specified percentage 
of oxygenates in fuels.
    Both of these approaches are good first steps toward improving 
fuels in ways that better protect our water supplies.
    But it is important that such bills be accompanied by two 
additional initiatives: concerted efforts to identify funds for 
remedial action at sites contaminated by fuel leaks and spills; and a 
revamping of programs to minimize future leaks from tanks and reservoir 
contamination. If we have learned from the legacy of gasoline spills 
and leaks, we will establish a coordinated program of better fuel 
storage regulation, clear liability for those owning or operating 
leaking tanks or pipelines, better enforcement against those 
responsible for fuel spills and leaking tanks, and better financial 
resources to address abandoned sites.
    Elimination of the minimum oxygen requirement for reformulated 
gasoline unquestionably moves fuel policy in the proper direction. 
While this alone will not eliminate spills and leaks of fuels and 
oxygenates, it is a necessary prerequisite to state, regional, and 
national action to reduce oxygenates in gasoline and to reduce threats 
to water.
   b. congressional action should not reduce air quality benefits of 
                         reformulated gasoline.
1. Air Quality Benefits of RFG and RFG Phase II Should be Preserved.
    Absolutely fundamental to NRDC is the preservation of air quality 
benefits achieved through reformulated fuels. These benefits cannot be 
allowed to decline in any manner. If the mandate for 2% by weight 
oxygen in gasoline is eliminated, fuels are still required to meet the 
performance standards for RFG established by EPA in 1994.2 
This does ensure that certain fuel parameters specified in the Clean 
Air Act will not be violated, but these specifications do not provide 
sufficient detail to ensure all air quality benefits will be retained. 
Without further regulatory action, reductions in oxygenates could cause 
some regions to experience increases of olefins in gasoline, which in 
turn would increase atmospheric levels of 1,3-butadiene, a potent 
carcinogen. EPA should commence rule-making to ensure that the nation's 
fuels will reduce aromatics, toxics, and volatile organics, as required 
by the Clean Air Act, without increases in nitrogen oxides, and without 
increases of other toxics in the new fuel. EPA must also ensure that 
areas with conventional (i.e., non-reformulated) gasoline will not 
suffer a decline in fuel quality and increasing air pollution as 
refiners shift cleaner fuel to the RFG areas.
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    \2\ Environmental Protection Agency, ``Regulation of Fuels and Fuel 
Additives: Standards for Reformulated and Conventional Gasoline,'' 
Federal Register, February 16, 1994.
---------------------------------------------------------------------------
    Some confusing news reports have suggested that oxygenates have no 
air quality benefits. This is not true. While air quality has improved 
from the use of oxygenates, these benefits need not be forfeited from 
future formulations using lower concentrations of oxygenates or even no 
oygenates at all. However, this does not mean that making a transition 
to low- or no-oxygenate fuel can be immediate or without cost.
    A fair part of the confusion on this issue has resulted from a 
report from University of California researchers stating that fuels 
could provide equivalent benefits without using oxygenates.
    The California legislature requested the University of California 
to quantify the benefits attributable to MTBE from California's 
reformulated, oxygenated fuel.3 Unfortunately, this request 
was not one that could directly be met. On the one hand, the UC did 
estimate the benefit of reformulated gasoline and found it to be 
substantial. Ca RFG with about 11% MTBE reduced emissions of ozone 
precursors (volatile organic compounds and nitrogen oxides) from 
gasoline vehicles by about 15 percent (300 tons per day), reduced CO 
emissions by about 11 percent (1300 tons per day), and reduced sulfur 
dioxide (SO ) emissions by about 80 percent (30 tons per 
day).4 Ca RFG with MTBE at about 11% reduces the use of 
aromatics (such as benzene) in gasoline by about 25%.5 These 
are enormous benefits, essential for attainment of health-protective 
air quality standards for ozone, CO and particulate matter. ARB 
analysis of air monitoring data suggest that the Ca RFG program may 
have reduced ozone levels in Southern California and Sacramento by 10 
percent and 12 percent, respectively.6
---------------------------------------------------------------------------
    \3\ Keller et al., UC MTBE Report, Executive Summary and 
Recommendations, Health and Environmental Assessment of MTBE, Report to 
the Legislature of the State of California, November 12, 1998, p. 11. 
UC MTBE Report Internet web site http:.www.tsrtp.ucdavis.edu/mtberpt.
    \4\ California Environmental Protection Agency, MTBE (Methyl 
tertiary butyl ether) Briefing Paper, updated September 3, 1998, p. 7-
8.
    \5\ Oxygenated Fuels Association, ``A Critical Review of the 
University of California's Report on the Health and Environmental 
Assessment of MTBE,'' December 1998, p. 14.
    \6\ California Air Resources Board, ``Cleaner-Burning Gasoline: An 
Assessment of Its Impact on Ozone Air Quality in California,'' October 
1997.
---------------------------------------------------------------------------
    But UC Berkeley report representatives noted they could not simply 
compare CA RFG with MTBE and CA RFG without MTBE, and attribute 
differences to MTBE.7 The reason is that there is no way to 
remove only the oxygenates from the fuel but still meet the state's 
mandatory gasoline performance standards. In other words, oxygenates 
are an integral part of the current formulation, and one cannot simply 
remove oxygenates and still have a gasoline meeting the RFG standards. 
However, according to oil company representatives from Tosco and 
Chevron 8, if oxygenates are reduced or removed and other 
fuel parameters are changed in very precise ways, the resulting fuel 
may meet the stringent California RFG standards,
---------------------------------------------------------------------------
    \7\ U.C. Berkeley presentation before the U.S. EPA Blue Ribbon 
Panel on Oxygenates, Sacramento, CA, March 25, 1999.
    \8\ Tosco and Chevron presentations before the U.S. EPA Blue Ribbon 
Panel on Oxygenates, Sacramento, CA, March 26, 1999.
---------------------------------------------------------------------------
    Oxygenates have useful qualities that induced oil companies to use 
them in fuels. They function in gasoline to provide octane enhancement, 
allow dilution and reduction of aromatics (resulting in lower toxics 
both from evaporation and combustion), and provide available oxygen to 
reduce CO formation from engines. The ethers like MTBE and ETBE, unlike 
ethanol, can be stored and transported with existing infrastructure and 
do not increase vapor pressure. Nevertheless, the oxygenates definitely 
pose environmental problems when they spill or leak, because they move 
relatively rapidly through soil and the ethers resist degradation.
    The UC Report attempted to answer the confusing question, ``What 
air quality benefits come from using MTBE?'' by saying that though 
there are substantial air quality benefits from CA reformulated 
gasoline, these benefits are not uniquely attributable to MTBE. 
Although reformulated gasoline with oxygenates provided real and 
substantial benefits, and though MTBE is an integral part of much of 
the current RFG, those benefits can be obtained through other fuel 
formulations.
    There is a danger that some people may mistakenly infer from the 
finding that oxygenates are not ``essential'' the conclusion that 
eliminating all oxygenates immediately and completely is without risk. 
That inference is not warranted. Especially for federal reformulated 
gasoline, with its higher aromatics, higher vapor pressure and much 
higher sulfur levels, taking MTBE out without establishing careful 
standards for the new fuel formulation could result in increased air 
toxics and more smog.
2. The Clean Air Act Establishes Air Quality Performance Standards for 
        Reformulated Gasoline: Fuels Using Minimal Oxygenates Can 
        Reduce Threats of Water Contamination.
    An Auto/Oil study of 1995 and subsequent oil industry 
pronouncements confirm that refiners can provide large supplies of non-
oxygenated fuels. In late 1997, as debate about MTBE intensified, a 
variety of oil industry representatives stated that they have 
manufactured fuels with the air quality benefits of RFG and greatly 
reduced levels of oxygenates.
    Fortunately for the federal RFG program, the EPA's model already 
evaluates the air quality benefits of different formulations of RFG 
with specific consideration of the properties of different oxygenates 
which may be used. Because that model is already a number of years old 
and does not reflect the newest health and environmental studies, and 
because that model did not take into account the volatility effects 
that occur when different oxygenates are mixed (this ``commingling'' 
effect is especially significant when ethanol blends are mixed with 
non-ethanol blends), US EPA needs to further improve its model to 
ensure that changes in fuels, including modifying oxygenate amounts and 
types, do not lead to any diminution in air quality. Furthermore, it 
will be important for US EPA to ensure that conventional gasoline is 
not adversely affected by refiners'' efforts to supply cleaner fuel to 
RFG areas.
    US EPA should evaluate the need for stringent parameters (``cap 
limits'') for individual toxics in gasoline. If this is not done before 
fuels are modified, the known human cancer-causing substances in 
gasoline fumes or tailpipe emissions, such as benzene and 1,3-
butadiene, may well increase. The Clean Air Act wisely establishes 
performance standards to be achieved by the fuel, including limits on 
total toxics and aromatics. But EPA must make further careful 
evaluations to ensure that overall risk is not increases, even while 
total mass emissions of toxics may remain stable. EPA must also 
consider potential trade-offs posed by different fuel formulations, 
such as increasing potential risks through other exposure routes, such 
skin absorption, as well as ensuring that the fuel meets RFG 
performance criteria. This evaluation must include full consideration 
of potential risks to water supplies and aquatic life from new fuel 
formulations.
    EPA can, and should, prevent increases of the concentrations of 
toxics and known carcinogens by further restrictions on aromatics and 
olefin content or by specific cap limits. Acetalydehyde and 
formaldehyde, both carcinogens which are already present at risky 
levels in urban air from gasoline combustion, must be carefully 
limited. Hazards from fuel evaporation, combustion emissions, and the 
chemical transformation of these substances in the atmosphere must all 
be carefully considered to ensure no backsliding in environmental 
progress.9
---------------------------------------------------------------------------
    \9\ While MTBE increases atmospheric levels of formaldehyde, 
ethanol and ethyl tertiary butyl ether (ETBE), tertiary amyl methyl 
ether (TAME), significantly increase acetalydehyde.
---------------------------------------------------------------------------
  c. other oxygenates should be studied for health and environmental 
                                effects.
    Federal law currently requires the use of oxygenates. Many have 
suggested repealing this requirement, in order to reduce oxygenate use 
throughout the country. This committee has legislation before it with 
substantially the same effect.
    The United States Environmental Protection Agency warned, ``It 
should not be inferred that the only oxygenate warranting attention is 
MTBE or, for that matter, that the issues identified here are 
necessarily unique to oxyfuels.'' 10 With new scientific 
data and practical experience, the U.S. EPA must carefully modify fuel 
regulations to protect the environment and human health.
---------------------------------------------------------------------------
    \10\ Office of Research and Development, United States 
Environmental Protection Agency, Oxygenates in Water: Critical 
Information and Research Needs, EPA/600/R-98/048, December 1998, p. 5.
---------------------------------------------------------------------------
    As a policy matter, NRDC recommends resisting pleas that fuel 
constituents be mandated or that recipes of the fuel be defined by law. 
The risks of MTBE contamination should not be reduced in ways that 
simply increase other less-studied risks. To avoid a repetition of fuel 
contamination problems of recent years, full environmental and health 
impacts of alternatives to MTBE should be evaluated before they are 
used in gasoline.11
---------------------------------------------------------------------------
    \11\ ``Selection of an alternative to MTBE should not occur without 
adequate health effects and exposure assessment, and that is an 
important consideration in evaluating the potential efficacy of ethanol 
as an MTBE substitute.'' Froines, et al, ``An Evaluation of the 
Scientific Peer-Reviewed Research and Literature on the Human Health 
Effects of MTBE, its Metabolites, Combustion Products and Substitute 
Compounds,'' Report to the Legislature of the State of California, 
Volume II, Human Health Effects, November 1998, p. 179.
---------------------------------------------------------------------------
    Even if the federal minimum requirement for oxygenates were 
repealed, it is likely that some use of oxygenates, whether ethanol, 
other alcohols 12 or ethers 13, would persist. 
The simple reason is that these substances boost octane in gasoline. 
The phase-out of lead, a dangerous neurotoxin, has required refiners to 
find alternatives for enhancing octane levels in gasoline.14 
Without further environmental and health studies on the other 
oxygenates, it is impossible to know if substitution alternative 
oxygenates for MTBE will affect public health adversely.
---------------------------------------------------------------------------
    \12\ Other alcohols which may be used as oxygenates include 
methanol and tertiary butanol (TBA).
    \13\ Other ethers which may be used as oxygenates include ethyl 
tertiary butyl ether (ETBE), tertiary amyl methyl ether (TAME), 
tertiary amyl ethyl ether (TAEE), diisopropul ether (DIPE) and dimethyl 
ether (DME). Only the first two have been used in significant 
quantities to date.
    \14\ The choices for octane enhancement have been properly limited 
by restrictions on toxic aromatics and neurotoxic metals such as lead 
and manganese compounds (e.g., MMT).
---------------------------------------------------------------------------
1. Alternative Ethers May Not Reduce Groundwater Contamination.
    Dr. John Froines and other University of California physicians and 
health scientists warn against assuming that MTBE is the only oxygenate 
posing environmental and health risks. ``Introduction of these 
compounds [alternative ethers, including ETBE, TAME, and DIPE] as a 
substitute for MTBE is not advisable at this point in time given the 
paucity of data on their health effects.'' 15
---------------------------------------------------------------------------
    \15\ Froines, et al. Report to the Legislature of the State of 
California, Volume II, Human Health Effects, November 1998, pp. 179-
180.
---------------------------------------------------------------------------
    MTBE has been extensively studied for both acute and chronic 
effects in animals and, to some extent, in humans. Some aquatic 
toxicity studies have been conducted for the alternative ethers, but 
essentially nothing is known about chronic health and environmental 
impacts of alternative ethers, including ETBE and TAME.16 
``The information on the health effects and toxicology of the other 
substitutes, ETBE, TAME and DIPE is extremely limited.'' 17 
What is know is that none of these oxygenates are without risk. All of 
the oxygenates can move swiftly through soil if spilled or leaked. 
There is no reason to believe other ethers would reduce toxicity 
relative to MTBE, and they, like MTBE, may make water unpalatable at 
extremely low concentrations.
---------------------------------------------------------------------------
    \16\ US EPA has required manufacturers to study the effects of 
chronic exposure to ETBE and TAME. The results will not be available 
for at least another year. See ORD, United States Environmental 
Protection Agency, Oxygenates in Water: Critical Information and 
Research Needs, EPA/600/R-98/048, December 1998, p. 24.
    \17\ Froines, et al, ``An Evaluation of the Scientific Peer-
Reviewed Research and Literature on the Human Health Effects of MTBE, 
its Metabolites, Combustion Products and Substitute Compounds,'' Report 
to the Legislature of the State of California, Volume II, Human Health 
Effects, November 1998, p. 179.
---------------------------------------------------------------------------
2. Ethanol Use May Increase Air Toxics and Pose Additional Health 
        Risks.
    Ethanol is a familiar product, but it also poses health concerns. 
The UC Report on Health Effects states, ``Use of ethanol would result 
in increased atmospheric concentrations of acetaldehyde and 
peroxyacetylnitrate (PAN). Acetaldehyde has been listed as a Toxic Air 
Contaminant in California based on evidence of carcinogenicity and 
while PAN has not been tested for carcinogenicity, it is genotoxic 
[causes genetic damage] and produces respiratory and eye irritation and 
may produce lung damage.'' 18 In a separate section these 
scientists reiterate, ``The formation of formaldehyde, acetaldehyde and 
PAN in the atmosphere [from ethanol use] are matters of considerable 
concern and represent one of our highest recommendations for future 
research.'' 19
---------------------------------------------------------------------------
    \18\ Froines et al, ``An Evaluation of the Scientific Peer-Reviewed 
Research and Literature on the Human Health Effects of MTBE, its 
Metabolites, Combustion Products and Substitute Compounds,'' Report to 
the Legislature of the State of California, Volume II, Human Health 
Effects, November 1998, p. xix.
    \19\ Froines et al, 1998, p. 179.
---------------------------------------------------------------------------
    Studies of high level exposures to ethanol (virtually all studies 
of ingestion rather than inhalation) demonstrate that ethanol increases 
a variety of adverse human health effects, ranging from developmental 
toxicity, central nervous system dysfunction, teratogenicity (birth 
defects), reproductive disorders and cancer 20. Pregnant 
women are generally advised to avoid ethanol exposure by avoiding 
alcoholic beverages, because chronic ingestion is known to cause fetal 
alcohol syndrome, a profound birth defect including major neurological 
dysfunction. Some data suggest developmental toxicity even at low 
doses.21 Today pregnant women can effectively avoid ethanol 
exposure. But if gasoline blends contain ethanol, pregnant women may 
find it impossible to avoid ethanol exposure through air when they 
refuel their vehicle. Today, no one knows if such exposures could be 
harmful to the developing fetus.
---------------------------------------------------------------------------
    \20\ Froines et al, ``An Evaluation of the Scientific Peer-Reviewed 
Research and Literature on the Human Health Effects of MTBE, its 
Metabolites, Combustion Products and Substitute Compounds,'' Report to 
the Legislature of the State of California, Volume II, Human Health 
Effects, November 1998, pp. 144-153, 179., Health Effects Institute. 
The Potential Health Effects of Oxygenates Added to Gasoline, A Review 
of the Current Literature. A Special Report of the Institute's 
Oxygenates Evaluation Committee. April 1996.
    \21\ Froines, op cit. p. 150-151.
---------------------------------------------------------------------------
    Before expanding the use of ethanol in gasoline, policy makers and 
the public should better understand the health impacts. Combustion 
products of ethanol include both formaldehyde and acetalydehyde, both 
known carcinogens. Likely sub-populations with special sensitivity to 
ethanol exposure include pregnant women and people with a specific 
genetic trait affecting their metabolism of ethanol.22 This 
genetic trait, a trait which a majority of Asian populations share, 
experience much higher blood levels of acetaldehyde and an increased 
potential for allergic reactions after ethanol exposure.23 
Without further research, we are merely gambling that low-level, long-
term ethanol exposure will not increase health hazards.
---------------------------------------------------------------------------
    \22\ Froines, op cit., p. 145-146.
    \23\ Froines, op cit, p. 145-148.
---------------------------------------------------------------------------
     d. leaking fuel tanks are major sources of mtbe contamination.
    The experience in California is that the overwhelming source of 
MTBE in groundwater is leaking fuel tanks, and the predominant source 
of MTBE in surface water is recreational boating. But it is impossible 
to say that these factors are important or even significant in all 
regions of the country. Because every area has its own unique geology, 
and California's soils may be more permeable to petroleum spills and 
oxygenates than soils with greater organic content, the California 
experience may be instructive only for areas with similar, permeable 
soils and/or shallow groundwater supplies used for drinking water.
    California has long had a huge number of underground storage tanks, 
most of which store petroleum products. An inventory in the 1984 
revealed over 100,000 underground tanks. The State estimates it has now 
has over 50,000 operating underground storage tanks--about 6% of the 
nation's total.24
---------------------------------------------------------------------------
    \24\ Fogg et al, ``Impacts of MTBE on Groundwater,'' Health and 
Environmental Assessment of MTBE, Report to the Legislature of the 
State of California, Volume IV: Ground & Surface Water, November 1998, 
p. 14.
---------------------------------------------------------------------------
    California began efforts to regulate underground tanks in the early 
1980s to protect the state's groundwater from solvents and fuels. Since 
then regulations have required tank owners to obtain permits, test 
tanks for leaks, and upgrade tanks with new containment and monitoring 
technology. In 1989 California also established a fund to help 
underground storage tank owners address leaking tanks 25 by 
imposing a mill fee on each gallon of petroleum tank owners put in to 
underground storage.26 The fee has been increased by 
subsequent legislation, but in light of the new demands on the fund for 
more costly clean-ups, further increases may be necessary.
---------------------------------------------------------------------------
    \25\ Underground Storage Tank Cleanup Trust Fund Act, SB 299, 
Keene, 1989.
    \26\ Wiley, Kip, Senate Office of Research, California Legislature, 
``Clean Air vs. Clean Water Does California Need MTBE?,'' February 
1998.
---------------------------------------------------------------------------
    As of June 1998, at least 32,779 sites in California were 
identified as leaking chemical compounds.27 Ninety percent 
(90%)--more than twenty-nine thousand leaking California tanks--held 
petroleum products. In December of 1998 more stringent federal 
underground storage tanks requirements took effect, which required old 
and deteriorated tanks to be replaced. The State believes most of the 
worst leaking tanks were taken out of service. Nevertheless, of the 
thousands of corroded tanks which contaminated soil nearby, only a 
small percentage were actively treated to remove contaminants. In most 
sites involving petroleum products, the chosen remedy was ``natural 
attenuation''--essentially waiting for soil microorganisms to 
biodegrade the harmful compounds.28
---------------------------------------------------------------------------
    \27\ Fogg, et al, ``Impacts of MTBE on Groundwater,'' Health and 
Environmental Assessment of MTBE, Report to the Legislature of the 
State of California, Volume IV: Ground & Surface Water, November 1998, 
p. 6.
    \28\ Fogg, et al, ``Impacts of MTBE on Groundwater,'' Health and 
Environmental Assessment of MTBE, Report to the Legislature of the 
State of California, Volume IV: Ground & Surface Water, November 1998, 
p. 57.
---------------------------------------------------------------------------
    As of 1998, 3,486 groundwater sites have been identified with MTBE 
contamination.29 Not surprisingly, ``MTBE impacts to 
drinking water wells were similar to benzene impacts given current 
regulatory action levels.'' 30 Fortunately, a small 
percentage of these sites involve high concentrations.
---------------------------------------------------------------------------
    \29\ Fogg, et al, ``Impacts of MTBE on Groundwater,'' Health and 
Environmental Assessment of MTBE, Report to the Legislature of the 
State of California, Volume IV: Ground & Surface Water, November 1998, 
p. 23.
    \30\ Happel et al, Lawrence Livermore National Laboratory, An 
Evaluation of MTBE Impacts to California Groundwater Resources, report 
submitted to the California State Water Resources Control Board 
Underground Storage Tank Program, June 11, 1998, p. 32. Also see Keller 
et al, stating that the benzene, toluene, xylene and ethylbenzene 
components of gasoline were found at approximately 50% of leaking fuel 
sites and MTBE was found at about 49%, ``Cost and Performance 
Evaluation for MTBE-contaminated Water,'' Health and Environmental 
Assessment of MTBE, Report to the Legislature of the State of 
California, Volume V, November 1998, p.49.
---------------------------------------------------------------------------
    More leaks may threaten ground water, since many ``closed sites''--
leaking sites no longer under investigation--were not tested for MTBE 
and were not actively remediated.31 Leaking underground fuel 
storage tanks are believed to be the primary source of acute 
groundwater contamination of MTBE (levels above 20ug/l) in 
California.32 Experts say old tank removal may reduce the 
rate of tank failures in the near future.
---------------------------------------------------------------------------
    \31\ Fogg et al, in ``Impacts of MTBE on Groundwater,'' Health and 
Environmental Assessment of MTBE, Report to the Legislature of the 
State of California, Volume IV: Ground & Surface Water, November 1998, 
p. 28, state that 169 of 186 closed gasoline contaminated sites in Los 
Angeles had detectable concentrations of MTBE, as did 38 of 65 closed 
gasoline sites in the Central Valley.
    \32\ Fogg, op cit., p. 7.
---------------------------------------------------------------------------
    But if gasoline contains oxygenates, future gasoline tank leaks 
involving MTBE appear inevitable. Even new tanks will eventually fail 
through material aging, operator error, and accident. There are also 
some reports of MTBE + gasoline groundwater contamination from pipeline 
leaks, above ground fuel tanks failures, and gasoline tanker truck 
accidents, and these will continue as long as oxygenate use 
continues.33
---------------------------------------------------------------------------
    \33\ Fogg, op cit., pp. 31-34.
---------------------------------------------------------------------------
     e. california, and the nation, must swiftly address gasoline 
                          contamination sites.
    Chemical properties of oxygenates tend to make gasoline leaks and 
spills more problematic when they include oxygenates. Ethers and 
alcohols are highly water soluble and only weakly adsorbed by soil, so 
these oxygenates move through soil essentially as rapidly as 
groundwater once they leak or spill. Ethers are resistant to 
decontamination by soil microorganisms. Alcohols, however, are 
preferentially consumed by soil microbes relative to conventional 
gasoline compounds. The consequence, in either case, may be a more 
persistent, rapidly migrating plume of contaminants, requiring more 
complex intervention.
    Probably at least as problematic as rapid soil migration is the 
very low odor and taste threshold of ethers, which make water with even 
minute (parts per billion) quantities of MTBE or other ethers 
objectionable to most consumers.34 The positive side of this 
characteristic is that people will not be inadvertently exposed to 
drinking water contaminated with even extremely small levels of MTBE 
contamination--the foul taste will warn anyone away from drinking such 
water. But this ability to detect trace contamination increases 
pressure on water agencies concerned about providing acceptable water 
and worried about treatment costs of reducing any contamination to 
extremely low levels.
---------------------------------------------------------------------------
    \34\ Office of Research and Development, United States 
Environmental Protection Agency, Oxygenates in Water: Critical 
Information and Research Needs, EPA/600/R-98/048, December 1998, p. 20. 
EPA cites recent studies suggesting that taste and odor thresholds may 
be even lower for ETBE and TAME than for MTBE.
---------------------------------------------------------------------------
    Cleanup of gasoline spills including any oxygenate must be designed 
to respond to the specific constituents and conditions at the site. 
Oxygenates may increase the cost of cleanup, with estimates of MTBE 
clean-up costs vary from 25% to 80% higher than comparable gasoline 
spills without oxygenates.\35\,\36\ MTBE and other ethers 
are persistent in the soil as compared to benzene and other typical 
gasoline constituents, and recent evidence about the effectiveness of 
biodegradation is equivocal.37
---------------------------------------------------------------------------
    \35\ Kavanaugh, M., Malcolm Pirnie, Inc, ``Brief Review of MTBE 
Fate, Transport, and Remediation,'' presentation of February 4, 1999, 
p. 10-11, estimates a 25% increase in treatment costs.
    \36\ Keller, et al, Cost and Performance Evaluation of Treatment 
Technologies for MTBE--Contaminated Water, Health and Environmental 
Assessment of MTBE, Report to the Legislature of the State of 
California, Volume III, November 1998, p. 30 offer an estimated cost 
increase for treatment of MTBE-contaminated water of from 40% to 80% 
over treatment of water contaminated with conventional, non-oxygenated 
gasoline.
    \37\ Office of Research and Development, United States 
Environmental Protection Agency, Oxygenates in Water: Critical 
Information and Research Needs, EPA/600/R-98/048, December 1998, p. 10-
12
---------------------------------------------------------------------------
    Early fears that MTBE-contaminated sites could not be remediated 
now appear excessively pessimistic.38 However, it appears 
likely that many MTBE-contaminated sites will persist and migrate with 
ground water unless active intervention occurs. Although prevention of 
gasoline spills and leaks must be a national priority, once leaks are 
identified, remedial action should be swift and complete.
---------------------------------------------------------------------------
    \38\ Office of Research and Development, United States 
Environmental Protection Agency, Oxygenates in Water: Critical 
Information and Research Needs, EPA/600/R-98/048, December 1998, pp. 
30-37. Also see Kavanaugh, Malcolm Pirnie, Inc. ``Review of the UC 
SB521 Study: Water Treatment and Remediation Costs,'' December 1998.
---------------------------------------------------------------------------
f. congress can help reduce contamination by allowing reduced oxygenate 
                                  use.
    In the last Congress and again in this Congress, Representative 
Brian Bilbray of San Diego and California Senator Dianne Feinstein 
introduced bills to allow states to reduce or eliminate oxygenates 
under certain conditions providing the fuel achieves equivalent or 
greater emission reductions. This legislation, or legislation which 
simply eliminates the requirement for minimum percentage of oxygenate 
in fuels, would be a sound first step at addressing contamination from 
gasoline spills containing oxygenates, if it were revised to include 
clear requirements assuring that the air quality benefits of the 
oxygenate mandate are not lost. Of course, the legislation should also 
promote more effective gasoline containment and better enforcement of 
current storage or cleanup requirements. It is however, not realistic 
to expect any legislative action to eliminate water contamination 
problems from past or future spills or leaks.
    While supporting the goal of minimization of oxygenate use, NRDC 
has been reluctant to encourage any amendments to the Clean Air Act, 
and will resist any broad opening of this landmark statute. . If the 
Bilbray / Feinstein bills, or similar bills designed only to remove the 
required oxygenate minimum while preserving RFG air quality benefits, 
can be enacted, we believe this would begin to remedy a serious 
environmental threat, especially for parts of the country with shallow 
surface water or highly permeable soils. The problem posed by gasoline 
spills should trigger further examination and strengthening of federal 
authority to protect and clean water supplies contaminated with 
petroleum products. But NRDC will continue to vigorously oppose opening 
the Clean Air Act beyond this narrow issue.
h. nrdc's recommendations for addressing air and water quality concerns 
                      arising from oxygenate use:
1. The Federal Reformulated Gasoline Program must preserve all air 
        quality benefits, including the air toxics, ozone precursor, 
        and aromatic reductions, which were required by the Clean Air 
        Act. EPA should ensure that any future changes in RFG (such as 
        changing or reducing oxygenates) do not increase levels of 
        toxics or ozone precursors either in areas using RFG or in the 
        rest of the country using conventional gasoline.
2. Congress can reduce the risk to water supplies from petroleum spills 
        by elimination of the minimum oxygen content requirement in 
        federal reformulated gasoline coupled with clear requirements 
        to fully preserve RFG air quality benefits, including those 
        benefits that flow from the existing oxygenate mandate.
3. Remediation should occur swiftly at sites where gasoline has spilled 
        or leaked Passively awaiting microbiological degradation of 
        gasoline contaminants should not be assumed appropriate for 
        fuel spills or leaks, particularly those threatening water 
        resources. Costs for the cleanup should be recovered from 
        parties responsible for the spills or leaks.
4. Protection of surface water depends on careful regulation of boating 
        (and restrictions on the use of jet skis or other inefficient 
        2-stroke gasoline engines). Restrictions on numbers of boats, 
        engine types and fueling methods can help to reduce water 
        contamination, and appear necessary regardless of future 
        oxygenate policy.
5. The country needs improved fuel storage tank regulations, including 
        improving siting and monitoring restrictions. Furthermore, 
        enforcement must be strict to ensure recovery of cleanup costs 
        from those responsible for spilling or improperly storing fuel.
                                 ______
                                 
        South Coast Air Quality Management District
                                            Diamond Bar, CA
                                                        May 4, 1999
The Honorable Brian Bilbray
U.S. House of Representatives
Longworth House Office Building Suite 1530
Independence and New Jersey Avenue SE
Washington, DC 20515

H.R. 11--California Reformulated Gas Rules

    I am pleased to inform you that the South Coast Air Quality 
Management District (AQMD) supports your H.R. 11, which would amend the 
Clean Air Act to allow California's cleaner-burning gasoline 
regulations to apply in California, in lieu of existing federal 
regulations, when California regulations achieve equivalent or greater 
reductions in emissions of ozone-forming compounds and toxic 
contaminants.
    California has some of the worst air pollution in the nation. Since 
the introduction of reformulated gasoline in 1996, the South Coast Air 
Basin has experienced some of its best air quality in years. However, 
when the U.S. EPA was directed to adopt a federal reformulated gas 
program, only specified properties were mandated for use. This limited 
flexibility among refiners in producing cleaner-burning gasoline. H.R. 
11, along with California actions, provides refiners much greater 
flexibility in the formulation of cleaner-burning gasoline.
    Reformulated gasoline is a critical measure in California's State 
Implementation Plan. With this measure we can look forward to 
increasing the health of our residents in California and the South 
Coast Air Basin. We appreciate your efforts in this area and fully 
support H.R. 11.
            Sincerely,
                               Barry R. Wallerstein, D.Env.
                                                  Executive Officer
                                 ______
                                 
       California Environmental Protection Agency  
                                      Air Resources Board  
                                        Sacramento, CA 95812-2815  
                                                      July 31, 1996
The Honorable Thomas Bliley
Chairman, House Committee on Commerce
U.S. House of Representatives
Washington, DC 20515
    Dear Mr. Chairman: I am pleased to express the support of the 
California Air Resources Board (ARB) for H.R. 3518, which was 
introduced by Congressman Brian Bilbray on May 23, 1996. Under this 
bill, California cleaner burning gasoline regulations will apply in 
California in lieu of existing federal reformulated gasoline 
regulations as long as the California regulations achieve equivalent or 
greater reductions in emissions of ozone-forming compounds and toxic 
air contaminants than now result from the federal regulations.
    California has historically faced the most challenging and 
intractable air pollution problems in the nation. Because of our unique 
needs, for more than 25 years California has been the only state 
allowed by the federal Clean Air Act to develop and administer its own 
motor vehicle emission standards. As long as they are at least as 
protective as the federal standards and meet other criteria, our 
California motor vehicle emission standards can be substituted for the 
federal standards. California is also the only state given 
unconditional authority under the Clean Air Act to adopt its own 
emission control standards for gasoline and other motor vehicle fuels. 
In the case of fuels standards, however, both the California and 
federal standards are now applied in California.
    The 1990 Clean Air Act Amendments directed the U.S. Environmental 
Protection Agency (U.S. EPA) to adopt a federal reformulated gasoline 
program for urban areas with the most serious smog problems. The 
amendments mandated that federal reformulated gasoline contain various 
specified properties, and imposed limitations on the level of 
flexibility that the U.S. EPA could build into the program. The federal 
reformulated gasoline regulations were promulgated in early 1994 and 
became applicable in December 1994. In California, the federal 
regulations now apply in the greater Los Angeles, San Diego, and 
Sacramento areas.
    In the meantime, the ARB was developing a comprehensive program for 
cleaner cars and cleaner fuels. We adopted the California cleaner 
burning gasoline regulations in 1991, and they became applicable in the 
spring of this year. This program established the most stringent and 
comprehensive gasoline standards in the world. It contains 
specifications for eight different properties that affect emissions of 
ozone-forming compounds and toxic pollutants. The regulations also 
feature a ``predictive model'' that is based on the analysis of a large 
number of vehicle emission test studies. Instead of meeting the 
specifications set forth in the regulations, refiners have the option 
of producing gasoline subject to an alternative set of specifications 
that the predictive model shows will achieve equivalent emission 
reductions. California refiners are using the predictive model approach 
for much of the gasoline now being produced in the state.
    Unfortunately, the overlapping applicability of the state and 
federal reformulated gasoline regulations substantially reduces the 
extent to which refiners can take advantage of the flexibility built 
into the California program. Refiners are required to comply with the 
federal Act even though the California predictive model shows that a 
different formulation will achieve equivalent or greater air quality 
benefits. Refiners are also required to meet complicated federal 
reporting and recordkeeping requirements that are not necessary for 
compliance with the state program. Although we are pleased that U.S. 
EPA exempted California refiners from a number of the federal 
enforcement requirements, a refiner can lose that exemption as a result 
of even a single violation of the California regulations.
    Now that the California and federal reformulated gasoline 
regulations both are in place, we believe that it makes best sense for 
the more effective state regulations to apply in lieu of the federal 
regulations, as is the case with California's motor vehicle emission 
standards. Enactment of H.R. 3518 is necessary so that refiners can 
fully use the flexibility built into the California program, and can 
avoid needless paperwork requirements. This will reduce the costs of 
producing California gasoline, and should lead to lower prices at the 
pump.
    H.R. 3518 is carefully crafted to assure that, without establishing 
new federal mandates, Californians enjoy all of the health benefits of 
reformulated gasoline. The California regulations will apply in lieu of 
the federal regulations only if they will achieve equivalent or greater 
emission reductions. Further, the California gasoline regulations have 
been approved by U.S. EPA as part of our State Implementation Plan, and 
are thus federally enforceable.
    For these reasons, the ARB fully supports and urges the committee 
to act favorably upon H.R. 3518. Please let me know if there is 
anything I can do to assist in its passage.
            Sincerely,
                                        John D. Dunlap, III
                                                           Chairman
cc: Honorable Barbara Boxer
   Honorable Dianne Feinstein
   Honorable Brian Bilbray
   Honorable Christopher Cox
   Honorable Anna Eshoo
   Honorable Carlos Moorhead
   Honorable Henry Waxman
                                 ______
                                 
                                American Methanol Institute
                               Oxygenated Fuels Association
                                Renewable Fuels Association
                                                 September 10, 1996
The Honorable Thomas Bliley
Chairman
Committee on Commerce
U.S. House of Representatives
Washington, D.C. 20515
    Dear Mr. Chairman: On behalf of the entire U.S. oxygenate industry, 
we would like to express our serious reservations regarding H.R. 3518, 
a bill introduced by Representative Bilbray to exempt certain states 
from federal reformulated gasoline (RFG) standards. We believe this 
bill is unnecessary and we strongly suggest the need for a thorough 
hearing and dialogue if the Committee should contemplate taking any 
action on this legislation.
    Proponents of H.R. 3518 have failed to make a compelling argument 
that the legislation is needed. When introducing the bill in May, 
Congressman Bilbray argued that H.R. 3518 would ease the rising costs 
of gasoline. Time and the benefit of hindsight, of course, have 
demonstrated that the causes for the increases in gasoline prices this 
past spring had virtually nothing to do with Clean Air Act compliance 
costs, and everything to do with temporary supply shortages caused by a 
colder-than-normal winter and the decrease in inventories at 
refineries. As the market adjusted and gasoline prices were reduced, 
the need to provide legislative relief to lower refiner costs was 
proven to be unnecessary.
    Exempting states from federal RFG standards would have little 
impact on the price of gasoline in any event. Market prices have shown 
that federal RFG costs only slightly more than conventional gasoline 
(2-3cts per gallon) and actually less than California RFG, the only 
state with its own RFG program. The reason California RFG is more 
expensive is the cost associated with reducing sulfur content capping 
aromatic content, capping olefin content and reducing distillation 
specifications that reduce the amount of gasoline that can be extracted 
from a barrel of crude oil. These requirements are far more stringent 
than federal RFG and far outweigh the nominal cost of oxygenates, which 
is the only additional specification of the federal fuel.
    Advocates of H.R. 3518 also argue that the bill will allow refiners 
to take advantage of the flexibility built into the California program. 
But similar flexibility is built into the federal RFG program. Refiners 
utilizing EPA's complex model for RFG have great latitude to adjust 
fuel parameters to maximize efficiency and lower cost. Therefore, the 
argument that H.R. 3518 is needed to promote flexibility is specious.
    Proponents of H.R. 3518 maintain it would only apply to California. 
But the legislation clearly allows ``any such state'' which has been 
granted an EPA waiver to develop its own RFG regulations which do not 
meet the federal RFG standards. This could create a patchwork of fuel 
requirements across the country that would severely burden the fuel 
production and distribution system.
    The legislation, as drafted, has significant enforcement problems. 
The bill provides no mechanism to verify that gasolines indeed meet 
equivalent or greater reductions in emissions than required by federal 
RFG. While proponents have argued that the State Implementation Plan 
process allows for such a determination to be made, the means by which 
an appropriate evaluation and comparison would be made remains 
unspecified.
    Presumably, proponents of H.R. 3518 believe the predictive model 
developed by the California Air Resources Board (CARB) could be used by 
refiners to demonstrate that fuels subject to an alternative set of 
specifications could achieve emissions reductions equivalent to fuels 
meeting the federal standards. But the CARB predictive model has shown 
significant differences from the complex model developed by EPA.\1\ A 
comparison of the two models suggests that the predictive model 
underestimates the benefits of oxygenates by, among other factors, 
failing to properly account for the impact of high emitters. Certainly, 
until the differences between the two models are more thoroughly 
understood and corrected, it makes no sense to legislate a change to 
the Clean Air Act establishing an alternative compliance mechanism.
---------------------------------------------------------------------------
    \1\ It is important to note that the complex model was developed 
with input from refiners, oxygenate producers, auto manufacturers, 
consumer groups and state environmental officials (including CARB).
---------------------------------------------------------------------------
    We understand that EPA has dealt effectively with virtually all of 
the problems caused by the overlapping applicability of state and 
federal gasoline regulations. Thus, the only practical consequence of 
H.R. 3518 is to exempt refiners in California, and possibly other 
states, from the oxygen requirement of Sec. 211(k) of the Clean Air 
Act. Such relief is unnecessary, and could potentially undermine the 
air quality benefits of the RFG program. If the bill only impacts 
California, as proponents suggest, and the goal is to provide 
consistency in the California market, legislation is not necessary. 
Refiners could simply add the required oxygenate amounts to California 
RFG. The air would be cleaner and the state would have one gasoline.
    Oxygenates play a critical role in assuring that the air quality 
and public health benefits of RFG are realized. Oxygenates provide 
significant reductions in exhaust VOC emissions. Without the oxygen 
standard, refiners would likely meet the VOC reduction requirements 
through evaporative VOC emissions reductions alone, thereby forfeiting 
significant ozone reduction benefits.\2\ In addition, oxygenates are 
the most cost-effective means of reducing benzene and other toxic 
emissions from gasoline. When refiners utilize the octane value of 
oxygenates, the toxic reductions realized often exceed those required 
by either California or federal RFG. Analysis of gasoline quality 
surveys done by the American Automobile Manufacturers Association 
indicate that 1995 reformulated gasolines had a reduction of 
approximately 25% in toxic emissions while their minimum requirement 
was only 15%. In the absence of the oxygen standard, those additional 
toxic reductions would be forfeited.
---------------------------------------------------------------------------
    \2\ Exhaust VOC emissions are known to be more reactive than 
evaporative VOC emissions, meaning that they will form ozone more 
quickly. Therefore, the exhaust VOC reduction benefits of oxygenates 
are critical to the ozone reduction goal of the RFG program.
---------------------------------------------------------------------------
    In summary, H.R. 3518 will have no beneficial impact on gasoline 
prices, is not needed to provide refiners with the flexibility to 
effectively meet clean air regulations, creates unnecessary 
implementation and enforcement problems, and could undermine the air 
quality benefits of the RFG program. Again, we strongly advise against 
Committee action on H.R. 3518.
    Thank you for your consideration of these views.
            Sincerely,
                                                Eric Vaughn
                                        Renewable Fuels Association
                                                 Fred Craft
                                       Oxygenated Fuels Association
                                                  Ray Lewis
                                        American Methanol Institute
cc: Honorable Michael Bilirakis
   Honorable John Dingell
   Honorable Henry Waxman
   Honorable Brian Bilbray
                                 ______
                                 
                                             CAPCOA
                                Cameron park, CA 95682-9206
                                                      March 4, 1999
The Honorable Brian Bilbray
United States House of Representatives
1530 Longworth House Office Building
Washington, DC 20515
    Dear Representative Bilbray: The California Air Pollution Control 
Officers Association (CAPCOA) consists of thirty-five local air quality 
agencies throughout California. Our Association supports both your 
bill, H.R. 11, and Senator Feinstein's bill, S. 266. These bills would 
provide California greater authority over its clean air program by 
allowing California's cleaner-burning gasoline regulation to apply in 
lieu of federal reformulated gasoline regulations as long as these 
regulations achieve equivalent or greater emission reductions of ozone-
forming compounds and toxic air contaminants.
    The Clean Air Act currently requires the use of at least 2% by 
weight oxygenates in reformulated gas. Congress mandated, in the Clean 
Air Act, the use of reformulated gasoline in 1990 in those areas of the 
country with the worst smog problems, primarily here in California. 
This requirement results in 11% of MTBE in each gallon of gas--MTBE 
being the oxygenate/additive used in California to reduce fuel 
emissions. Although gasoline manufacturers claim it is feasible to 
produce clean-burning gas without MTBE, the 2% federal requirement 
prohibits them from doing so in many areas of the State.
    H.R. 11 and S. 266 give California the flexibility to implement 
more stringent standards without having to meet the federal regulations 
requiring oxygenates, like MTBE, in gasoline. This legislation permits 
California to meet an ``outcome'' based reformulated gasoline standard 
without requiring an additive that poses a serious ground-water 
pollution problem such as MTBE. We strongly believe that achieving 
cleaner air should not come at the expense of water quality.
    For these reasons, CAPCOA fully supports H.R. 11 and S. 266. Should 
you have any questions, please contact our Legislative Committee 
Chairman Larry Greene at (530) 757-3656.
            Sincerely,
                                          Douglas W. Allard
                                                   CAPCOA President
c: CAPCOA Legislative Committee
                                 ______
                                 
                           Chevron Products Company
                                    San Francisco, CA 94105
                                                        May 4, 1999
Mr. Eric Vaughan
President
Renewable Fuels Association
One Massachusetts Ave., N.W.
Suite 820
Washington, D.C. 20001
    Dear Mr. Vaughan, It was with some disappointment that we read your 
April 9 letter to Chevron Products Company President, Pat Woertz. As 
you know, we have spent countless hours in meetings with you, your 
staff, and key representatives of your industry over the past year 
trying to come up with a way to work together to achieve the common 
goal of eliminating MTBE from our California gasoline. Our objective in 
these meetings was to explain the obstacles faced by Chevron in hopes 
that we could convince your industry that providing California with the 
flexibility to depart from the federal reformulated gasoline oxygen 
mandate would allow us to remove MTBE with minimal inconvenience to our 
gasoline-buying customers. We also hoped your industry would understand 
that ethanol, though used scantily in California gasoline now, would be 
used in large quantities if MTBE were eventually phased out.
    Your April 9 letter suggests that we failed in this endeavor. With 
your personal encouragement and with encouragement from at least one of 
your member companies, we thought at one point that we were close to 
agreement. But given the unqualified statement that you will 
``steadfastly oppose legislative efforts to remove the oxygen content 
requirement,'' we wonder whether the time we spent on the set of common 
principals we jointly drafted was well spent.
    We also apparently failed to communicate the importance of 
flexibility in the manufacture and distribution of petroleum products. 
Chevron and TOSCO sponsored the report done by MathPro to show that if 
California refiners were allowed to optimize their production and 
distribution of gasoline--while meeting all emissions performance 
requirements--costs would be significantly reduced overall and ethanol, 
due to its advantageous octane, dilution, and distillation properties 
would still be used. It is disappointing that you should use those 
results to justify maintaining the current oxygen mandate for 
California when, in fact, MathPro's key conclusion supports just the 
opposite:
        By allowing refiners to produce non-oxygenated CARB gasoline, 
        the Feinstein-Bilbray bill likely would: (1) reduce the cost of 
        producing CARB gasoline; (2) reduce California's draw on 
        limited supplies of mid-western ethanol; and (3) moderate 
        possible increases in the price of ethanol or shortfalls in the 
        supply of ethanol.
    The federal oxygenate mandate interferes with flexibility by 
requiring in specific areas at specific times of the year in specific 
quantities. We are not surprised that MathPro showed only modest 
overall reductions in ethanol that would be used compared to the 
federal mandate. However, we are also not surprised that cost estimates 
were substantially reduced since lifting the mandate has an enormous 
impact on flexibility.
    The implication in your letter that using ethanol in the winter in 
Los Angeles is a simple matter indicates we also were unable to 
communicate the existence of considerable logistical barriers involved. 
Seasonal switching between ethanol- and MTBE-blended gasoline is 
unavoidable in the near term because, under the mandate, oxygen is 
required in summertime gasoline and capital expenditures that could 
take four or more years to make are required to accommodate ethanol at 
mandated levels. Thus, for now, we will have to use MTBE in the summer. 
Seasonal switching is very difficult since the federal government does 
not allow mixing of ethanol-blended gasolines with non-ethanol blended 
gasolines anywhere in the distribution system and because summertime 
gasoline is subject to stringent vapor pressure (RVP) control. The RVP 
increase that comes from mixing an ethanol-blended gasoline with any 
other is underappreciated outside our industry including the authors of 
the Downstream Alternatives, Inc., study you cited. Specific to 
Chevron, of course, the Downstream Alternatives study indicated that we 
have a long way to go before our terminals are capable of blending 
ethanol at any time of the year.
    The so-called ``real world environmental benefits'' of oxygenates, 
as described in your letter, are at best an accidental byproduct of the 
oxygen mandate. It is also possible that they are fictional. These 
ancillary benefits have never undergone a real analysis using the 
normal process of genuine scientific inquiry. Should these ancillary 
benefits be compelling but achievable less expensively, then 
appropriate performance standards should be adopted rather than 
maintaining the prescriptive oxygen mandate. In our view, 700 million 
gallons of non-oxygenated gasoline produced at our Richmond refinery 
that met or exceeded the California Air Resources Board performance 
standards is sufficient proof that the imposition of the oxygen mandate 
is not necessary to maintain the air quality benefits of the Clean Air 
Act Amendments.
    Curiously, your letter fails to mention the big ``real world'' 
detriment that ethanol produces, that of RVP increase when added to 
gasoline. It is this unalterable characteristic of ethanol, more than 
any other factor, that has limited its use in California reformulated 
gasoline. RVP increases drive volatile hydrocarbons into the atmosphere 
where under the summer sun they react with oxides of nitrogen to form 
ozone, precisely the opposite of what the Clean Air Act intended for 
reformulated gasoline.
    Finally, we find your discussion of certainty interesting because 
while we have endeavored to keep the public policy debate focused on 
concerns about MTBE in California gasoline, you suggest that our 
support for the Feinstein/Bilbray bill has caused uncertainty. At the 
same time, your letter openly injects new and unrelated issues into the 
legislative arena. Perhaps we differ on which uncertainties are 
relevant to this issue. When we talk of it, we mean the need for legal 
and regulatory certainty that enables us to plan for the future, i.e., 
obtain necessary permits, configure our refineries and other 
facilities, and serve our customers. For the ethanol industry, the 
certainty you seek appears to be market certainty--mandates for the use 
of your product, supported by subsidies to make your product 
economical. If we have missed the mark in our understanding and legal 
certainty is in fact a goal you share with us, we invite you to support 
Feinstein/Bilbray or similar bills and to keep the discussion focused 
on the matter at hand and demonstrate your concern for the California 
consumer.
    As you know, we have taken no exception to your contention that a 
reasonable amount of ethanol can be supplied (at a cost) to California. 
The uncertainty lies in whether the amount actually required is 
reasonable given the combination of mandated levels, the need to meet 
other California gasoline specifications, and octane demands. The 
Downstream Alternatives report suggests that far larger quantities may 
be needed than what you cite in your letter. By working against the 
flexibility our industry needs, your industry risks the backlash of 
California's drivers who, as we have learned from painful experience, 
don't want obstacles to their access to low cost and abundant motor 
fuel.
    As committed as you are to maintaining the federal oxygen mandate 
nationwide, we are committed to supplying our customers with products 
that they want. Our California customers are telling us that they want 
MTBE out. Our ability to satisfy them is hindered by the oxygen mandate 
as it applies in California, we will continue to support efforts to 
remove it here or in other places where our customers say the same. At 
any time that you feel it would be productive, we are ready to renew 
discussions.
            Sincerely
                                                          Al Jessel
cc: Governor Gray Davis
   Senator Dianne Feinstein
   Congressman Brian Bilbray
                                 ______
                                 
                        Renewable Fuels Association
                                       Washington, DC 20001
                                                      April 9, 1999
Patricia Woertz
President
Chevron Products Company
575 Market Street
San Francisco, California 94105
    Dear Ms. Woertz: The domestic ethanol industry has followed with 
great interest Chevron's efforts to promote federal passage of H.R. 11 
and/or S. 645 as a means of accelerating the ban on MTBE from 
California gasolines. Given the conclusion of the University of 
California-Davis report regarding the environmental risks posed by the 
continued use of MTBE, your effort to facilitate the expeditious 
removal of MTBE is laudable. But the problem is MTBE in water, not 
oxygen in gasoline. So your advocacy of a solution eliminating the 
oxygen standard appears to us to be misplaced.
    I understand from press reports that Chevron believes a combination 
of ethanol blended gasolines and non-oxygenated fuels will likely 
replace MTBE. And I have reviewed the MathPro Inc. report prepared for 
Chevron and Tosco Corporation which concludes ``the `optimal' (cost-
minimizing) share of non-oxygenated CARB gasoline ranges from about 20 
to 40 percent, depending on the time period and Predictive Model 
mode.'' But as CARB gasoline, which as you know does not require the 
addition of oxygen, currently accounts for about 35% of the state's 
total gasoline supply, it seems refiners would be able to produce the 
``optimal'' amount of non-oxygenated gasoline today. Moreover, if 
accelerating the replacement of MTBE with ethanol is a goal, and as 
there are no volatility constraints to ethanol use during the winter 
months, refiners could certainly achieve 100% non-MTBE fuel use during 
the winter months far sooner than envisioned by either Governor Davis' 
Executive Order or your proposed accelerated schedule.
    Your marketing staff should clearly be able to advise you that 
ethanol supply is not a problem. There is more than enough ethanol to 
meet California demand. In fact, as ethanol has twice the oxygen 
content of MTBE, and can satisfy the oxygen standard for RFG with less 
than half the volume of MTBE, we estimate the total amount of ethanol 
needed to meet California RFG demand would be about 35,000 barrels per 
day, or less than 30% of existing U.S. ethanol production capacity. 
Enclosed is an analysis completed by Downstream Alternatives, Inc. 
which, after surveying every gasoline terminal in the state, concluded: 
``adequate supplies of competitively priced ethanol could be supplied 
to the California market almost immediately . . . it is clear that well 
over half the terminals offering gasoline could make ethanol available 
in six months or less.''
    One of your stated goals has been environmental equivalency. We 
agree. There should be absolutely no backsliding of the air quality 
benefits from RFG as MTBE is phased out. But while you have stated 
refiners can meet the required VOC performance standards without 
oxygen, you must also recognize that the ``real world'' environmental 
benefits of oxygenates are not reflected in the VOC reduction models. 
These ``real world'' benefits include reductions in combustion chamber 
deposits, which assure greater emissions reductions over the life of 
the vehicle; improved performance from higher emitting vehicles which 
benefit from the reduced exhaust emissions attributable to oxygen 
content; and, the reduced reactivity of exhaust emissions from 
oxygenated fuels. At the very least, we should be able to agree that 
eliminating the oxygen standard in carbon monoxide non-attainment areas 
such as Lake Tahoe would represent environmental backsliding.
    You should also know that to the extent ethanol fuels are used, 
there are the additional ``real world'' benefits of reduced greenhouse 
gas emissions, enhanced energy security and tremendous rural economic 
development which were all important policy objectives considered by 
the Congress when the RFG oxygen standard was enacted.
    Another key goal of the refining industry is certainty. Again, we 
agree. Companies need to know as soon as possible what the rules will 
be and make plans accordingly. In this case, the oxygen content 
standard was agreed to in the Clean Air Act Amendments of 1990. The 
rules governing oxygenates and RFG were made certain in 1994. But 
passage of Feinstein/Bilbray legislation is far from certain. And 
whether Feinstein/Bilbray remains focused on just the oxygen content 
provision or turns to other issues such as sulfur levels, olefin 
content, driveability index or greenhouse gases is even more uncertain. 
Thus, your advocacy of Feinstein/Bilbray only adds uncertainty to this 
process and thwarts your stated goal of accelerating MTBE's removal 
from gasoline.
    The U.S. ethanol industry sees Chevron Products Company and other 
refiners in California as partners in the effort to provide high-
quality, clean-burning, MTBE-free gasolines as quickly as possible. But 
we will steadfastly oppose legislative efforts to remove the oxygen 
content requirement in federal RFG. We believe the oxygen standard is 
critical to maintaining the air quality goals of the Clean Air Act, and 
that attempts to remove it are unnecessary and counter-productive to 
expediting the removal of MTBE fuels in California.
    Again, I applaud your objective of providing non-MTBE fuels to 
California consumers and I look forward to working with you and others 
to realize that objective as quickly as possible.
    With best regards, I am
            Sincerely,
                                                Eric Vaughn
                                                          President
Attachment
cc: Governor Gray Davis
   Senator Dianne Feinstein
   Congressman Brian Bilbray
                                 ______
                                 
                           Chevron Products Company
                                    San Francisco, CA 94105
                                                     April 29, 1999
The Honorable Dianne Feinstein
United States Senate
Hart Building, Room 331
2nd & C Streets, NE
Washington, DC 20510-0504
    Dear Senator Feinstein: It has been reported in the trade press 
that Senator Daschle is considering offering, among a number of 
prescriptive fuel specifications, a renewable fuels proposal that would 
greatly expand the mandate for ethanol use in motor fuels. The 
proposal, as reported, raises a number of public policy and operational 
concerns. I have had members of my staff put together the attached 
paper that highlights these issues in more detail.
    In summary, rather than providing refiners flexibility as long as 
they meet emission performance standards (as your legislation does), 
the proposal would continue the policy of providing government 
``recipes'' for gasoline. The adverse consequences of MTBE use were not 
foreseen in 1990, the last time Congress tried to write a mandated 
``recipe'' for reformulated gasoline. Congress should not make the same 
mistake again by mandating the use of ethanol, particularly in light of 
the known and recognized air quality concerns it would create. The 
proposal would likely have very significant adverse air quality 
impacts, by raising evaporative emissions of gasoline around the 
country, at a time when areas are struggling to find ways to meet air 
quality requirements. Additionally, the proposal would greatly expand 
the ethanol mandate, to all motor fuels--conventional and reformulated 
gasoline, and likely to diesel fuel as well. The current oxygen mandate 
applies just to federal reformulated gasoline. Our analysis shows the 
proposed mandate would result in a six-fold increase in ethanol use, 
increase the cost of refining, and decrease competition because 
refiners would have no other option (they could no longer make non-
oxygenated gasoline). Finally the proposal would also result in 
billions of dollars of lost revenues from federal taxes, since ethanol 
enjoys a substantial federal subsidy.
    Because of all the adverse public policy concerns, and the negative 
operational effects this proposal would have, we would be strongly 
opposed to this renewable fuels mandate. We hope that you will continue 
to pursue your legislation, which we believe is based on sound public 
policy, and protects air quality, while providing refiners greater 
flexibility. We also will support the bill that we understand that 
Senator Chafee plans to introduce (and which we understand you will 
cosponsor) that would allow governors to opt-out of the oxygen 
requirement. It is important for California to have a solution as soon 
as possible. We're hopeful that working with Senator Chafee and other 
Senators, you will be able to craft a workable solution in the U.S. 
Senate. We would be happy to discuss with you or your staff in greater 
detail the concerns that the renewable fuels proposal raises.
            Sincerely,
                                         Patricia A. Woertz
                                                          President
Attachment
cc: The Honorable Gray Davis
   The Honorable Brian Bilbray
   Mr. Winston Hickox, Secretary, California Environmental Protection 
Agency
   Mr. Ken Derr, Chairman, Chevron Corporation
                   concerns--renewable fuels proposal
    It has been reported that Senator Daschle has proposed that 
beginning in 2001, 1% of all vehicle motor fuel sold in the U.S. shall 
be produced from renewable sources (i.e., other than petroleum, natural 
gas, coal, or peat), increasing to 2.5% in 2005, and 5% in 2010. 
Misleadingly labeled as a ``renewable performance standard'', it is in 
fact an ethanol mandate, which raises numerous concerns. These include:

 Continuing a bad policy of providing `recipes' rather than 
        `performance standards'
 Degrading air quality and increasing gasoline manufacturing 
        costs
 Mandating an unprecedented six-fold increase in ethanol use 
        over next 10 years
 Decreasing competition--creating a monopoly for ethanol use in 
        gasoline
 Increasing the ethanol subsidy by $10 billion over next 10 
        years; a subsidy that will have to be offset by a tax increase 
        on some sector of the economy.
 Causing an unprecedented change in the ethanol distribution 
        and transportation system throughout the United States.
The proposal would continue the bad precedent established in the 1990 
        Clean Air Act Amendments of government establishing gasoline 
        recipes, rather than establishing performance standards.
    The adverse consequences of MTBE use were not foreseen in 1990, the 
last time Congress tried to write a mandated ``recipe'' for the 
reformulated gasoline program for the worst ozone areas in the country. 
Congress should not make the same mistake again by mandating the use of 
yet another additive in gasoline, ethanol, particularly in light of the 
known and recognized air quality problems it creates. The MTBE 
experience teaches that Congress should rely on emission performance 
standards, rather than mandating oxygen content--the way the California 
program does. Refiners can make gasoline that meets the emission 
reduction performance standard with or without adding oxygen. 
Government requirements for gasoline recipes only add to the cost, 
limit flexibility, and risk adverse unintended consequences. The 
California state program, which is performance based--establishes 
emission limits without dictating to refiners how they must make the 
gasoline. The renewable fuels proposal just makes a bad situation 
worse.
The proposal could result in significant air quality degradation 
        throughout the United States. Adding ethanol raises the vapor 
        pressure of gasoline--increasing air emissions.
    The ethanol mandate could result in significant degradation of air 
quality throughout the United States, unless other costly modifications 
are made to producing gasoline. It is well known that introducing 
ethanol as a gasoline blendstock increases the vapor pressure of 
gasoline (about 1 psi or  15% and, hence, the evaporative 
emissions of volatile organic compounds, or VOCs. VOCs lead to 
increased ozone formation, and can lead to increases in fine 
particulate. The new ozone and particulate standards will result in 
hundreds of new areas around the country being designated as non-
attainment. Those areas will be looking to reduce VOC emissions, not 
increase them. Rather than helping improve air quality, adding ethanol, 
without making other changes to gasoline, only makes air quality worse. 
[Note: Ethanol is allowed a 1 psi waiver under the Clean Air Act for 
conventional gasoline even though these increased emissions adversely 
impact air quality.] From a public policy standpoint, it is hard to 
understand why Congress would greatly expand the mandate for ethanol 
use nationwide, and risk serious air quality degradation.
Costly modifications are necessary to offset ethanol's vapor pressure 
        effect.
    In order to meet the ethanol mandate proposal, without adversely 
impacting air quality, vapor pressure would have to be held constant. 
Refiners would have to remove about the same volume of current gasoline 
component (pentanes) as ethanol is added to keep the vapor pressure of 
gasoline down. Refiners would have to modify their refineries to (1) 
take out those blendstocks by adding new processing equipment, (2) 
build new pressurized tanks to hold those high volatility blendstocks, 
and (3) find new markets which don't exist today to dispose of those 
blendstocks. Where would these components go? What would be their use? 
Massive dislocation in use and transport of very volatile gasoline 
blendstocks, even when done safely, will have a significant impact on 
producing gasoline. All of which adds significantly to the cost 
nationwide of producing gasoline, with absolutely no commensurate air 
quality benefit,
    The bottom line: Air quality can be degraded and gasoline 
manufacturing costs will be increased--a lose-lose situation.
The proposal would result in a significant expansion of required 
        ethanol use. Significant new ethanol production capacity would 
        need to be constructed.
    There is roughly 8 million barrels of gasoline sold per day in the 
United States, which equates to 120 billion gallons per year. Diesel 
fuel sales amount to roughly 30 billion gallons per year (on road 
diesel). If 1% needed to come from renewable sources (ethanol mandate) 
that would require roughly 1.5 billion gallons of ethanol, increasing 
to 9 billion gallons by the year 2010, when the ethanol mandate would 
increase to 5%. The current ethanol use in the United States is roughly 
1.4 billion gallons per year (per the RFA website. The ethanol mandate 
would require a six-fold increase in domestic ethanol use or an 
additional growth of about 20% per year for the next 10 years of 
ethanol used in motor fuels.
The proposal would hold refiners and the consumer hostage to ethanol 
        prices.
    Currently, in areas where the oxygen mandate applies, refiners can 
choose which oxygenate (MTBE or ethanol) to add to gasoline--thus 
promoting pricing competition for oxygenates. In areas not covered by 
the oxygen mandate, non-oxygenated gasoline competes as well. By 
expanding the mandate to all motor fuels nationwide, and limiting it to 
renewable sources--an ethanol mandate--would in fact limit refiners' 
flexibility and reduce competition. Ethanol production in the U.S. is 
dominated by one company which has  50% of the domestic 
ethanol capacity. This would hold refiners (and ultimately consumers) 
hostage to whatever prices the ethanol industry wanted to charge.
The proposal would result in significant loss of tax revenues to the 
        United States government.
    Nearly every gallon of ethanol sold in the United States gets a 
$0.54/gallon subsidy today from the United States Treasury, through an 
equivalent reduction in either motor fuel tax revenue collected under 
the federal excise tax or through income taxes collected by blenders of 
ethanol. Therefore, current ethanol use (roughly 1.4 billion gallons/
year) results in a loss of federal tax revenue's of  
$750,000,000/year. Expanding the ethanol mandate by a factor of five in 
the year 2010 (to 5%, or 9 billion gallons/year) would result in a loss 
of almost $4,000,000,000/year in tax revenues. Over the next decade, 
this would result in a loss of over $10 billion that the federal tax 
revenues, most of which goes to states to spend on roads, highways, and 
other uses.
    The chart below shows the loss in revenue, assuming motor vehicle 
fuel (gasoline and on-road diesel, or mogas) continue to grow at 
 2%/year, and that ethanol baseline growth is also at the 
same  2%/year.

----------------------------------------------------------------------------------------------------------------
                                                                ethanol,     Daschle
                                                    mogas       baseline     Proposal   Subsidy $MM  Delta Taxes
                                                 Billion Gal/ Billion Gal/ Billion Gal/    Gal/Yr     $MM Gal/Yr
                                                      Yr           Yr           Yr
----------------------------------------------------------------------------------------------------------------
2000...........................................          150         1.50         1.50         $810           $0
2001...........................................          153         1.53         1.53         $811           $0
2002...........................................          156         1.56         1.56         $827           $0
2003...........................................          159         1.59         1.59         $827           $0
2004...........................................          162         1.62         1.62         $842           $0
2005...........................................          166         1.66         4.15       $2,117       $1,270
2006...........................................          169         1.69         4.23       $2,157       $1,295
2007...........................................          172         1.72         4.30       $2,193       $1,316
2008...........................................          176         1.76         4.40       $2,244       $1,346
2009...........................................          179         1.79         4.48       $2,285       $1,372
2010...........................................          183         1.83         9.15       $4,667       $3,733
    Sum Total..................................                                                          $10,333
----------------------------------------------------------------------------------------------------------------

The proposal would stretch the transportation system to the limit.
    Ethanol would have to be moved from the Midwest where it is 
produced, to every corner of the US, to every gasoline terminal no 
matter how remote. Since ethanol cannot be pipelined, ethanol cannot be 
blended at the refinery--like other oxygenates are. This will result in 
significant investment at marketing terminals around the country, in 
urban and remote locations, in order to blend and store ethanol. 
Ethanol would have to be brought in by railroad and truck causing 
increased highway traffic and further stressing our rail infrastructure 
that, recently, has demonstrated an inability to deliver on time. This 
proposal would greatly exacerbate the nation's transportation system, 
risking run outs and gas lines at retail stations if ethanol cannot be 
delivered in a timely manner.
                                 ______
                                 
                                      State Capitol
                                     Sacramento, California
                                                     April 14, 1999
The Honorable Brian Bilbray
United States House of Representatives
Washington, D.C. 20515
    Dear Representative Bilbray: I am writing to convey my strong 
support for legislation introduced in the House (H.R. 11) and in the 
Senate (S. 266 and S. 645) that would enable California to phase out 
the use of the gasoline oxygenate methyl tertiary butyl ether (MTBE) 
from California reformulated gasoline.
    As you know, MTBE has led to the degradation and contamination of 
drinking water sources in communities such as Santa Monica, Santa 
Clara, Sacramento and Lake Tahoe. According to the Lawrence Livermore 
National Laboratory, MTBE has been detected at over 4,600 leaking 
underground fuel tank sites after inspecting only half the known sites. 
Furthermore, MTBE is known to cause cancer in animals and has been 
identified by several major scientific bodies as having the potential 
to cause cancer in humans.
    On March 25, 1999, I issued Executive Order D-5-99 where I found 
that the use of MTBE in gasoline poses a significant risk to 
California's environment. Required by State law, this determination was 
based on a study by the University of California, peer review comments 
of that study by the U.S. Geological Survey and the Agency for Toxic 
Substance and Disease Registry, and testimony from three days of public 
hearings conducted by the California Environmental Protection Agency.
    As a result of that determination, I have directed the appropriate 
state regulatory agencies to devise and carry out a plan to begin an 
immediate phase-out of MTBE from California gasoline, with 100% removal 
to be achieved no later than December 31, 2002.
    However, in order for California to achieve this necessary goal 
without a major disruption of our fuel supply, it is imperative that 
Congress provide flexibility to California to meet federal Clean Air 
Act emission standards without mandatory use of oxygenates. Both the 
House bill (H.R. 11) as well as the Senate bills (S. 266 and S. 645) 
provide exactly the flexibility California needs without weakening air 
quality regulations.
    The California Energy Commission and the University of California 
study have warned that an immediate ban or precipitous phase-out of 
MTBE would result in catastrophic price increases with a heavy impact 
on the economy. Most California refineries and terminals are not 
equipped to handle ethanol, the only viable alternative oxygenate, at 
this time. The re-tooling necessary to shift to an alternate such as 
ethanol would take a period of years and a multi-billion dollar capital 
investment by the oil and gas industry. The amount of ethanol 
California would need to import from other states and countries to 
cover an immediate ban on MTBE would amount to half of all the ethanol 
produced in the United States last year.
    Finally, I take seriously the admonition by the UC study that 
California learn from its mistake with MTBE and research the 
environmental impacts of any alternative before mandating its 
widespread use. Therefore, I have ordered the California Air Resources 
Board and the State Water Resources Control Board to conduct an 
analysis of ethanol and any other alternative oxygenate in air, surface 
water, and ground water. I am also directing the Office of 
Environmental Health Hazard Assessment to prepare an analysis of the 
health risks of ethanol in gasoline, including the products of 
incomplete combustion.
    Ethanol may very well play a large role in California's future fuel 
supply. But if California, or any state, can meet the emission 
standards of the Clean Air Act--with or without the use of oxygenates--
we should be permitted to do so.
    Having that flexibility now will allow us to stop any further 
contamination of our drinking water while we transition away from MTBE. 
But the legislation outlined above is critical to California's ability 
to invest in a long-term solution. One that protects our water, keeps 
us on the road to clean air, and ensures an uninterrupted, afforded 
fuel supply.
    I look forward to working with you to promote the passage of this 
much-needed legislation.
            Sincerely,
                                                 Gray Davis
                                                           Governor
                                 ______
                                 
    Sacramento Metropolitan Air Quality Management District
                                                  February 24, 1999
The Honorable Brian Bilbray
United States House of Representatives
1530 Longworth House Office Building
Washington, DC 20515
    Dear Representative Bilbray: The Sacramento Metropolitan Air 
Quality Management District supports both your bill, H.R. 11, and 
Senator Feinstein's bill, S. 266. These bills would provide California 
greater authority over its clean air program by allowing California's 
cleaner-burning gasoline regulation to apply in lieu of federal 
reformulated gasoline regulations as long as these regulations achieve 
equivalent or greater emission reductions of ozone-forming compounds 
and toxic air contaminants.
    The Clean Air Act currently requires the use of at least 2% by 
weight oxygenates in reformulated gas. Congress mandated, in the Clean 
Air Act the use of reformulated gasoline in 1990 in those areas of the 
country with the worst smog problems, primarily Los Angeles, San Diego, 
and here in Sacramento. This requirement results in 11% of MTBE in each 
gallon of gas--MTBE being the oxygenate/additive used in California to 
reduce fuel emissions. Although gasoline manufacturers claim it is 
feasible to produce clean-burning gas without MTBE, the 2% federal 
requirement prohibits them from doing so in many areas of the State.
    H.R. 11 and S. 266 give California the flexibility to implement 
more stringent standards without having to meet the federal regulations 
requiring oxygenates, like MTBE, in gasoline. This legislation permits 
California to meet an ``outcome'' based reformulated gasoline standard 
without requiring an additive that poses a serious ground-water 
pollution problem such as MTBE. We strongly believe that achieving 
cleaner air should not come at the expense of water quality.
    For these reasons, the Sacramento Metropolitan Air Quality 
Management District fully supports H.R. 11 and S. 266. Please let us 
know if there is anything I or the Air District can do to assist in its 
passage. Should you have any questions, please contact our Legislative 
Liaison, Larry Robinson, at (916) 386-6645.
            Sincerely,
                                                Norm Covell
                                          Pollution Control Officer
c: Stewart Wilson, Secretariat, California Air Pollution Control 
Officers' Association
                                 ______
                                 
                                                  February 22, 1999
The Honorable Brian Bilbray
U.S. House of Representatives
1503 Longworth House Office Building
Washington, DC 20515-0549
    Dear Congressman Bilbray: We the undersigned would like to express 
our strong support for H.R. 11. It would eliminate superfluous federal 
requirements for gasoline marketed in California, as long as California 
Reformulated Gasoline (RFG) has equivalent or better emission reduction 
performance relative to federal RFG.
    California has had a long history of regulating fuels in the state 
to improve air quality, predating the adoption of the federal RFG 
program under the 1990 amendments to the Clean Air Act. Today, refiners 
and marketers of fuels in California find themselves having to comply 
with conflicting and duplicative federal and state requirements. This 
adds complexity and cost to producing California RFG, with absolutely 
no commensurate benefit to the environment.
    H.R. 11 would eliminate the overlap in California between the state 
and federal programs. It would also provide greater flexibility in 
formulating and producing California RFG, while still assuring that the 
high standards for reducing emissions are retained. These state 
requirements are mandated by California RFG regulations which are 
federally enforceable as part of California's State Implementation 
Plan. We applaud your leadership in introducing this important 
legislation and urge Congress to enact this bill into law.
        Douglas F. Henderson, Executive Director, Western States 
        Petroleum Association; Evelyn Gibson, Government Relations 
        Director, California Independent Oil Marketers Association; 
        Arleen Alexander, Director Legislative Affairs, National 
        Association of Convenience Stores; Philip T. Cavanaugh, Vice 
        President, Federal Relations, Chevron Corporation; Steve Ward, 
        Vice President, Government Affairs, Shell Oil Company; Ann 
        Farner Miller, Vice President, Government Relations, Tosco 
        Corporation; R. Timothy Columbus, Counsel for Society of 
        Independent Gasoline Marketers of America; James C. Pruitt, 
        Federal Government Affairs, Texaco, Inc.; Sandra G. Swirski, 
        Manager, Federal Government Relations, Mobil Corporation; James 
        J. Rouse, Vice President, Washington Office, Exxon Corporation; 
        and Robert L. Healy, Vice President, Federal Government 
        Relations, Arco Corporation.
                                 ______
                                 
                        Contra Costa Water District
                                                Concord, CA
                                                  February 23, 1999
The Honorable Brian Bilbray
U.S. House of Representatives
Longworth House Office Building
New Jersey & Independence Ave. SE
Washington, DC 20515

RE: H.R. 11

    Dear Congressman Bilbray: I am pleased to inform you that the 
Contra Costa Water District (CCWD) Board of Directors has adopted the 
position of Favor for H.R. 11.
    CCWD provides treated and untreated water to a population of 
400,000 in central and east Contra Costa County. The District recently 
built the 100,000-acre-foot Los Vaqueros Reservoir near Brentwood. Gas-
powered vehicles will be not be allowed on Los Vaqueros, or any of the 
District's reservoirs, which shows the District's commitment to 
protecting water quality. Because of its interest in protecting water 
quality, the District favors legislation that will phase out and/or 
eliminate MTBE from gasoline.
    Thank you for your efforts on behalf of this important public 
health matter.
            Sincerely,
                                         Joseph L. Campbell
                                                          President
cc: CCWD Board of Directors
                                 ______
                                 
                       California Business Alliance
                                             Sacramento, CA
                                                  February 22, 1999
The Honorable Dianne Feinstein,
United States Senator,
331 Hart Senate Office Building,
Washington D.C. 20515-0504

Sub: Support of S. 266

    Dear Senator Feinstein, few regulatory issues are more frustrating 
to the business community than conflicting rules at the local, state 
and federal levels. One such situation is the federal mandate that 
reformulated gasoline contain oxygenates, such as MTBE, which are not 
required under California's cleaner-burning gasoline rules.
    As you are aware, the California state legislature is considering a 
total or partial ban on MTBE in response to concerns about its impact 
on water quality. But the current conflicting federal makes any such 
action difficult if not impossible.
    That is why CBA strongly support your bill S. 266 and Congressman 
Bilbray's bill H.R. 11. This legislation would allow California's 
cleaner-burning gasoline regulations to apply in lieu of federal 
reformulated gasoline rules, as long as California regulations achieve 
greater or equivalent emissions reductions. Since our state's standards 
call for greater emissions reductions than those required under federal 
law, your bill would protect California's air quality while allowing us 
the flexibility to address growing concerns about MTBE.
    The California Business Alliance represents small businesses 
throughout California. Our membership advocates regulatory flexibility 
to achieve reasonable air and water quality standards using the most 
cost effective and efficient means available. S. 266 and H.R. 11 
provide such flexibility.
    Once again, we support S. 266 and H.R. 11, and hope that they will 
be the first of many bipartisan efforts to reduce regulatory 
contradictions and increase flexibility for the business community.
            Sincerely,
                                                    T. Jacob Mathew
cc. Congressman Brian Bilbray
   Governor Gray Davis
                                 ______
                                 
                       California Manufacturers Association
                                                  February 19, 1999
The Honorable Dianne Feinstein
United States Senate
331 Hart Building
Washington, D.C. 20510
    Dear Senator Feinstein: The California Manufacturers Association 
extends its support for your S. 266, which will provide reasonable 
flexibility to California in obtaining cleaner air standards.
    Federal law requires a strict gasoline recipe which mandates adding 
oxygenates such as MTBE and ethanol to gasoline sold in California. 
Without passage of S. 266, 70% of California's gasoline must still 
contain oxygenates. The state Legislature is currently considering a 
ban on MTBE. S. 266 would provide refiners with the flexibility to make 
gasoline without MTBE as long as they meet the state's cleaner-burning 
gasoline standards, which are the strictest in the country.
    Under existing rules, refiners must simultaneously implement 
California's cleaner-burning gasoline regulations and different federal 
regulations for reformulated gasoline. These inconsistent regulatory 
requirements result in duplication, overlap and unnecessary higher 
costs without any additional air quality benefits.
    California is considered a model for implementing the most 
stringent regulations to maintain quality environmental resources, 
including the protection of air quality. The flexibility provided in S. 
266 will allow California to establish procedures for maintaining 
cleaner air quality that is best suited and effective for California.
    Thank you for your efforts in establishing a common-sense approach 
to this issue. Again, CMA would like to state its support for your S. 
266.
            Sincerely,
                                            Jack M. Stewart
                                                          President
cc: Congressman Brian Bilbray
   Governor Gray Davis
                                 ______
                                 
                             California Chamber of Commerce
                                                  February 18, 1999
The Honorable Brian Bilbray
U.S. House of Representatives
1530 Longworth House Office Building
Washington, D.C. 20515

Subject: H.R. 11 (Bilbray) Reformulated Fuel: Flexibility Support

    Dear Congressman Bilbray: The California Chamber of Commerce 
strongly supports your bill H.R. 11, which would allow California to 
use its cleaner burning gasoline regulations in lieu of federal 
reformulated gasoline rules, as long as California rules achieve 
greater or equivalent emissions reductions.
    Current law requires California refiners to comply with both state 
and federal cleaner-burning gasoline rules. Unfortunately, state and 
federal requirements differ as federal law requires California refiners 
to comply with a federal mandated recipe by adding oxygenates such as 
MTBE in their reformulated fuels, whereas state law only requires the 
use of oxygenates during the winter months. These inconsistent 
regulatory requirements result in unnecessary higher costs without any 
additional air quality benefits.
    Recently, there have been several reports about MTBE contamination 
in certain parts of California's water supply. The state Legislature is 
currently considering a ban on MTBE to address this problem. However, 
recent government studies have concluded that an immediate ban would 
have dire consequences on California's economy. California refiners 
would have to import huge quantities of other oxygenates from other 
states, which would require a significant new infrastructure.
    The most logical solution to solving the MTBE dilemma without 
disrupting California's economy is to provide greater flexibility at 
the federal level by removing the federal mandate. H.R. 11 would permit 
non-oxygenated gasoline throughout the state while still meeting 
California's cleaner-burning gasoline standards, which are the 
strictest in the nation. The performance-based emissions reduction 
standards called for in H.R. 11 would eliminate existing regulatory 
confusion, while giving refiners flexibility to produce the cleanest 
gasoline safely and cost-effectively.
    For these reasons, we SUPPORT H.R. 11 as a common sense approach to 
air quality improvement.
            Sincerely,
                                            Allan Zaremberg
                                                          President
cc: Members of the California Congressional Delegation
   Governor Gray Davis
   Members of the California Legislature
                                 ______
                                 
                                               ARCO
                                    Los Angeles, California
                                                  February 18, 1999
The Honorable Brian Bilbray
1530 Longworth House Office Building
Washington, DC 20515
    Dear Representative Bilbray: I am writing to let you know that ARCO 
strongly supports your legislation (H.R. 11) that would provide 
refiners with the flexibility to produce clean-burning gasoline in 
California without the use of a minimum level of oxygenates.
    Enactment of this legislation would allow ARCO and other refiners 
to eliminate the use of MTBE in our gasolines. The use of MTBE has been 
extremely effective in reducing pollution from automobiles and 
producing cleaner air while maintaining adequate gasoline supplies at 
reasonable prices. Unfortunately, MTBE also has disadvantages--it 
dissolves easily in water, and has a disagreeable taste and odor that 
can be detected in water at very low concentrations.
    As you know, Governor Gray Davis is expected to make a decision 
soon regarding the fate of MTBE in California fuel. In addition, state 
legislation has been introduced that would ban or phase-out the use the 
use of MTBE. The phase-out of MTBE appears likely. If MTBE is phased-
out and the federal oxygenate mandate remains, ethanol is the only 
feasible alternative oxygenate. If ethanol were the only option, 
refineries would have to be modified at substantial cost to deal with 
increased vapor pressure resulting from ethanol in the entire gasoline 
pool. Most of that investment would be wasted if at a later date the 
mandate disappeared. Therefore, If MTBE is phased-out, flexibility to 
produce gasoline without the federal oxygenate mandate becomes 
critical.
    ARCO has nothing against the use of ethanol in gasoline. In fact, 
we currently use it in some gasoline we sell in other states. There 
would be new opportunities for expanded use of ethanol in California if 
MTBE were phased out and the oxygen requirement was eliminated. We 
think this is the right solution, and the one that will best serve all 
interests--including the environment, motorists, and oxygenate and fuel 
producers.
    Thank you for your leadership on this important issue to the State 
of California. We are working hard in California and Washington, D.C. 
to help you enact this bill into law.
            Sincerely,
                                             Mike R. Bowlin
                                                   Chairman and CEO
                                 ______
                                 
                        East Bay Municipal Utility District
                                                  February 16, 1999
Honorable Brian Bilbray
United States House of Representatives
1530 Longworth House Office Building
Washington, D.C. 20515
    Dear Representative Bilbray: On behalf of the East Bay Municipal 
Utility District (EBMUD), I am pleased to inform you that we support 
your H.R. 11, which would provide that California's cleaner burning 
gasoline regulations would apply in California in lieu of existing 
federal regulations as long as equivalent or greater reductions in 
emissions of ozone-forming compounds and toxic air contaminants are 
achieved.
    We believe your H.R. 11 would improve flexibility in the 
formulation of gasoline while preserving the stringent minimum emission 
standards in the Clean Air Act, so that gasoline refiners would have 
alternatives to the use of methyl tertiary butyl ether (MTBE). Your 
measure would strike an important balance in ensuring high standards of 
air quality while moving forward on alternative fuel formulations which 
may be less threatening to human health and drinking water quality.
    As you know, existing law results in overlapping application of the 
state and federal reformulated gasoline regulations. This creates a 
substantially reduced opportunity for gasoline refiners to take 
advantage of the flexibility in the California program's reformulation 
rules without falling out of compliance with federal regulations. As a 
result, compliance with the federal regulations is still required, 
despite the fact that the California standards have demonstrated 
achievement of equal or superior air quality benefits. Although the 
federal law and regulations do not require the use of MTBE 
specifically, the federal regulations do require the use of a fuel 
oxygenate. MTBE has become the oxygenate of choice because of its high 
octane rating, low production cost, and ability to readily mix with 
other gasoline components.
    We very much appreciate your leadership on this issue. Ensuring 
that gasoline consumed in California is formulated in such a way that 
there are minimized threats to drinking water quality and continued 
protraction of air quality is an important public health and 
environmental protection effort.
    Randele Kanouse, Special Assistant to the General Manager, is 
available to answer any questions you may have concerning EBMUD's 
position on H.R. 11. Mr. Kanouse may be reached at (916) 443-6948.
            Sincerely,
                                           Dennis M. Diemer
                                                    General Manager
                                 ______
                                 
                                               ARCO
                                    Los Angeles, California
                                                  February 17, 1999
The Honorable Tom Daschle
509 Hart Senate Office Building
Washington, DC 20510
    Dear Senator Daschle: Thank you for your recent letter on 
oxygenated fuels issues in California. I am pleased that you have 
underscored the importance of moving to resolution on the issues 
associated with the use of MTBE and the federal oxygenates requirement 
as applied to California. I am particularly encouraged that you are 
determined to work with all interested parties to find a resolution 
that will work in this state. Your leadership will surely make a 
difference.
    Based on your letter and the discussion that my staff had with your 
Legislative Director, it appears that we are close to a possible 
solution. ARCO was an originator of clean-burning gasoline and remains 
a strong supporter of the California and federal clean-burning gasoline 
programs. These programs have been remarkably effective in improving 
the air quality in California's urban areas and other urban areas 
across the nation.
    Your suggestion that Congress establish an advisory committee to 
conduct a thorough evaluation of the use of MTBE and alternative 
oxygenates in gasoline is sound and we agree. The California Energy 
Commission and the University of California have recently concluded an 
evaluation of the economic and health issues related to MTBE use in 
California. It would be very useful to conduct a more exhaustive study 
on the economic, health and environmental impacts of the use of 
oxygenates in the rest of the U.S. We suggest that the study be 
referred to a panel established under the aegis of the National Academy 
of Sciences.
    We also support your proposal that the State of California be 
allowed to waive the fuel oxygen requirement provided no deterioration 
in air quality occurs. As you may know, there is no risk to air quality 
in the event of a waiver since California's gasoline performance rules 
are as stringent as or more stringent than the federal counterparts.
    We would like to further discuss your proposal for a two-year 
waiver of the oxygenate requirement since it would not produce any 
significant changes in MTBE use. To substantially reduce the use of 
MTBE, refiners like ARCO must make modifications to refineries. Based 
on our experience, the time to get permits, design and construct the 
modifications of this sort would consume more than two years. But the 
real difficulty would be that we would not know which of the two 
alternative futures we would face: permanent repeal or reinstitution of 
the oxygenate mandate.
    Each path requires substantial modifications to refineries and 
capital outlays, but the two paths differ greatly.
    Next month Governor Gray Davis is expected to make a decision 
regarding the fate of MTBE in California fuel. Due to media and 
political pressures, the phase-out of MTBE appears likely. If MTBE is 
phased-out and the federal oxygenate mandate remains, ethanol is the 
only feasible alternative oxygenate. At first blush, this would appear 
to be a great boon to ethanol suppliers. However, we are concerned that 
an effective mandate for the use of ethanol in California on the same 
scale as the current use of MTBE would potentially cause a number of 
difficulties.
    There are several reasons for our concerns. First, ethanol shares 
some of the same physical characteristics as MTBE. It is extremely 
soluble in water--more so than MTBE--and is difficult to remove from 
water. Although it has a much higher taste and odor threshold than 
MTBE, water providers would likely have a similar response to its 
presence in drinking water supplies if MTBE is to be phased out, we 
clearly need a very thorough study to ensure that we are not exchanging 
one set of oxygenate issues for another.
    Second, large-scale, short-term demand for ethanol in California 
could produce supply shortages and price spikes. Gasoline and ethanol 
prices could rise substantially.
    Third, as noted above, if ethanol were the only option, refineries 
would have to be modified at substantial cost to deal with increased 
vapor pressure resulting from ethanol in the entire gasoline pool. Most 
of that investment would be wasted if at a later date the mandate 
disappeared.
    There would be new opportunities for expanded use of ethanol in 
California if MTBE were phased out and the oxygen requirement was 
eliminated. We think this is the right solution, and the one that will 
best serve all interests--including the environment, motorists, and 
oxygenate and fuel producers.
    We are very pleased that you have made the California MTBE issues a 
priority for the 106th Congress. We look forward to continuing this 
dialogue with you to find a cooperative solution.
            Sincerely,
                                             Mike R. Bowlin
                               Chairman and Chief Executive Officer
cc: The Honorable Brian Bilbray
   The Honorable Dianne Feinstein
                                 ______
                                 
                                            Chevron
                                          San Francisco, CA
                                                  February 10, 1999
The Honorable Tom Daschle
United States Senate
Hart Building, Room 509
Washington, DC 20510-0504
    Dear Senator Daschle:
    Thank you for your letter dated February 2, 1999 on the MTBE issue 
in California and your willingness to consider changes in gasoline 
specifications as possible solutions. As you are aware, this issue has 
been growing in intensity in California over the last several years. In 
December 1997, in response to our customers concerns, we publicly 
stated that we would work toward significantly reducing our use of MTBE 
in gasolines we make for California. Since that time, we have produced 
some gasoline with reduced MTBE content and have eliminated it entirely 
in some batches, for areas of the state where the overlapping federal 
oxygenate mandate does not apply (outside of the Los Angeles, San 
Diego, and Sacramento ozone non-attainment areas). We could do more 
immediately should the legislation sponsored by Senator Feinstein (S. 
266) and Congressman Bilbray (H.R. 11) become effective. As we 
testified before Congress last year, we believe this legislation will 
make it easier for both ethanol-blended gasolines and non-oxygenated 
gasolines to compete in the marketplace.
    I would like to respond to several issues you raised in your 
letter:
    First, you have suggested that California be allowed to waive the 
federal oxygenate content mandate for a certain period of time, by 
granting refiners the flexibility to sell either federal RFG or CARB II 
gasoline throughout California. We certainly support the flexibility to 
replace the federal RFG requirements with the CARB RFG requirements.\1\ 
This, in fact is exactly what the Feinstein/Bilbray bills do. As we 
testified last year, CARB RFG outperforms federal RFG in reducing 
vehicle emissions, and the CARB program is performance-based in one 
important respect where federal RFG isn't, the oxygen content. We 
continue to believe that this is the best approach for government to 
take, rather than mandating specific formulas.
---------------------------------------------------------------------------
    \1\ Although your letter indicates that either federal RFG or CARB 
II gasoline could be sold in California during the waiver period, we 
don't believe that was your specific intent. Gasoline that only meets 
federal RFG requirements would not be as clean burning as CARB 
gasoline--and thus would be unacceptable backsliding.
---------------------------------------------------------------------------
    However, limiting the time period to two years for refiners to take 
advantage of an oxygenate waiver provides little reason to change 
gasoline manufacturing practices by the industry. The modifications 
needed to refining, blending, and marketing operations to significantly 
reduce or eliminate MTBE would involve substantial investments that a 
short-term moratorium would not justify. In short a moratorium would 
only serve to postpone the tough decisions that must be made and 
further frustrate the people of California who are telling us and the 
political leadership of the state that they want action now.
    Second, you mentioned in return for this flexibility, no oxygenates 
would be phased out or banned. While we cannot respond for the state, 
we suspect the pressure will grow to phaseout MTBE in California. The 
issue is more complex than leaking tanks and two-stroke engines. MTBE, 
while a good gasoline blendstock, behaves differently from other 
gasoline components in the environment. It is highly water soluble, 
slow to degrade, and causes drinking water to smell and taste bad at 
extremely low concentrations. This means that even small discharges, 
such as spills by consumers, tank overfills, and vehicle accidents can 
result in MTBE contamination, which is more difficult to clean up and 
more likely to impact groundwater.
    Third, you discussed the idea of establishing a National Oxygenates 
Policy Advisory Commission (NOPAC) to conduct an intensive two-year 
evaluation of the use of MTBE and other oxygenates in gasoline. We 
would support additional steps which would further our collective 
understanding of this issue, since we believe issues will continue to 
arise regarding the national mandate.
    Finally, you mentioned you were hopeful there would be new 
opportunities for the expanded use of ethanol. As I mentioned earlier, 
we believe that gasoline with MTBE will be replaced with a combination 
of ethanol-blended and non-oxygenated gasolines in the marketplace. For 
one thing, oxygenates will continue to be needed in Los Angeles even if 
Senator Feinstein's bill were to become law, due to the need for carbon 
monoxide reductions in the winter. Ethanol will also be used 
voluntarily where its high octane and other favorable blending 
attributes make economic sense.
    I hope you will support the legislation sponsored by both Senator 
Feinstein and Congressman Bilbray, which has broad bipartisan support 
from the California delegation. The President of Chevron Products 
Company, Ms. Patricia Woertz, will be visiting Washington in the next 
few months, and would like to discuss this with you further, if your 
schedule permits. Thank you again for your letter, and your 
consideration of our thoughts on this issue.
            Sincerely,
                                                  K.T. Derr
                                              Chairman of the Board
cc: The Honorable Dianne Feinstein
   The Honorable Gray Davis
   The Honorable Brian Bilbray
                                 ______
                                 
                             United States Senate  
                          Office of the Democratic Leader  
                                        Washington, DC 20510-7020  
                                                   February 2, 1999
Mr. Mike Bowlin
Chairman
ARCO Corporation
Los Angeles, CA 90071
    Dear Mr. Bowlin: One of my priorities for the 106th Congress is 
responding quickly to the existence of MTBE in groundwater in 
California. The potential ramifications of this problem for both the 
environment and the future of the RFG program are immense, and I am 
determined to work with all interested parties to fashion a response 
that allows California to address its immediate contamination concerns 
while preserving the long-term benefits associated with the use of 
oxygenates in gasoline.
    I view discussions with California's elected officials, the EPA and 
industry as essential to the realization of this goal. Therefore, I 
particularly appreciated the time that a representative of your company 
took recently to discuss the California situation with my Legislative 
Director, Eric Washburn. I am hopeful that that meeting marked the 
beginning of a constructive dialogue on the issue of MTBE and 
oxygenates use in gasoline.
    While I appreciate ARCO's desire to eliminate the oxygenate 
requirement for gasoline sold in California, I remain a strong believer 
in the oxygenate standard's contribution to a cleaner environment, a 
stronger economy and greater security. There should be no mistake about 
my commitment to the maintenance of the minimum oxygen standard over 
the long-term in cleaner burning gasoline.
    Last year, I actively opposed bills to waive the oxygen standard 
permanently, because I felt that they do not address the root cause of 
what I agree is a very serious environmental problem in California, and 
because they would have sacrificed the many benefits associated with 
using oxygenates. It is my understanding that the primary sources of 
contamination in California groundwater are leaking underground storage 
tanks and two-cycle boat engines. Any long-term solution to this 
problem should focus on these sources.
    Senators Feinstein and Boxer have reintroduced legislation in the 
106th Congress to allow California to utilize non-oxygenated gasoline 
in RFG areas. I am sympathetic to their assessment of the urgency of 
the environmental threat posed by contaminated groundwater in their 
state and have suggested an alternative approach that will address this 
problem immediately while preserving the benefits of oxygenated fuels.
    Last fall, the EPA announced a series of steps designed to 
eliminate the pollution of water supplies by all constituents of 
gasoline, including MTBE. Since it will take time to fully implement 
those initiatives, I propose that the State of California be allowed to 
waive the oxygen requirement under certain prescribed conditions for a 
finite period of time. This interim approach will address the immediate 
environmental problem and allow us to reach the point where gasoline 
can be used without fear of water contamination.
    This compromise would, for a two year period (from date of 
enactment), grant to refiners the flexibility to sell either federal 
RFG or CARB II gasoline in California. No backsliding would be allowed, 
and no deterioration in California air quality would be permitted. In 
return for this grant of flexibility, no oxygenates would be phased 
out, or banned. In fact, I am hopeful that, in this environment, new 
opportunities would be found for the expanded use of ethanol.
    Given your concerns and the concerns of others regarding the 
continued use of MTBE, I also suggest that Congress establish a 
National Oxygenates Policy Advisory Commission (NOPAC) to conduct an 
intensive two-year evaluation of the use of MTBE and other oxygenates 
in gasoline. This panel would evaluate the effectiveness of oxygenates 
in cleaner burning gasoline, progress that has been made in leaking 
underground storage tank prevention, improvements in the efficiency of 
two-cycle engines, MTBE bio-remediation, the relative safety, cost and 
availability of alternatives to oxygenates, and other relevant issues. 
It would then make recommendations to the Congress prior to the 
reinstatement of the oxygen requirement in California in two years.
    The efficacy of RFG with oxygenates is undeniable. The EPA has 
called the RFG program one of the most successful air pollution 
reduction programs in history, and early claims that RFG would cost 25 
cents per gallon more than conventional gasoline have proven totally 
unfounded. RFG costs have averaged from 1 to 3 cents per gallon 
nationwide, much of the credit for which must go to companies like ARCO 
that have worked hard to provide cost-effective RFG to the American 
people. Today, four years after implementation of RFG, program 
supporters range from automakers to the American Lung Association. It 
is my intent to ensure that our economy and environment continue to 
enjoy the benefits of the minimum oxygen standard in cleaner burning 
gasoline for years to come.
    Again, thank you for your interest in this issue. I look forward to 
continuing this dialogue and finding a cooperative solution to the 
groundwater problem in California.
            Sincerely,
                                                        Tom Daschle
                                 ______
                                 
                              ARCO Products Company
                                    Los Angeles, California
                                                        May 5, 1999
The Honorable Brian Bilbray
Chairman, Subcommittee on Health and Environment
United States House of Representatives
Washington, DC 20515

Re: H.R. 11

    Dear Representative Bilbray: As you know, on May 6, the Health & 
Environment Subcommittee will hold a hearing on H.R. 11, your 
legislation that would allow California's reformulated gasoline (RFG) 
rules to preempt federal requirements if the state's rules achieve 
equal or greater emissions reductions. I am writing letters to all 
members of the subcommittee to encourage them to support H.R. 11 and to 
urge Subcommittee Chairman Bilirakis and Committee Chairman Bliley to 
move it through the Commerce Committee as quickly as possible and then 
urge Speaker Hastert to move it through the House of Representatives 
shortly thereafter.
    On March 25, 1999, Governor Davis signed an Executive Order phasing 
out the use of MTBE in California no later than December 31, 2002. 
Therefore, California urgently needs relief from the 2%-by-weight 
federal oxygenate requirement. Without relief, ARCO and other 
California refiners would have no choice but to use ethanol to meet the 
oxygenate requirement. While we do use ethanol in our gasolines in many 
areas during the winter, we could not use it in most of our gasoline in 
California without investing tens of millions of dollars to retool our 
California refinery. We are very reluctant to invest that capital for 
several reasons: (1) there are no air quality benefits associated with 
this expenditure, (2) gasoline vapor pressure limits in California make 
it exceedingly difficult to use ethanol in summertime gasoline even 
with refinery modifications, and (3) the oxygenate requirement may be 
eliminated soon after we make the investment. Instead, we would 
purchase gasoline and gasoline components on the open market to meet 
our customer's demands. Under this scenario, if we did not spend the 
money to optimize our CARB gasoline production with 2 weight percent 
ethanol, our gasoline output would decline by 15% to 30% during the 
summer. Since ARCO supplies about 20% of the gasoline in the state, 
California gasoline production would decline by 3% to 6%.
    California's most recent gasoline supply shortfall once again 
demonstrated that it is time-consuming and expensive to replace lost 
gasoline production from California refiners due to California's unique 
gasoline requirements and its geographic isolation from other major 
refining centers. The requirement to use a certain percentage of 
ethanol would further complicate California's gasoline supply 
infrastructure, since the ethanol necessary to meet the federal mandate 
would be transported to California primarily by rail cars from the 
Midwest.
    The ethanol industry will in fact make major gains in the 
California gasoline market without an oxygenate mandate. It has been 
estimated that about 44,000 barrels per day of ethanol would be used in 
California after MTBE is phased out. This represents about one-half of 
the total fuel ethanol currently produced in the entire U.S. and over a 
100-fold increase in ethanol usage in California today. ARCO expects to 
use about 9,000 to 10,000 barrels per day of ethanol, assuming 
reasonable price and contract terms, even without a federal oxygenate 
requirement.
    Enclosed is a paper that provides further detail on why California 
needs urgent relief from the oxygenate requirement.
    Thank you very much for your continued hard work to get H.R. 11 
enacted into law.
            Sincerely,
                                            Roger E. Truitt
                                                          President
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